April 2011 Market Commentary

Market Commentary: April 2011

I have a confession to make:  I love writing this market commentary.  This is fun and engaging to me, especially when it is hard.  And with all that has happened in the world the last three months, you have to know that writing this quarter’s commentary is no exception.  On the other hand, I also dislike writing this review.  Let me explain. 

In each commentary, you will find a strategic theme, typically one of our investment foundations, to reinforce the principles and emphasize our confidence in the disciplined process we use.  At the same time, we often point to possible short-term opportunities or portfolio nuances that, if appropriate, may be addressed privately in our upcoming meetings or phone calls.  This is particularly done to stimulate thought and reveal a little about how the strategy may be modified slightly to encompass dynamic market conditions, not to mention your individual situation. 

On top of this struggle to strike a balance between the strategic and the tactical, we must review some of the market movements and economic events from the previous three months (which are often psychotic) and make an effort to give some context that will make sense for the more important outlook: the infamous “long-term”, all in two pages.  These self-imposed commentary objectives are the same ones in managing investments, which explains why I love writing about them.  But I also dislike writing this review not only because it is impossible to do well in two pages (or in any amount), but also because it reminds me this is a one-way conversation - and there are far too many issues to address.  So you see, two pages is never enough, but just enough to stimulate a deeper conversation. 

Last quarter, we discussed the acceleration of globalization, how both opportunity and risk will come more rapidly, and how decision-making is more critical than ever before.  The events of the last three months certainly emphasize these points!  Turmoil came to boil in Tunisia, Yemen, Egypt, and Bahrain.  It has boiled over in Libya, and of course we witnessed the triple tragedy in Japan (earthquake, tsunami, nuclear meltdown).  These events are historic individually and each has impacts on,  or were enabled by, increased globalization.  I have to repeat it:  globalization is just getting started. 

In the same tumultuous three month period, what has happened in the world markets?  It appears that very little has impacted the upward trajectory of stock markets.  This is explained by some as hard evidence of growth and strength - often using the word resiliency, while others are waiting for the next shoe to fall and the emperor to be told the truth about his wardrobe.  These opposing opinions have always existed; this is what makes a market.  Take a look at the figures for last quarter and the lagging one year:

The U.S. economy, making up 40% of the global market, has taken the lead in the global recovery in the last year.  However, our country is struggling between keeping stimulus policy actions in place, while also tackling cost-cutting measures and demands to increase interest rates back to normal levels to curb inflation.  [The pending government shut-down is a dramatic example of this battle!]  Other major economies around the world are taking different approaches to similar problems.  Therefore, keeping a globally diversified portfolio remains a priority. 

Here, in very brief form, are the commentary’s objectives.  We will seek to ensure that your margin of safety (cash and fixed income) is at appropriate levels.  This cannot get lost in optimism; we are still in recovery mode.  Consequently, as the stock market increases, we may recommend incrementally replenishing, and in some cases overweight, the conservative side of your investments – even in the face of low returns.    

With my last market commentary from our nation’s capital, I want to thank you for your support and encouragement during my time away.  I am excited to come home to family and to rejoin the conversations and meetings with you.  My full time assignment to the Pentagon has been a fantastic experience and a great challenge…truly there was never a dull day.  I look forward to sharing it with you. 

“Although the world is full of suffering, it is full also of the overcoming of it.” 

                                                                                  -Helen Keller

Carl Amos Johnson, MBA, CFP®, AIF®

April 8, 2011