Where Does our Asset Allocation Model Stand as we Begin 2012?

I'm sure by this time you've heard "Happy New Year" a thousand times, but I really mean it.  It is not just a greeting to all I see, but a sincere delight that we're entering a Happy, Happy New Year.  As far as I'm concerned, any year that the Dow Jones Utilities is the best performing index of all the major indices, I'm delighted to see it pass.

I've been blessed with a lot of good years, but this country (and this world) has been in a major evolution since 1989, and the stock market has spent the last 14 years in a major evolution that appears to be ready to develop a new personality that is based on free enterprise.

Early in my career, it became evident that nobody can see the future results of the panics by reading the headlines.  So over the next 20 years, it became very obvious that the stock market rises and falls based on this infrastructure of three primary pillars - Psychology, Monetary and Valuation.  For the next 23 years, NOTHING changed to dispute that basic theme.  But in 1997, the US stock market (and economy) started that transition from being almost totally dependent of US conditions to one of a universal concept.  In 2001, that trend escalated, and in 2004 it really changed the world of finance.  Then, we got the message as 2008 brought the world's economies (and stock markets) to their knees.

Since then, we have worked extensively to update the barometers that gauge Psychology, Monetary and Valuation conditions to adapt to the global flat world that with live in.  We also added a new pillar called our Market Trend Analyzer, which you can read more about here.  Today, we start the new year with a combined Asset Allocation Model that is sending us the signal of Psychology at P3, Monetary at M1 and Valuation at V1, which is a positive message.  However, if your vision is still so focused mainly on risk (and in truth, almost everyone falls into this category), we always have our Market Trend Analyzer standing guard.  Yet today, it remains in its Investment Phase, despite the turmoil we witnessed in 2011.

So...2011 was not a pleasant experience, but we are entering 2012 with an infrastructure that is rock solid.  What will the world look like 20 years from now?  I'm not sure I'll be around to see it, but I would bet that it will be a massive change for the better from today as the disciplines of the market force the removal of as many of the productivity destroyers as possible.  I would also bet that the US will lead this parade.

My sincere prayer for you and yours, and for me and mine, is that we are entering a Happy New Year.  I'm excited and can't wait to see what this year brings.

Don Hays

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