I have written a report on the state of the economy and financial markets. You can access, and read online or download the report here: Mid-Year Report.

While we may or may not technically still be in a recession, it is clear that the global economy cannot yet be termed robust. The best description seems to be that we are hanging on. There is growth, and not just in the U.S., but it is quite tenuous. Most economists and commentators seem to agree that this most-recent recessionary period has been the worst since the great depression (1929 – 1938/39). While there is not enough information at present to accurately predict a double-dip, the possibility remains in the background of our economic situation.

In the paper I highlight economic factors that contributed to our current environment, and which continue to contribute to our economic situation. I also discuss events in the global financial markets. Additionally, I suggest reasons for stock market returns (or lack thereof) and a strategy or two for dealing with these things moving forward.

As a sneak preview, I am cautiously optimistic that we will finish the year on a positive note. Investor sentiment has played a really big part in market conditions, and it will continue to do so. The WealthRidge investment portfolios have struggled, along with the rest of the market during the first half (but we are generally still ahead of the broader market). We are positioned to move solidly into the second half of the year with a good likelihood of continuing to gain ground.

If you are interested in learning my take on what’s been happening in the financial markets, and the reasons for year-to-date market returns, take a look at the report. More importantly, if you would like to see my position structuring investment portfolios to get the best returns in the second-half of the year, click the link to view the report: Mid-Year Report.

All the best to you and your family,

Michael

www.wealthridge.com

msnowdon@wealthridge.com

(303) 721-1140

The Markets: Last Week

After the week started looking like more of the same downward movement, we had a few good days. As a result, the markets closed up, with their best performance in several months. This puts broad market returns for the year close to flat (slightly down, but not by much).

The Markets: Forecast, of Sorts

So where to from here? Realizing that trying to get a firm handle on all current  economic and market factors – and separating what’s important from all the noise – is a bit like trying to herd cats, I recently saw an interesting chart that provides some good food for thought on the near future.

I am, by inclination, more of a fundamental than a technical analyst. That said, I do recognize that in order to function in today’s markets, you have to do both – fundamental as well as technical analysis (so that’s what I do).

[Technical analysis focuses more on what the markets (or a particular stock) has done to predict future possibilities, while fundamental analysis focuses more on things such as the economy, a company’s financial strength and competitive advantage, etc. ]

The chart I mentioned is a technical analysis of historical, presidential and 10-year market cycles, plus certain seasonal tendencies. Here’s what was fascinating about it. If you overlay current market results on the chart, while not identical, they are tracking in an amazingly similar manner.

If the chart proves an accurate predictor, here is what we may see over the next six months. An upward trend for the near-term, followed by a brief decline. From there, another upward trend until early Fall, when another reversal may enter the picture. Following that, we could see another upward trend. From that point – stay tuned. We will probably remain in a relatively narrow trading range, but I am still in the camp that says the year should produce positive returns – not huge, but positive.

There are a number of factors that may enter the picture to alter the scenario (one would be whether the government puts more stimulus dollars into the economy). Plus, I have yet to see any chart that was perfectly predictive of the future. Still, it’s worth paying attention, and I certainly will be doing that.

A Little Financial Planning: Emergency Fund (or having enough cash on hand)

Talking with people over the last few weeks, I have been reminded that not everyone keeps enough cash on hand. By on hand, I do not mean in the cookie jar. Rather, I mean that people should have enough liquidity – in a bank, in an investment money market fund, in a savings account elsewhere – so that if there is some need, the money is available without liquidating assets or increasing debt.

The standard financial planning recommendation is to have a fund equal to a minimum of three month’s worth of expenses. For some people, this represents quite a bit of cash. For example, if your monthly expenses are $7,500, then a proper emergency fund should hold at least $22,500. For lots of people, this represents a greater amount of liquidity than they would otherwise maintain.

Back in the “good old days” of easy credit, I used to have people tell me that they would just depend on their line of credit. I was not always able to convince them that this was not the best choice. Today, unfortunately, I have been proven right, but it’s still hard for a lot of folks to keep that much cash. Still, doing so is a good idea and represents a worthwhile goal for most people.

That’s all for now. Have a great week.

All the best to you and your family,

Michael

www.wealthridge.com

“Helping people achieve their dreams through wise financial management”

Disclaimer: None of the information above is to be considered investment advice. It is only provided as information. Any personal investment decisions should only be made after consulting competent advisors.

The (not so) Merry Month of May

NOTE: This is a very lengthy, slightly technical post, but I think it’s worth exploring in light of current financial market conditions.

We have just lived through two market events that have no precedent in recent history. First, we had a one-day downward spike in the market of 1,000 points – never happened before. It caused many advisors (including me) to change a long-standing safety practice known as a stop-loss order. Many of those orders, which were designed to limit losses, were triggered by the spike, causing losses in the related holdings. Since such a thing had never before happened, we were unprepared for what happened. It only takes once, though. Many of us – again, including me – removed all stop-loss orders, thereby eliminating the potential for such an event to impact us in the same way.

The second event was the slightly more than 8% market drop in the month of May. This represents the worst-performing May since 1940. Thankfully, diversification helped somewhat, but the drop still represented a hit to portfolio performance.

That is what was, how do things look for the future?

Economic Conditions

While the economy definitely impacts market performance, the two do not function in lock-step. Let’s look at the economy first, then market performance.

Friday’s down-turn was triggered by a less-than-hoped-for jobs report. While fewer jobs were created than economists had hoped, jobs were created, representing a positive economic move (of course, a number of those jobs were related to the current census, so that has to be taken into account). Corporate profits and revenue are continuing to grow, and consumer spending is creeping upward. Unfortunately, mortgage delinquencies are still far higher than normal and economic expansion, while improving, is still not anywhere near what you would call robust (tenuous is a better description).

Globally, the European economies are struggling. The banking sector is a key problem area, but it is not alone. Sovereign debt is out of line in many countries , and the threat of default continues to cast a pall on the situation. Germany is an economic standout, and there are a few other European countries that are showing economic strength. The verdict on the Euro is still up in the air, but at the least, it looks to continue in a weakened state.

China’s economic growth (or at least its real estate and stock market) has cooled, but this may only be temporary. There are signals that the slowdown may be close to reaching a turning point. If this happens, the rest of Asia – along with Brazil and other nations that have close dependence on the Chinese markets – will likely also see a turnaround. Don’t look for any major changes in the immediate future, but it appears to be coming.

The Financial Markets

For the year, the S&P 500 return is a negative 6%. We may be in the arms of a secular bear market (in fact, according to some, the last secular bull ended in 2000, and we have been in a secular bear since then). [Secular, in this context, means long-term trend, usually lasting more than a decade or so.] This does not mean that the markets will not have upward growth. A look at historical charts show that there have been plenty of up-periods within long-term bear markets – several of them multi-year, and quite strong. Still, if we are in secular bear territory, we may have several years to go before entering the next secular bull period.

On the other hand, there is a fair amount of information that we have simply had a 10% (+/-) correction in what is still a recovering bull market. Consensus seems to be that we are at a tipping point where things literally could go either way.

What matters most to us is what’s happening now, and what is likely to happen moving forward. Let me emphasize likely. If I, or anyone else for that matter, could accurately and consistently predict what will happen, we would be lounging on the beach on a secluded island paradise counting our billions. However, while certainty is in short supply, we can pick-up clues and get some guidance.

What’s happening now? I participated in a recent money managers call where several economic and market experts suggested that the global financial markets are operating on fear and over-pricing in negative factors that will not pan out. The implication of this (if true) is that actual performance may surprise us on the upside . . . but not until we move past the current negative trend. In fact, as mentioned earlier, corporate profits and revenues are showing growth – weak growth, but growth nonetheless. Right now there is a great deal of uncertainty, and uncertainty is almost always bad for stock prices. So, what we have now is seriously increased volatility along with at least a temporary downward trend. The next few weeks should tell us a lot about whether the current downward trend will continue or reverse itself.

Even if the current bearish trend does reverse, don’t expect extreme highs, and don’t be surprised to see another dip or two (or more) as we move forward. As I have previously mentioned, there are a number of economic land mines that, if triggered, could cause significant damage. One such mine is another round of global credit tightening at the corporate level. Another is the ongoing sovereign debt crisis . . . especially if the U.S. does not properly address our own huge debt issues.

As a recent article in Barron’s noted, we seem to be stuck in a trading range. In other words, we’re not really going anywhere, just bouncing around in a fairly narrow range. This could be true for awhile, but that’s not necessarily all bad. The S&P 500 closed at just under 1,065. If we go back up to 1,200 (a not entirely unreasonable possibility), that would represent about a 13% gain from here. So far, although we have toyed with breaking through the lower support level, the markets have not truly broken through and continued downward. If there is significant downward movement, rather than the reversal I believe will happen, it’s possible we could go all the way down to around 1,000 (about a 6% drop from where we are now) or a little further before reaching another support level.

What This Means

Let’s wrap this up. Although I cannot discount the possibility that we will see a further near-term drop, I think we will see some upward movement over the next couple of months. Remember that historically, periods of decrease have always been followed by upswings. The question of the moment is whether we have reached at least a temporary end to downward movement.

In the current market climate, a fairly passive buy and hold strategy is not the way to go. While trying to time the market is seldom a favorable strategy, neither is putting yourself in a position where you essentially lock-in your portfolio and do not respond to significant movement to either the upside or the downside.

Moving out of the market may well be a better strategy than simply letting everything float. If you are not in the stock market (i.e., you are totally in a cash position) you certainly will not suffer when the market falls. At the same time, however, you most certainly will not benefit when the market rises. Only you can determine whether you are concerned enough to step aside, but if your goal is still long-term growth (especially planning for retirement), at least some stock market investment seems prudent. In fact, many large institutional investors remain biased toward equities, and have about a 65/35 split.

Where possible, It seems to be an opportunity to make targeted investments that attempt to take advantage of good value propositions when they present themselves. We have seen some, and I expect to see more as we move forward. The major thing keeping me personally from making more such investments is the current relatively high volatility, along with continued drops in stock prices. I have made a few recent purchases that, while very positive over the long term, are barely (or not) holding their own currently (it’s almost impossible in the current environment to pick the best time to make a purchase, but it is more than possible to buy good companies, with excellent long-term growth potential, at value prices).

That’s how I see things looking into the near future.  Thanks for hanging in to the end of this admittedly very l-o-n-g post. I hope it’s been helpful.

All the best to you and your family,

Michael

www.wealthridge.com

“Helping people achieve their dreams through wise financial management”

Disclaimer: None of the information above is to be considered investment advice. It is only provided as information. Any personal investment decisions should only be made after consulting competent advisors.

What a difference a year (or so) makes. It was not all that long ago that the U.S. economy was looking like it was going to languish at the bottom of the economic heap. At the same time Europe was seen as somewhat of a bright light in the gloom. Market researchers and pundits were mostly lauding the European economy, while bemoaning the awful state of affairs in the U.S.

Now, things are a bit different. The U.S. economic environment is greatly improved over what it was in the not so distant past. True, we are not yet out of the economic backwater, but most signs point to positive growth. Europe, on the other hand, is looking pretty dismal. In fact, if you focus on Greece, Portugal, Spain, and Ireland, the view is downright scary.

The Problem

In a word, the problem is debt. To be specific – too much of it. Even though we say (and I agree) that U.S. debt levels are untenable, it is quite a bit worse in other countries, especially the ones mentioned above. In fact, the potential problem is so severe that the fear of default by those countries and the economic implications is dragging down European financial markets . . . and U.S. markets as well.

The emphasis on fear is significant. The European Union just pledged an amount equal to nearly one trillion dollars to bailout Greece and a few other countries. It should be seen as more-or-less addressing people’s concerns. It was, briefly, but only briefly. The problem is that few people think Greece, et al. will follow through with their budget cuts and other measures to reign in over-the-top spending. As a result, fears of decreased exports coming from countries like the U.S., along with broader fears of a meltdown of the European Union economy, are causing a great deal of market volatility.

Notice that all of this is based on fear, not reality. Could there be a European economic meltdown? Most assuredly. Ah, but has there been one? Not at all. This, for students of how financial markets work, is another indicator that the efficient market hypothesis and the idea that markets operate rationally, is a little less than accurate.

Rational or irrational, we have to deal with what is, and we are living with financial markets that are vacillating between bullish and bearish positions based largely on economic fears.

So What Now?

First, for anyone who needs to use their invested assets within the next several months, it’s probably a good time to move into a cash (or near cash) position. How many more multi-hundred point drops are we going to have? No one knows. We could be heading into an extended downward trend (but this is not the most likely scenario). We could be looking at just a short-term reversal followed by a building bull market. Or, we could continue in the current environment of trading in a fairly narrow range, but not going too far up – or down – very quickly. (It’s probably a good time to mention that, even with several negative days, we finished last week at a level slightly above where we had been.)

On the other hand, for anyone investing on a more long-term basis, there is little need to cash in all your chips and sit completely on the sidelines.

I think it’s important to recognize that portfolios are built . . . over time. True, I could pick a bunch of investments and let it go at that. However, that’s not the way I work (nor is it the way any truly professional wealth manager operates). Instead, after selecting a core group of investments as the foundation, I look for individual positions that will help build the portfolio. There is a lot of patience required, while we wait for the desired investment to reach a reasonable price . . . and do so in a market environment that is not threatening to turn even shining winners into disappointing losers.

It doesn’t always work. Sometimes, as happened a couple of weeks ago, a really sound investment position got hammered by the financial markets. The safety net (stop loss order) was triggered, and the position was sold automatically. Not what I wanted to happen, but there was no way to prevent it. That’s why no one position has too high a percentage of anyone’s assets invested in it.

Although the process does not work 100% of the time, it normally does. Not however, if we are looking at a fairly short-term time horizon. In market environments such as we currently have, even solid investments can move up, down, and sideways quite a bit. Over the longer term, the investment will grow, but in the short run, who knows? (That’s one of the differences between traders and investors. Traders work things on a short-term basis. Investors have a longer-term time horizon.)

To wrap up, we have good reason to be very cautious. Even the strengthening U.S. economy is not yet so robust as to be out of danger. It would not take all that much to put us back into a more difficult position. At the same time, overall long-term trends are positive. If we can live through the current season of volatility, we should see real returns exceeding inflation by about 3-5% or so. We may be able to generate higher returns, too, but the core focus will need to be more reasonable.

I know things are a bit crazy, and I know we all want our money to grow at a much faster rate than it is. However, in the current market environment, without accepting too high a level of risk, patience becomes a really valuable virtue.

All the best to you and your family.

Disclaimer: None of the information above is to be considered investment advice. It is only provided as information. Any personal investment decisions should only be made after consulting competent advisors.

Over the last few weeks I have dealt with death several times. The first was the passing of my father. Then, on two occasions, I learned about situations in which a father’s passing left a family with children at home and/or in college, and in one case, a wife who had devoted herself to raising their children and had remained outside the “traditional” workforce.

These reminders that life passes has caused me, in my role of financial advisor, to think about the financial side of such things. So with that in mind, here are some thoughts for you to consider in your own situation.

Families with Children at Home or in College

This is perhaps the most significant period when considering life insurance needs. Essentially, there are two major factors. One is making sure there is enough money to settled debts (such as car, mortgage, credit card and other loans). The second is replacement of your income in the event you pass away during this period (the same holds true for your spouse if you have one and he/she is working outside the home).

The process to determine how much is needed to handle outstanding debts is pretty straightforward. Add up outstanding amounts on existing debt agreements and determine which of them must be paid-off. Not all debts have to be paid, but most do. One that may not need to be paid-off is your mortgage. Sometimes it is better to keep making payments rather than settling the account.

Determining income needs is a bit more complicated. You have to look at how much is needed:

• to keep things going at home.
• for education (private school, college, etc.).
• to create an adjustment period fund.
• to fulfill special plans, such as that dream vacation that you would still want the family to take.

There are other categories, but these give you an idea of what to consider. To determine the potential life insurance need, calculate the discounted present value of the income stream needed to take care of each area.

Couples Where the Children are No Longer at Home

The biggest concern after the children have left home is making sure that the remaining spouse has enough income. Many, if not most couples, depend on income from both spouses. If one of those incomes stops, you need to look at whether there is enough income left for the remaining spouse to keep going.

Business Owners

If you are a business owner, chances are that most (or all) of your income, and much of your retirement planning is based on your business. You need to make sure that if you are no longer there to run the business, your family will be able to replace both your income and the value of the business that was going to be used in retirement planning.

That is not the only consideration. If you have partners and/or employees, ask yourself what will happen to them in the event of your death. Have you made arrangements for continuing the business? You probably want to sell your share of the business. If so, do you have buy-sell agreements and are they funded? Have you made your wishes known to your partners and your spouse?

In General

Here are some things to consider:

• Does everyone who needs to know, know the location of the important papers: will, life insurance policies, trust documents, etc?
  • Make a file and put everything in it.
  • Technically, safe deposit boxes are locked down upon the death of a box-holder, so if you keep a copy in the safe deposit box, keep another copy elsewhere.
• It’s a good idea to make a list of all policy numbers along with contact information on filing a claim. The list should identify your beneficiary information.
  • Keep a copy of the list on your computer(s)
  • Keep a hard-copy somewhere that is easily accessible and known by everyone who should know.
  • If passwords are involved, list those as well.
• Appoint someone  to be in charge. Give them power of attorney. Make sure everyone who needs to know this information has it.

This is not a comprehensive list, but it should help you start thinking through this very important area. As always, if you would like help as you work through this, please do not hesitate to contact me. I will be very happy to provide guidance and assistance.

All the best to you and your family,

Michael

Helping people achieve their dreams through wise financial management

U.S. Economic Indicators

Market indicators—

• Corporate debt remains in its typical range and interest rates remain just outside the high end of typical.
  • These interest rates refer to what banks are charging consumers, not what they charge to each other for intraday lending.
• VIX decreased to its lowest month-end level in over 33 months.
  • The VIX is the primary indicator of market volatility. Lower means less volatility (or up and down movement).
  • This lack of volatility is a two-edged sword.
    • Positively, it means we are not experiencing the crazy, wild swings of 200+ points that we were seeing a year ago.
    • Negatively, it means the markets, while rising, are doing so very s-l-o-w-l-y, and just barely.
• Mortgage delinquencies continue to rise.
• Overall, the U.S. equity markets rose in March. Not by much, but up is up.

Economic indicators—

• These backward-looking indicators are all within their typical ranges.
• The job market is showing growth signs, with a positive non-farm payroll change.
• Core inflation remains low.
• The GDP number for 4Q09 was revised to 5.6%, continuing the trend of positive GDP growth.

(Thanks to the research team of Russell Investment for their economic indicators dashboard.)

International Markets and Economy

Things to Watch

One name: Greece! Not that what happens in Greece is altogether that significant in-and-of-itself, but it is affecting the rest of Europe. Germany and France are talking as if they are going to be stern guardians and overseers of Greece as the country tries to dig itself out of its debt problems. However, there is concern that the situation there may still deteriorate.

A report in the Financial Times published Sunday said that the European Commission has demanded that Greece produce detailed plans this week to meet its budget deficit reduction target goals for 2011 and 2012. We’ll see if that happens . . .  $64 billion in loans and guarantees hang in the balance. (Now, if the U.S. would only do the same!)

Three other European countries – Portugal, Ireland, and Spain are also in debt trouble. This is one reason why I recently closed out a sovereign debt position in the WealthRidge portfolios. The position is supposed to hedge against a weak U.S. dollar. However, as weak as the U.S. economy is, it’s about the strongest of the developed nations. Default concerns are weighing on Eurozone debt, and that made those bonds riskier than they should be – and without a commensurate increase in investment return. When that happens, it’s time to get out, which we did.

Emerging Markets. Several international emerging markets still show promise, but caution is in order. China has the biggest question mark. It is still the strongest up-and-coming economy. However, several issues, including the disposition of their currency (the yuan or renminbi) relative to the U.S. dollar and other world currencies, raise some concerns. China is always a difficult place for business, and sometimes it’s good to step back. I am still pretty bullish on the Chinese economy, but for now, we are not investing directly in that country. Instead, we are looking at peripheral opportunities in countries like South Korea, Australia, other East Asian economies and places like Brazil. Each of these areas benefits from China, but they also have a broader economy that is not totally China-dependent.

The Weeks Ahead

The near future continues to look (cautiously) bullish. We have had a pretty good market run, and several indicators are at year-long highs. This means we may see a short pullback, but I do not anticipate steep losses. I also do not anticipate huge gains over the next year. Instead, we should plan on modest growth resulting in reasonable returns.

It’s probably good to remember that in normal times, moderate risk portfolio returns of 3-5% or so above inflation are deemed pretty reasonable. If you think back, when average market returns were in the 7-10% range, inflation was in the 3.5-5+% range. So, those market returns gave us about 3-5% above what was then, current inflation. With inflation down around 1% or less today, the markets will probably give us 4-5% or so. Higher portfolio returns will have come from cherry-picking special investments as research uncovers them.

I hope you have a very good week. All the best to you and your family,

Michael

“Helping people achieve their dreams through wise financial management.”

Disclaimer: None of the information above is to be considered investment advice. It is only provided as information. Any personal investment decisions should only be made after consulting competent advisors.

I was reminded of something a few days ago. My wife and I were watching a TV show about New Zealand and their indigenous people, the Maori. The Maori have a pretty fierce past, and not everything about them could be called admirable. However, one of their beliefs is that they should be the caretakers of the people and the land around them. This is similar to beliefs held by the Hawaiian people. The last time we were in Hawaii, we spent some time learning about traditional Hawaiian values, and determined that we would try to adopt at least this part of their tradition.

My wife and I try to live and work according to a world view that says we have some responsibility to serve people and the land around us. As a result, we try to find ways to be of service to people and to do what we can to protect the environment around us.

We don’t do anything huge . . . just little things when we have the opportunity. And there are plenty of opportunities!

When we agreed to start overseeing WealthRidge, one of our thoughts was that we wanted to provide service to our clients. We also hoped that we could, in some way, create a community of people who might reach beyond ourselves to help other people and the land on which we live.

I know many of you do exactly that. From time-to-time I hear about things you do to serve in various ways, and I’m always both proud and thankful that I am able to be a part of such a group.

I don’t know about you, but sometimes, I start to feel like there’s too much to do, so why do anything? What difference can I make? I came across a story that answered that question. It’s called The Star Thrower.

The Star Thrower

There’s a story I would like to share with you. It was inspired by the writing of Loren Eiseley.

Once upon a time, there was a man who used to go to the ocean each day. He had the habit of walking along the beach before he began his work. One day he was walking along the shore; as he looked down the beach, he saw a human figure moving like a dancer. He smiled to himself to think of someone who would dance to the day, so he began to walk faster to catch up. As he got closer, he saw that it was a young man and the young man wasn’t dancing, but instead, he was reaching down to the shore, picking up something and very gently throwing it into the ocean.

As he approached the young man he called out, “Good morning! What are you doing?” The young man paused, looked up and replied, “Throwing Starfish into the ocean.” “I guess I should have asked; why are you throwing Starfish into the ocean?” “The sun is up and the tide is going out and if I don’t throw them in they’ll die.” “But young man, don’t you realize that there are miles and miles of beach and Starfish all along it, you can’t possibly make a difference!” The young man listened politely, then bent down, picked up another Starfish and threw it into the sea, past the breaking waves. “It made a difference for that one.”

I Would Like Your Help.

Why am I telling you this? I would like your help. I am hoping that each of us might focus on reaching beyond ourselves to help someone else; to nurture the environment; to have a positive influence. As we continue to do that, perhaps others might catch the spirit and begin to do the same. In our own little way, we could make a difference in the world around us and in the lives of other people. We cannot do it all, but maybe we can make a difference in the life of at least one “starfish”.

Thank you to each of you who make a positive difference in the lives of people and in the world around you. You may never know the impact you have, but I can tell you it’s significant. So, thank you. I appreciate what you do.

All the best to you and your family,

Michael

Helping people achieve their dreams through wise financial management.

A recent Russell Investments report of institutional investment managers showed the following:

Summary of Key Findings

• Over three quarters (77 percent) of surveyed investment managers expect unemployment to be 8 percent or higher at end of 2011.
• Bullishness for non-U.S. (developed market) equities falls 21 percentage points.
• 60 percent of managers view the market as fairly valued.
• Valuation of the U.S. Equity Market

Valuation of the U.S. Equity Market

• Summary of findings: All’s fair with the market – most managers (60 percent) believe market is fairly valued.
• Twenty-eight percent of the managers surveyed believe the market to be undervalued, a steep drop from the 57 percent figure in the March 2009 Investment Manager Outlook but an increase from the survey low of 19 percent seen in December 2009.
• The number of managers who believe the markets are overvalued declined from 18 percent in December 2009 to 13 percent in this survey.

Perspective on Key Findings

The market pain experienced during the global financial crisis is still very vivid, and investment managers are reacting strongly to any negative news, such as the developments in Greece or the marginally negative U.S. economic reports of early 2010.

• The markets have rebounded significantly from the lows of last March, but managers want to see real economic growth before they assert greater confidence in the continuation of the recovery for equities.
• While investment managers are not completely reining in their bullish sentiment, bullishness appears to be trending back towards average survey levels.
• Most managers believe the market is fairly valued, a signal that the great bargains available at the market lows have been re-priced to reflect more optimistic views.

What Did Not Work in the First Quarter?

Simply put: sovereign debt and the developed international marketplace. Sovereign debt refers to the treasuries of various countries. Non-U.S. sovereign debt is seen as a defensive investment for when the U.S. dollar (and U.S. treasuries in general) are going soft. The international marketplace is also considered a balance to the U.S. economy. During the first-half of this year, both areas were expected to out-perform the U.S. marketplace.

This has not happened. Additional economic malfeasance was uncovered in countries such as Portugal, Ireland, Greece, and Spain (they hid their true debt condition so investors would continue investing in those countries). The primary result has been that sovereign debt holdings, as well as more general holdings in the European marketplace, have underperformed for the first quarter.

What Did Work in the First Quarter:

Conservative U.S. corporate bonds, high-yield bonds, and broad-market U.S. equities showed positive returns.

As a result of broadly-diversified portfolios, we were able to participate in U.S. –based growth. Unfortunately, that same broad diversification exposed us to some of the negative results coming from certain international markets.

Looking Ahead

We will continue to maintain broadly-diversified positions. If the international marketplace does not look to be improving enough, we may adjust our exposure there. High-quality U.S. companies continue to look good (generally), especially those in the blue-chip category. Mid-sized companies may also show positive returns, but small companies are a bit too volatile, still. While developed international markets may not be too positive, certain emerging markets may provide reasonable returns.

All the best to you and your family,

Michael

Helping people achieve their dreams through wise financial management

DISCLAIMER: Nothing in this post is to be construed as investment advice. The information here is for educational purposes only A qualified financial advisor should be consulted prior to making any investment decisions.