September 2011

No Place to Hide

Stocks continued their wild swings in September, with the S&P 500 losing 7.03%. Our performance is currently posted on our performance page. While we largely escaped August's vicious volatility on the downside, September provided no cover, with the exception of the US  treasuries. Even gold which normally thrives in a negative interest environment declined by more than fifteen percent. As to what we can look forward to in the months ahead, here are some thoughts from the people at BCA.

• Europe has a fifty percent chance of falling back into recession (albeit mild); the US will flirt but ultimately avoid one.

• As far as asset classes, developed market corporate bonds and emerging market debt and equities (which are trading at nine times forward earnings and a ten percent discount to developed countries) are well positioned to outperform. Gold should rebound as liquidity concerns abate and the negative interest rate environment remains ingrained in the system.

• High yield bonds should do well as the economy is strong enough to avoid bankruptcies but weak enough that the Fed will not raise rates.

• Although the bank feels that the economy will muddle through and that stocks will outperform low risk treasuries, they believe that ultimately congress will either make the hard choices on entitlement programs or the market will force them to.  

By way of explanation and not excuse as to the poor performance in September, I point to the following observations: as the market continued to spiral down, individuals and institutions sold their gold positions to cover margin calls; with the ECB playing brinksmanship with Greece, fears of a major global slowdown reeked havoc with commodities and the emerging markets, and with a flight to safety, investors abandoned the strong currencies (Asia) and flocked to the ultimate safe haven, the US dollar. In my humble opinion, these are temporary setbacks that should naturally self correct as the Fed has no choice than to continue their quantitative easing. I'll be on the road for the next few days, but would welcome any questions or concerns by calling my cell phone: (802)558-7325.

 

-Joe