Wednesday, July 28, 2010

2010 Mid-Quarter 2 Update

May 26, 2010

With all that’s been going on in the world as of late (notably the last few weeks) we thought it was appropriate to give our clients an overview of what we’re seeing and how we’re currently positioning our portfolios. As you are probably aware there has been a great deal of turmoil in Europe, namely issues involving the fiscal state of the individual sovereign nations that make up the European Union. While the state of our domestic economy has largely improved over the last year we are not immune to what occurs outside our borders in a global economy such as we live in today. As a result, our markets here in the U.S. have been not only difficult to navigate but extremely volatile as well. The EU, in conjunction with the IMF, has agreed to provide funds to those nations that are struggling to stay afloat, namely Greece, Portugal, Italy, Ireland and Spain. While Greece has already been granted a portion of the funds made available in the above bailout package, none of the others have as of yet requested such aid. Of course this does not mean that such a request will not occur. It simply has not occurred yet. Of course our hope is that no further deterioration will take place in Europe, however we are not willing to take that risk at this stage of the “crisis.” Given that stance we are positioning our clients’ portfolios accordingly.

Clients with us through many market cycles are accustomed to seeing these cycles and accustomed to seeing that we do our best to mitigate the shock of the volatility that always accompanies pullbacks. In the past few weeks we have made the decision to raise a good deal of cash by selling both equities and fixed income (to a lesser degree) in client accounts. While we do not believe that the world is coming to an end as it appeared to be in late 2008/early 2009, we are not willing to risk further deterioration in the markets as a result of the large amount of uncertainty present both here and abroad. In times like these we view cash as an investment, i.e. protection from further market declines. It is difficult to speculate as to how long the current market correction might last, therefore we are uncertain as to how long we might be holding cash in our accounts. It is our view, however, that when the fear and volatility subside (and we believe that it will) we will be in a great position to take advantage of any opportunities that exist.

While we never like to lose money in any climate we are confident that opportunities will arise in the coming weeks and months that will allow us to move beyond the recent high levels that we reached in our clients’ accounts. In the meantime we are happy to sit on a large amount of cash and wait for the right moment to put money back to work. As always, moments like these provide opportunistic and confident investors the chance to take advantage of any mispricing that may arise, and it almost always does. Rest assured that much like late 2008/early 2009, we are excited about the opportunities that this correction is presenting and are confident that our clients will be the beneficiaries of our due diligence.


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