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Last Quarter Round-Up
I was predominantly neutral on last quarter's outlook. I believed the markets would hold or move incrementally higher, but had no expectation for substantial gains or a major pullback. For the most part that neutrality played out with the S&P 500 near flat for the quarter. The quarter did have its own noticeable pullback after having gains in April, but then saw a substantial recovery into the end of June. I believe the top two concerns for the market are the sovereign debt issues facing the Eurozone and Greece in
particular, and the coming June 30th conclusion of quantitative easing from our Federal Reserve. The Eurozone and Greece have again managed to "kick the can down the road" until at least the end of July, and the effects of ending quantitative easing are only speculative at this time. Economic data reported was also neutral...not great, but not terrible. Housing data continued in a negative direction with prices and transactions down for both new and existing homes. Inflation is a point of disagreement among economists with some saying it is low as measured by the Consumer Price Index (CPI) and others screaming it is running away when considering food and fuel costs. The equity strategy last quarter was to hold equities with an overweight to large over small capitalization. The fixed income strategy was to add to inflation protected bonds and alternative fixed income positions. Quarterly asset class results: Large Cap +0.06%; Small Cap -0.41%; Inflation-Protected Bonds +1.36%
Current Quarter Outlook
The coming quarter is an important one for the U.S. and global economies. On the home front, when the first round of quantitative easing ended in early 2010, a noticeable economic slow-down resulted that pushed the Federal Reserve to begin a second round of easing (QEII). As we move past June 30th, my feeling is that QEII didn't add much to the economy and its passing won't create a large change. Time will tell. Housing here in the U.S. may see incremental seasonal improvement during the quarter, but the underlying problems with real estate won't change. Globally, Greece has more debt-related hurdles to overcome at the end of July and their success in that effort could be very impactful. Will Europe find a way to "kick the can" further down the road? I believe they will, but mostly with the help of the International Monetary Fund (IMF) and China. Yes, China is buying distressed Eurozone debt because with its own economy slowing, it can't afford to have Europe slide into a sovereign debt tailspin. How these Eurozone debt problems will play out is a difficult prediction to make, but it could have reverberations throughout the world. If a sovereign debt related meltdown does occur in the Eurozone, I believe investor money may be driven to the United States. As I've said before, the U.S. has problems and issues, but most other countries' problems and issues are worse. My equity strategy for the quarter is to hold firm with equities and re-balance towards small cap and emerging market investments. For fixed income, I intend to hold or reduce inflation-protected bonds and add to global sovereign bonds. |
