Will History Repeat Itself in 2013?

By The Sizemore Letter

Global equity markets finished 2012 with a bang, and the S&P 500 ending the year up 13.4%.  But what you might have forgotten is that virtually all of those gains came in the first quarter.  The S&P 500 rose 12.0% in the first three months of last year and only managed to squeak out another 1.4% in the nine months that followed.

Why do I bring this up?  Simple.  I don’t want you to see the 2013 monster opening-day rally and draw the wrong conclusions.

I say this as a market bull.  Overall, I do expect 2013 to be another profitable year.  But I also expect it to be another year marked by political drama—both in Washington and in the Eurozone—and the market volatility that comes with it.

Remember, this Fiscal Cliff deal solved nothing.  It merely postponed a bigger debate about the debt ceiling by two months.  And both of these are minor compared to the real fiscal crisis coming, which is the retirement of the Baby Boomers and the stresses this will put on Social Security and Medicare.

On the other side of the Atlantic, the threat of a Eurozone collapse has receded, at least for now.  But Europe’s stabilization has rested largely on two Italian men named Mario—ECB president Mario Draghi and soon-to-be ex-prime minister Mario Monti.

I’m not too worried about Mr. Draghi; after dithering for months, he has finally managed to instill some confidence in the euro.  But frankly, I’m terrified of what might come after Mr. Monti leaves office.  Monti was the first adult to lead Italy since World War II, and he has almost singlehandedly calmed the bond markets into financing Italy’s gargantuan debts at a reasonable rate.  But what happens when he leaves…and the infantile political theatrics start up again?

I guess we’ll have to see.

In recent weeks, I’ve recommended that investors buy income-producing master limited partnerships and dividend-paying (and raising) stocks.  Today, I’d like to tell you how to incorporate these into a larger trading strategy for 2013.

In a choppy, sideways market, there are two ways to make money.  You can actively trade, buying low and selling high, or you can get paid via a consistent dividend stream.  I recommend a combination of the two.

In a moderately aggressive portfolio, put roughly 60% into “core” holdings that you are content to hold on to through any volatile rough patches. This is where I would place $VIG and $AMJ, the two ETFs I recommended in late 2012.  It would also be a good place for REITs and other income-oriented plays.

With the remaining 40% of your portfolio, trade to your heart’s content.  Go long, go to cash, or even go short.  This is where I would place more speculative bets, such as emerging markets or stocks that you are trading as momentum plays.

Have a safe and prosperous 2013, and stay tactical!

This article first appeared on TraderPlanet.

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