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Market & Economic Brief
November 19, 2008
After attempting a rally earlier in the month, U.S. stocks broke recent support levels and established fresh lows. Commodities and World REITs have also found new lows. Many international stock markets are still maintaining previous support levels. Intermediate term U.S. treasuries continue to rally in a flight to quality. The near term bias has again turned negative for stocks.
The weekly leading and monthly coincident indexes we follow continue to weaken, suggesting more trouble ahead for the U.S. economy. Many European countries continue to report deteriorating economic conditions as well. China reported a dip in October retail sales but consumer spending has held up better than many other parts of their economy.
Producer costs fell a record 2.8% in October, led by a huge decline in energy prices. Future inflation indicators we track also continue to decline.
The Nat’l Association of Home Builders fell to its lowest level since 1985 in November. Home prices declined in 4 out of 5 cities during Q3. The FDIC has proposed using $24 bil. of the TARP funds to help stem foreclosures. The leading home price index we track rose slightly for August (the latest data available). Additional increases may signal a bottom in housing prices.
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Growth Strategies
We believe a well designed growth strategy needs to have a preservation of capital component. We address the preservation component with specific investments held in portfolios as well as how the account is allocated toward growth investments.
In terms of the preservation component, it is our job to monitor economic data, corporate earnings, debt markets, stock fundamentals and other metrics to guide our overall view of the investment landscape. We then compare our economic information with asset performance data.
Generally markets are in an upward trend and we are able to maintain our investment allocations with few changes. However, our strategy is designed to deliver value in a variety of market conditions and holding do change with market conditions. The most common term used to describe how we manage portfolios is Core/Satellite.
- Our Core investments provide our clients with exposure to a wide variety of global asset classes that tend to exhibit lower volatility than stocks and higher returns than bonds.
- Our Satellite investments can include high growth opportunities like small international companies, alternative energy companies, industry sectors or other assets. During difficult market conditions we underweight our satellite investments and increase our cash position.
We believe in asset allocation and diversification, but not in the way modern portfolio theory (developed in the 1950's) prescribes. We are not frequent traders but there are market conditions where investment changes increase. We do attempt to reduce some risk factors by focusing on exchange traded funds (or a similar investment structure) versus individual stocks for most of our market exposure.
In summary, we work hard to find money making opportunities for our clients, but we are not afraid to wait out difficult market conditions with a significant cash position if we feel that is the prudent course of action. |
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