CI Outlook - Archives

October 2013


September came and went and the stock market refused to buckle under the weight of various headline events.  Larry Summers bowed out of the Fed governor’s race and Angela Merkel was handily reelected.  Although the Fed failed to taper its bond purchases Congress has yet to raise the debt ceiling or pass a budget.  With September behind we enter October, historically the month of violent frightening stock market bottoms.  And we still face deadlock in Washington.  Without a resolution the US is scheduled to run out of cash by October 17th.   That may be enough to precipitate a market decline.  However the likelihood of a US default is minimal and is most likely the last impediment to a strong year-end market advance.  The most likely matters affecting the strength of that rally will be upcoming quarterly earnings, economic growth and unemployment.  We expect economic growth to be slow and unemployment to remain stubbornly high.  However earnings should continue to outperform expectations and many companies will probably guide their outlooks higher.  We believe the upbeat earnings are the reason for the markets resilience in the face of so much uncertainty.

Given the ongoing uncertainty we have yet to reinvest proceeds from some prior sales.  We have however identified two ETF’s which we will likely buy when market conditions permit.  One is the NASDAQ 100, Symbol QQQ.  It contains heavy weightings in technology, but also offers exposure in areas as diverse as biotech and financials.  The other ETF of interest is the Wisdom Tree European Small Cap Fund, symbol DFE.  As you know we have believed that Europe’s banks were 2-3 years behind us in admitting and then cleaning up the financial weakness caused by the 2008 financial catastrophe.  For Europe it is now 2010.  Last year their “Central Bank” began expanding credit.  Their banks now look much sounder and their economies much more stable.  We plan to leverage ourselves specifically to Europe’s recovery.  And we plan to do so holding small cap European stocks.  While there are many ETF’s holding large European companies, those companies earn the majority of their revenues and profits outside of Europe.  The DFE is the only non-country specific ETF holding smaller European stocks.  The smaller companies in the DFE derive the majority of their revenues from domestic customers and are thus very much leveraged to those economies.  This should give us some extra return as European stocks return to normal valuations.

Once again we would welcome any opportunity to visit with you either over the telephone or I person.  Also please let us know if you have any questions or comments concerning your investment portfolio.

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