TOTD - XMAS - 2009

December 23, 2009

If 2008 was characterized as Annus Horribilis, 2009 might be considered Annus Conrectus. While we have not returned to the halcyon days of yore, the situation is greatly improved. Of course, as Rahm Emanuel pointed out, in different circumstances, a crisis is a terrible thing to waste and those investors who took advantage of the fear that spread through financial markets a year ago were very well rewarded. Even if one did not, but only stayed the course, one, still had a pretty good year, with the S&P 500 up 23.8%. However, the index is still 10.7% below where it was on the Friday before the Lehman bankruptcy, suggesting, at least to me, that markets are not extended.

The rally this year has been accompanied by a decline in volatility. The VIX ended 2008 at 40 (down from 85 in September); yesterday it closed at 19.54, the lowest it has been since the Lehman bankruptcy. In December 2008 there were ten days when the Dow Jones Industrial Averages traded up or down more than 1.5%. (Again, this was down from 17 days in October of that year, another indication that fear of a credit collapse had already moderated.) So far this month, there have been no such days. Should December continue in this manner, it will be the first such month since the first half of 2007.

None of this has any predictive possibility for 2010; nevertheless it feels better than a year ago, even if opportunities for investment are not as great today as they were a year ago.

Nest week I plan to issue my year-end Market Note. I appreciate everybody’s forbearance with my scribblings in 2009.

I have attached a photograph showing ten joyful reasons why Caroline and I are smiling, as this year comes to a close; for the nonce I wish everybody a wonderful Holiday and a healthy and happy New Year!