2012 is officially in the bag. Stocks rallied hard on the last trading day of the year with the hopes of an 11th hour deal to ameliorate the impact of the “fiscal cliff.” But as traders love to say, ‘hope is not a valid trading/investing thesis.’

It will be interesting to see what stocks do over the next few months to follow up a pretty decent performance over the past twelve. Typically, the first year of a new presidential term is not the greatest for stocks. The theory goes that election years are usually good as the incumbent party is willing to pull out all the stops to try to retain their hold on the white house. The next year (or two) is not nearly so beneficial to investors as the dry powder has been spent. Perhaps more importantly, it’s in the president’s best interest (at least for his legacy and reelection odds) to paint a pretty dreary picture so that he can ride to the rescue before the next election. Call me cynical but this is something that I think is more than mere coincidence.

Still, the uptrend for stocks that began in 2009 is still very much intact (see the chart below). What’s more, individual investors have yet to embrace the stock market fully again. Major tops are usually not made before this happens (remember 2000 and 2007). For this reason, I think Laszlo Birinyi’s call for the stock market to hit an all-time record high in 2013 is worthy of paying some credence. I haven’t heard many other strategists this bullish (though I don’t really pay attention to any of them anyway) and that, in itself, makes it intriguing to me. But I also agree that if individual investors were to get back into the market in 2013 we could easily see new highs for stocks. This, in turn, would suck even more money into the market from those who missed the runup including the proverbial “final buyer” who would mark the actual price high with his buy order (I’m sure you know one or two of these guys).

This all makes for an interesting scenario. I believe it’s worth considering these things but, just like hope, it’s not a valid investment thesis. It must be looked at in the context of the important stuff. Speaking of which, stocks are pretty much fully valued in my estimation so it makes little investment sense to own more than a prudent stake currently. Long-term bonds at current prices are literally “certificates of confiscation” guaranteeing buyers that they’ll lose money one of two ways: If rates go up they’re hammered and if rates don’t go up they’ll lose money to inflation. There are still plenty of great opportunities in real estate and I still believe that a token gold (GLD) position is wise considering the risk that the Fed continues to devalue our currency.

To dig deeper into each asset class, I still feel Apple (AAPL) is an unique investment opportunity and investors should have an overweight position (it’s about 2.5% of the index). There are also income opportunities like Annaly Capital Management (NLY) and Kinder Morgan Energy Partners (KMP/KMR) that investors ought to consider. I intend to delve a bit deeper into those in a future post. Finally, Chesapeake (CHK) and Devon Energy (DVN) look like an attractive way to own Natural Gas. Chesapeake would suit more aggressive accounts; Devon is a more conservative play.

In terms of opportunistic trading, I think gold (GLD) is good for both the long and short-term at its current level as is Apple (AAPL). As for stocks, I’m looking to use a push over S&P 1475 to take off some exposure, either by selling or putting on some hedges. We may see 1575 in 2013 but it’s never a straight line higher and if animal spirits surge before we see those highs I’ll turn cautious as I always do. Technically, bonds are in no man’s land and there’s not really any other trading vehicle that stands out to these eyes.

I wish you a happy, healthy and wealthy 2013.

Chart of the Day:

sc (2)All in all, 2012 was a good year for stocks. The S&P 500 gained over 10% extending the bull market that began back in the early Spring of 2009. The index remains above its long-term moving average (blue line) indicating that the uptrend is still intact. It will be interesting to see if it makes a run at those 2000/2007 highs.

Hit the Links:

  • Why Isn’t the Thirty-Year Fixed-Rate Mortgage at 2.6 Percent? (NY Fed)
  • 34 Things From 2012 That Made You Feel Old (BuzzFeed)
  • Birinyi: Capitulation will push stocks to record highs in 2013 (Bloomberg)
  • How The Fed’s Flawed Computer Models May Cause Major Problems (WSJ)
  • Why does the FAA insist on perpetuating the myth of the danger of mobile use on flights when they have ZERO evidence? (NY Times)
  • Ryan Block (Gdgt co-founder and former Editor in Chief at Engadget): Why I’m Quitting Facebook and Instagram (NY Times)
  • If you have over $250k on deposit at a bank you should know it loses its full FDIC insurance tomorrow (NY Times)
  • Hulu Names Top 5 SNL Sketches of 2012 (Mashable)
  • MUST READ: Dave Barry’s Year in Review (Miami Herald)
  • What Separates Successful People From Unsuccessful Ones (Pragmatic Capitalism)
  • Keep your energy level up all day (CNN Health)
  • “It takes a lot of pessimism to think an investment certain to lose money is an investment worth making.” (NY Times)