10 Financial Blessings Of 2010

By Stephen D. Simpson, CFA | January 05, 2011 AAA
10 Financial Blessings Of 2010

While there was plenty of bad news in 2010, it might surprise some to realize that there was also a lot of good news. It is human nature to focus on the negative - the dark and scary things that can hurt us - but it can be dangerous for investors to tilt too far either to optimism or pessimism. With that in mind, let's review some of the good news of 2010. (Find out where to turn when looking to invest in a tumultuous market. See Industries That Thrive On Recession.)
IN PICTURES: Top 10 Financial Blessings Of 2009

The Markets Continued to Rebound
For equity investors, 2010 was another strong year. While the S&P 500 and the Nasdaq both came up short of 2009's bounces of the bottom, growth of nearly 13% and 17% respectively goes down as a very solid year and an above-average performance.

The Economy is Slowly Improving
There is plenty that is still not right with the U.S. economy - unemployment is too high, wages are not moving, housing is a mess and consumer confidence is shaky. However, the economy continues to claw its way back. Industrial activity picked up throughout 2010, rail traffic remains strong and corporate profitability is on the upswing.

Disaster Averted in Europe
At its worst, the sovereign debt crisis of Europe heralded the end of economic cooperation in Western Europe, the return of dog-eat-dog "begger thy neighbor" economic policies and the collapse of major European financial institutions. Luckily, officials swallowed hard and decided to bail out their banks and pass the costs to their citizens. Time will tell whether austerity programs in Greece and Ireland have their intended effect, and whether Spain, Portugal and Italy avert trouble, but the situation has at least calmed down for the time being.

Low Interest Rates … for Some
For borrowers with pristine (or at least very clean) credit, 2010 was a year of great opportunity. People who wanted mortgages saw some of those lowest rates in living memory. Likewise, corporations had the opportunity to refinance more expensive debt and potentially fund years of future growth at very appealing prices.

Fear and Uncertainty Have Not Left
It may seem odd to list "fear" as a financial blessing, but there is a curious coincidence when it comes to bubbles and economic troubles - they seldom happen when everybody is watching for them. Consequently, and perhaps contrary to common sense, the widespread fears of inflation and a double-dip recession are likely providing a useful counterweight to the economy recovery. Rocketing back to former levels of prosperity carries the risk of people forgetting the lessons of the Great Recession and dismissing it as an "aberration". A little fear is healthy, and suggests that this recovery may not overextend itself anytime soon.

Global Growth Continues Apace
While the U.S., Western Europe and Japan sputtered along for 2010, many regions of the world continue to see strong economic growth. Major emerging markets like Brazil, China, India, Indonesia, Malaysia, Turkey and Vietnam are all on pace for mid-to-high single-digit (or better) GDP growth in 2010. With this growth comes a better standard of living, expanding middle classes and strong stock markets.

Financial Regulation
Greater government involvement in business affairs is also a mixed blessing, but there is little question that the U.S. Government was negligent in ignoring some of the problems that led to, or at least exacerbated, the housing bubble, credit crunch and recession. Some of the government's moves in 2010 are a positive step forward. Consumers will be afforded more protection, larger institutions will be more closely monitored and regulators will have the authority to step in and regulate more of the system (including swaps and the fees that banks can charge to consumers and merchants). History suggests that the next problem will come from an entirely unexpected source (who knew much about credit default swaps in 2000 or the internet in 1990?), but at least the government is trying to avoid another "too big to fail" crisis.

iPad Mania
Apple's (Nasdaq:AAPL) iPhone was one of the most successful consumer electronics product launches ever, and the iPad may yet surpass it. While some may regard the success of Apple's offerings as a sign that consumers never learn and that they can be coaxed into over-spending for unneeded features with elegant design and catchy advertising, others see it as a sign that the market will continue to reward innovative companies. All in all, it seems like a very good thing that an American company can develop a product that tens of millions of people are willing to pay hundreds of dollars to own.

GM and Ford do Better than Survive
General Motors and Ford both undoubtedly benefit from relatively easy comparisons, but both companies are on firmer footing today than at the beginning of the recession. Not only does the auto industry employ roughly 3 million people (including those businesses and industries that serve the automakers), but it is a major consumer of commodities, a major client of transportation companies and a large source of tax revenue. Apart from that, the recovery of the automakers seems to be playing a role in generally easing people's view of the economy and the efficacy of the government's bailout efforts, as public confidence would have been sorely tested by another major business failure. (Ownership plays a key role when companies go public. Find out how, in IPO Lock-Ups Stop Insider Selling.)

China's Rise
Without a doubt, there are many who will see nothing positive in China's ascendance to the second-largest economy in the world and its growing willingness to flex its economic muscle. Not only is it grating to many Americans to hear Chinese officials harangue their American counterparts on economic discipline and propriety, but moves like restricting rare earth exports are a direct economic threat. And yet, unquestioned dominance seems to inevitably lead to complacency and decline, so a strong and energetic rival may be precisely what the United States needs to keep people on their toes and hungry to improve. As a country that generally welcomes and embraces internal competition, the United States should welcome the rise of a new rival and the challenges it represents. (Loosening labor restrictions has both good and bad effects for a country and its workers. To learn more, refer to The Economics Of Labor Mobility.)

IN PICTURES: 10 Biggest All-Star Bargains Of 2009

The Bottom Line
Bad news will always command the headlines, but it is hard to consistently make money by being a pessimist. The best performance in the stock market is usually tied to good news and those companies that are doing better than expected, so it probably makes sense for investors to approach 2011 with a mind toward looking for the good news that will come in the year ahead.

For the latest financial news, see Water Cooler Finance: Goodbye 2010 (And Good Riddance?)

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