Beyond the
Trading Desk
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Winter is here in all its frigid glory. Not much snow so far, but plenty of cold and wind. I admit to liking the snow and am hoping for more of it in January. Not too much mind you, just a bit more than the dustings we've had.
Sandra and I got out for our annual pilgrimage to New York City between Christmas and New Year's and as always, it was a great day. We take the train in, pick a section of the city and spend the day sightseeing and sampling the food and drink of the local establishments. We keep a loose agenda on the day and just enjoy the time together. Sandra does most of the organizing and I enjoy the benefits. How lucky am I?
Now we look ahead to a new year. I can't say that I am saddened to see 2009 come to a close. I've had enough with financial crisis, bailouts, unemployment and other economic trials. I'm sure many of you feel the same way. Please accept my best wishes for a happy, healthy and prosperous 2010. Thanks to everyone who helped Barron Financial Group complete another successful year.
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Last Quarter Round-Up
The fourth quarter of 2009 was positive for the markets with the S&P 500 gaining about 5.5%. Back in April I did a seminar, and in it I suggested a fair market value on the S&P of 1,000 to 1,100 over the next two or three years. How did we get to this target valuation so quickly? There is no doubt a multitude of factors, but I believe the biggest contributor is the low interest rate environment. It pushes individuals and businesses to invest their money instead of leaving it in low-yielding savings. Some say this "easy money" policy is exactly what causes asset price bubbles, but it also encourages economic activity. Clearly, the Fed is more interested in avoiding a double-dip recession than possible stock market bubbles. The equity strategy last quarter called for a reduction in stock exposure while favoring large cap over small. The fixed income strategy was to reduce hi-yield bonds and add to cash and long bond positions. Quarterly asset class results: Large cap +5.83%; Small cap +4.10%; Hi-yield +1.73%; Long bonds -8.89%
Global Economic Outlook
As we close out the year, the stock market is up over 60% since the March lows. The U.S. economy has proven tremendously resilient and I feel we are more likely to see a "limp along" economy than a double dip recession. However, the economic headwinds we face are substantial and, I feel, somewhat overlooked. I believe investment management is less about forecasting than it is about evaluating risk and reward. As a risk focused manager, I will generally sacrifice some gains in order to avoid risk. While I see the possibility of a continued slow rise in the stock market, I see an equal or greater possibility of a decline. In my opinion, the current risk is higher than the potential reward. Solution: maintain strategic investments to capture upside rewards, but be tactically nimble. Use cash and hedge positions to mitigate downside risk. My equity strategy for the quarter is to favor Value over Growth and large cap over small. For fixed income, I plan to maintain cash, add to long treasuries and reduce exposure to hi-yield bonds.
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