Founder & Chairman
The weekend produced some interesting story lines, but when all was said and done, things could have gone a lot worse. It appears the Greek political situation got a little better as the pro-bailout/stay in the Euro-zone group won, paving the way for further negotiations and discussions. Had they lost, Greece may have left the Euro-zone and ultimately defaulted on all the borrowed Euros they owe. Suffice it to say, we’re glad that didn’t happen. Despite the somewhat positive election results, Monday’s market was mixed as the attention turned to Spain and Portugal as it’s clear they are the bigger problem. Needless to say, the saga continues. We expect the headlines to continue to include economic problems in Europe for many months.
Presently, all eyes are on the Federal Reserve meetings this week, as speculation is mounting that some form of further monetary easing is in the works and might be announced on Thursday. The combination of problems in Europe and a currently slowing economy in the U.S. has the central bankers a wee bit nervous, pushing them towards taking action. It appears the U.S. economy could already be in a recession, although the numbers may not reflect it for a few months. Unemployment has risen as of late, consumer spending is starting to show signs of a slowdown and the stock market has plodded along in a sideways trading range for a couple of months now. Those are about all the excuses the Fed needs to take action, and it’s likely they will.
The question is: what does this mean for investors? If we assume that another round of easing is in the works, either now or in the near future, then certain asset classes would likely benefit more than others. In my opinion Fed action would probably be better for stocks than bonds. Interest rates are hard to call here, as they could literally go either way, depending on how much worse the economy gets. The Fed won’t raise rates any time soon, however, if the U.S. takes on more debt, it could push rates higher. If the U.S. were to experience a credit downgrade, again rates could go up. If the economy doesn’t get a whole lot worse, Europe stays in the headlines and the next Fed package is modest, then rates could stay low. The best approach in my opinion is to hedge and not place too much emphasis on a particular outcome.
We have updated our models to reflect the current market conditions, and have accounted for some what-if scenarios that may come to pass. We remain more defensive, but are looking to potentially take advantage of certain opportunities that might arise as a result of Fed action. The environment will likely remain challenging and we continue to consume as much research and information as we can. We have taken a much more proactive approach to making changes as new information becomes available, and having more experience in this “new normal” should help as well. As always, if you’ve authorized us to make the changes via the discretionary program then we have already updated your portfolio. If you have not given us authority to make changes via the discretionary form you will need to send us an email or call the office to have your portfolio updated. Many thanks for your continued trust and confidence.
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