A Final Thought About 2010

It was a crazy year in the market.  We wound up being up on the year.  At the same time, the dollar was higher on the year.  Before anyone gets too optimistic, half of the gain in 2010 happened in December.

SPY Stock Chart by YCharts

Over the course of the year, we had the flash crash, several European melt downs, and the election. Once it became apparent that Republicans, and more specifically Tea Party Republicans, were going to control the House, the market firmed and then rallied.

Another interesting thing to look at, despite central bankers efforts, their ability to move markets is limited. The Japanese Central Bank tried to devalue the Yen in May, but it didn’t happen. The Yen got stronger. The US Federal Reserve tried its QE2 program, and interest rates rose along with strength in the dollar.

Markets are smarter than any one entity or individual.

We received the meaningless Dodd-Frank bill this year. It remains to be seen how regulators fill in the blanks, but the new law gives them plenty of virgin territory to plow. The way they use this virgin territory could create more imbalances and excesses than any market action. Markets respond to incentives. I am not hopeful that our regulators know how to set those incentives up to create the best market for everyone. As Barry Ritholtz said at The Reformed Broker’s blog today, “despite all of the talk about Democratization of investing, Wall Street primarily serves only the very wealthiest Americans. And that is a shame.”

Have a Happy New Year. Godspeed to you and your family.