The Greek Tragedy and a Chinese Fire Drill

Greece had been edging towards an exit of the Eurozone.  Global market risk, while elevated from the news, had generally suggested that the direct outcome of this event would be limited / falling well short of anything that would constitute a genuine crisis.  China, on the other hand, has emerged as a much more substantial issue with the weakness in the local Chinese market spilling into Hong Kong and global equity markets. Until matters stabilize in China this will certainly continue to be the main driver of financial markets, and even the impact of a favorable end to the Greek mess would likely be overwhelmed by a continuation of the intense liquidation of Chinese equities. Greek Tragedy; The Greek people voted overwhelmingly against accepting the June 25 plan offered by its creditors. The “No” vote doesn’t necessarily mean Greece will exit the Eurozone but the potential had increased. This was a shock to the markets in that it was assumed the people would vote yes. Eurozone leaders made Greece surrender much of its sovereignty to outside supervision in return for Read on! →

2014 Market Recap

The US economy started 2014 slow but accelerated throughout the year. US GDP growth accelerated after a negative 1st Quarter to reach 4.4% and 5% GDP growth respectively, in the 2nd and 3rd quarters. Plunging oil prices, low inflation, low interest rates, growing consumer confidence and a strong US dollar all fueled stronger US growth. US investors continued to climb a wall of worry during the year which included; the early 2014 winter storms, , Russia invading Ukraine, the end of Quantitative Easing (easy monetary policy), mid-term elections, Ebola contagion and the collapse of oil (good for consumers, bad for energy companies). Most experts think the Federal Reserve will start raising rates this year but rate hikes in 2015 will only make the Fed “less loose”, not tight in historical terms. We believe a continued strong dollar and productivity growth, when coupled with a banking system that is maintaining tighter lending standards, signals that inflation should remain subdued. Looking Ahead into 2015 The famous investor Sir John Templeton pontificated once that “bull markets are born in pessimism, grow on skepticism, Read on! →

“Data Dependent” vs. “Calendar Based” Timing for The Federal Reserve

Liz Ann Sonders from Charles Schwab & Co., Inc. shares key takeaways from the Fed meeting this week: Key Points The Fed kept its statement largely intact relative to July’s; opting to retain the much-ballyhooed “considerable time” phrase. It was confirmed that QE’s tapering would be concluded by the end of October; while the Fed’s rate expectations were increased. Yellen took great pains to explain that “considerable time” should not be considered calendar-based guidance.   Click here to read the full summary.        

MARKET-VIEW 2ND QUARTER 2014

Portfolio Recap The 2nd quarter was marked by very low equity market volatility and steady, positive performance across all major indices.  Our diversified approach to managing investments continued to focus on limiting downside equity risk through a bias for value-oriented, high quality, dividend paying domestic and international equities.  In the short term, volatility and potential for loss has been further mitigated by allocating fewer investment dollars to US Small Cap stocks.   They have experienced significant gains over the past several years and in our opinion, have been richly valued for quite some time.  This is why we reduced our positions in the latter half of 2013, well in advance of Fed Chair Janet Yellen’s remark about the category valuations being stretched. Hybrid investments, led by preferred stock, global bonds and energy infrastructure, had a strong quarter validating our belief the asset class can perform well during strong equity markets.  Our consumer-focused emerging market investments slightly under-performed during the quarter but exceeded our expectation on a risk-adjusted basis.  Despite headwinds created by the Federal Reserve’s plan to stop tapering and end Read on! →

It Pays to Allocate

U.S. equity markets have struggled to gain ground year-to-date, posting a meager 2.7% return by mid May. Still, the S&P 500 has slowly climbed to an all-time high and a few weeks ago peaked over the 1,900 level.  Over the past year, success in the equity market was supported by a pickup in economic activity and a dampening of tail risks globally.  However, going forward investors should not be surprised by mean reversion in both annual returns and volatility. As shown by a recent JPMorgan chart of the week, the maximum drawdown (intra-year decline) so far this year was -5.8%.  This was also equal to the largest pullback in 2013.  The average annual drawdown since 1980 put these pullbacks in the -14% range.  Despite these annual pullbacks, the S&P 500 index still returned to investors an annual total return of 9.9% since 1980. What does this tell us about stock investing?  It reinforces the notion of diversifying investments across all asset classes.  It pays to have a portion of your portfolio allocated to equities despite the volatility associated with them. Equity markets Read on! →