You’ll notice that there are a lot more one-month negative streaks than positive streaks. Looking at the data, I noticed that during longer streaks of positive returns, there might be a couple of one month periods of negative returns. It’s also interesting to note that the longest negative streak is 9 months (-32.78% over that 9 month period) and that it only occurred one time (January 1974 – September 1974).

The longest positive streak was 15 months from March 1958 through May 1959. The S&P returned 50.10% over that 15 month stretch.

I’m working on a follow-up post that will look at the returns during these streaks. Stay tuned…

The graphic should be pretty self-explanatory. The bottom line is that positive and negative months are random. Good luck trying to find a pattern.

The best month, based on geometric average total return is December. The worst month, based on geometric average is September. The most volatile month, based on standard deviation, is April (April just happens to be the second best month based on geometric average total return).

Now, here are the numbers for January 2012 (click on the graphic for a larger version):

January’s 4.48% return for the S&P 500 Index was it’s best return for January since 1997. The question is: What will it mean for the rest of the year?

I don’t read the annual Barron’s Roundtable for stock tips. Rather, I read it to get a sense of the bigger picture. Here are a few quotes from Part I of this year’s Roundtable.

Bill Gross: When money yields nothing, banks won’t lend it. If a bank can keep money on deposit with the Fed at 25 basis points [a quarter of a percentage point] or lend it at 27 basis points, the yield on a two-year Treasury, why take the two-year risk? The combination of low return and high risk basically freezes the system. The global system is trying to delever and central banks are trying stop that process and pump trillions of dollars in. In a bimodal world, we could have reflation in 2013-14, or deflation in 2012. The probability of both is high.

Then there is this exchange comparing today’s situation to the late-seventies early eighties:

Schafer: Most of us have been in the business long enough to remember when the Aug. 13, 1979, cover of BusinessWeek declared the death of equities. The next year the market was up 13%. In the next five years it was up more than 50%. In the next 10 years it rose more than 250%. There is a lot of pessimism around, and a lot of opportunity.

Witmer: It is astounding that people will trample each other to get a cheap TV, but when shares of great companies get cheap, they sell them. It makes no sense.

Zulauf: People don’t care if the TV gets cheaper later, but they care when their stocks get cheaper.

Black: The U.S. doesn’t have the same financial flexibility today that it had in 1979 and 1980. Government debt is 100% of GDP, compared with 32.6% then. The huge debt overhang is a ticking time bomb.

Gross: The biggest difference is that long-term Treasuries were yielding 14.5% in 1981, and now they yield 3%. The federal funds rate was approaching 20% then, and it is basically zero now. To do well, stocks and other asset classes have to fight a tremendous head wind of overvaluation in the price of money.

That’s all that stood out from Part 1.

The point of his piece is that bond yields will most likely fall below inflation for years to come due to excessive debt and low interest rates and that investors should take a look at their portfolios and make some changes. He recommends…

I think there are two reasonable strategies that investors should consider. The first is to look for bonds with moderate credit risk where the spreads over U.S. Treasury yields are generous. The second is to consider substituting a portfolio of dividend-paying blue chip stocks for a high-quality bond portfolio.

For the first, he recommends tax-exempt municipal bonds that get reliable revenues:

The first class is tax-exempt municipal bonds. The fiscal problems of state and local governments are well known, and the parlous state of municipal budgets has led to very high yield spreads on all tax-exempt bonds. Many revenue bonds with stable and growing sources of revenue sell at quite attractive yields relative to U.S. Treasurys.

For example, the New York/New Jersey Port Authority gets reliable revenues from airports, bridges and tunnels to support its debt. Long-term N.Y/N.J. Port Authority bonds currently yield close to 5%, and they are free of both federal and state and local taxes in the states in which they operate.

He also recommends foreign bonds in countries with low debt-to-GDP ratios like Australia.

Finally, he recommends investors consider a portfolio of bluc-chip stocks with generous dividends. One stock he highlights is AT&T.

All of this makes me wonder:

At what point does portfolio tweaking become market timing?

Here are the latest monthly and year-to-date returns for the Dow Jones Industrial Average, S&P 500, S&P Midcap 400, S&P Smallcap 600, MSCI EAFE, MSCI All World ex. USA, MSCI Emerging Markets, Barclays Aggregate Bond Index, Oil, and Gold. Enjoy and please share.

These posts NEVER generate any discussion but I still think they are interesting. Anyway, today’s post expands on last week’s findings. I took the same graphic from last week and expanded it to include the best and worst returns for the monthly return ranges, which helps put the average returns in perspective. For the ranges that only had one occurance, I went ahead and just repeated that one occurance’s returns for both the best and worst returns.

Here in the U.S., our broadest models (both ensembles and probit models) continue to imply a probability of oncoming recession near 100%. It’s important to recognize, though, that there is such a uniformity of recession warnings here (in ECRI head Lakshman Achuthan’s words, a “contagion”) that even an unsophisticated, unweighted average of evidence indicates a very high likelihood of recession.

He goes on…

…nearly every traditional asset class is priced to achieve miserably low long-term returns. While Wall Street remains effusive about stocks being cheap on a “forward operating earnings” basis, that conclusion rests on the assumption that profit margins will sustain record highs more than 50% above their historical norms into the indefinite future. That assumption is terribly at odds with historical evidence (as it was in 2007 when Wall Street was gurgling exactly the same thing). Given that stocks are a claim on a very long-duration stream of deliverable cash flows, our money is clearly on more thoughtful and historically reliable valuation methods.

Oh joy…