Getting it Right
The market got slammed in early August on concerns over global growth only to recover on hopes that the Fed will institute further monetary easing measures at their September 21 meeting, but still closed at a negative 5.43% for the month. Our results are currently posted on our performance page. My experts are looking for a lackluster market over the next few months, with a pickup in the fourth quarter as the economy shows signs of renewed strength. Here is a summary of some of their thoughts:
BCA believes the odds of a double dip recession are low, but even if we do get one, corporate earnings are likely to remain strong.
Europe remains a problem, but with Greece, Portugal, and Ireland accounting for only 6% of the euro area's GDP, the ECB (European Central Bank) should have no problems in handling the liquidity concerns.
With inflation moderating, and with the bottlenecks caused by the Japanese earthquake over, the Bank sees growth of 2-3% over the next four to six quarters.
Favorable monetary conditions along with cheap valuations bode well for equities, but choppy action and a test of the August lows remain a possibility until the global outlook improves.
The stall speed economy (0-2%) is bullish for high yield bonds as the Fed is less likely to raise rates in this environment, and in fact has committed to keep rates at near zero through 2013.
Gold remains vulnerable to a short term correction, but ample liquidity and a volatile global environment make a compelling argument for further gains.
I made the point earlier in the year that it was okay to be wrong, but not okay to stay wrong. I've positioned the portfolio to do well in a reflationary environment (monetary ease), and while that seemed to be the wrong strategy for the first half of this year, it proved to be our savior during the six week mini crash. I remain cautious for the next few months (rolled the puts while the market was up briefly yesterday), but continue to believe that our core holdings are well positioned for the current market environment. Hoping you all survived Irene unscathed.
-Joe