Quick Review Of The 2011 Financial Markets

And A Quick Look At The Potential Impact, Going Forward, On A Public Company’S Key Service Providers

The big news in 2011 was a level of stock-price volatility that was literally off the charts: a true roller-coaster ride for many of our most widely held – and previously most immune stocks. Volatility is good, of course – if you are a buyer at the lows – or if you are a seller at the highs… But it is basically a bad thing for long-term investors – who may have an urgent need to get more liquid just as stocks are at their low points. Employee and retiree investors, and ‘affinity group investors’ too are especially vulnerable here: They run the biggest risk of seeing years of profits, and reinvested dividends, go straight down the drain if they have to cash out in a hurry. So volatility is a major turnoff – that has contributed big-time to a loss of individual investor interest in owning stocks. We think it spells major trouble for everyone in the game, going forward, since, so far, Corporate America is doing nothing to counter the trend.

A very bad, and related development we think, is the way stocks moved together in 2011 – almost without regard to industry sector, or to relative performance – thanks to trading strategies on the part of large “investors” that treat stocks more like commodities, or baskets of assets than like individual stocks – and also, we say, to flash- trading strategies that create totally fictitious levels of supply and demand – with no real money behind the rapid-fire trades.

The craziest thing about 2011 is that all the trading and all the volatility essentially came to naught: The S&P and Nasdaq indices were basically flat at year end – and while the Dow gained a seemingly respectable 5.5% – it was basically due to two stocks with heavy weightings in the index – so if you did not own them, tough cheese.

Dividend paying stocks did way better than average – and helped to moderate stock-price volatility big-time in the bargain – as we’ve been pointing out in our recent rants about buybacks vs. dividends. Corporate cash reserves are still at record highs – and dividend payouts are currently at or near record lows. But suddenly, a lot of pundits are predicting that 2012 will be the “Year of the Dividend” – which we hope – and actually think will prove to be correct: A ray of hope for long-suffering long-term investors – and a chance for some decent and much needed economic stimulus too. And a tiny ray of hope for TAs and DRP/DSPP providers – at least the larger ones, who are have most of the big dividend payers as clients – even though we believe that many individual investors have been scared away from owning individual stocks by all the antics we’ve seen – many of them permanently so.

IPOs and “deals” started off strong, but basically fizzled by mid-year, thanks to uncertainties in Europe…but throttled in larger part, we think, by Congressional gridlock on the taxing, spending, ‘stimulus’ and deficit- funding fronts: More bad news for TAs, proxy solicitors, law firms and stock exchanges…But, good news for service providers, there are at least 200 US companies that are on standby to go public as markets improve, and reportedly, roughly 36% of public companies say they are looking to make acquisitions in 2012.

Some good news for all these fine folks – and for shareholders too – has been the upsurge of spin-offs, which in 2011 totaled over $280 billion worth – a whopping six times the value of 2010 deals – and brought us all some nice new companies – from Conoco-Phillips, Fortune Brands, ITT, Kraft and Motorola to name a few. Optimists think there will be more such deals to come in 2012, since most of this year’s deals have fared well. But all in, we think the number of new companies in 2011 vs. the number that merged or went broke will turn out to be a wash at best for us service providers – and 2012 does not seem to be shaping up to be much better…unless, of course, the economy continues the slow but steady improvements we’ve seen of late.