2011 Performance Comparison Chart

A quick look back on the year that was (via comparison chart) shows how 2011 has been a year of two halves. First half (prior to July 25 week) consisted of fairly close performance by bonds and equities, but after that investors went on a rout. You can see that long-end US treasuries outperformed by the widest margin, while corporate bonds and dividend-paying large caps beat the broad stock  indexes as well.

Many say that market made no sense in 2011, with correlations at nearly 1 on everything, clearly seen on the chart below. But I think that financial market is not broken at all. It had to deal with many unexpected obstacles in realm of risk-on/off environment, combined with Fed's treasury market  intervention, and occasional  shenanigans of HFT. In the beginning of October I became more constructive on the market and disconnected from the bear crowd, which is still stuck in "2008 all over again" scenario. Corporate bonds and dividend-paying large caps have recovered nicely, with DJU, DVY, and LQD now above where they traded before the rout began at the end of July. This is very different from what happened in 2008, when everything corporate related got demolished due to much weaker balance sheets. 

If you want to share your views on what may happen in 2012, do not hesitate to write your comment here.

click on chart to enlarge