CI Outlook - Archives

March 2014

“Putin declares war” the lead editorial in Mondays Wall Street Journal.  For the stock market that is like screaming fire in a crowded theatre.   Several years ago the Dow Jones might have fallen 3%, or 500 points.  But the muted response to such serious news demonstrates our theory, we are in a long-term secular bull market.  And the cash fuelling that long term trend is cushioning the market against extreme short term downside volatility. 

Today an additional source of short term cash is most likely a flight to safety by foreign investors.  The US is the safest harbor in times of crisis.  We will be watching to see if this situation becomes more critical.  Although we have already withdrawn the majority of your investments from emerging markets you still have significant profitable positions in European and Japanese Wisdom Tree ETF’s.  If the conflict becomes more widespread, and the situation requires it, we will liquidate those positions.  However we would like to stay invested in those two areas as we believe they are also in long term uptrends.

In the long term we believe the developed world, led by the US, is in a long-term bull market.  It is being driven by shrinking supplies of stock and expanding supplies of cash.  Much of that cash is from corporate earnings.  The Federal Reserve has also been an additional source of cash.  Although the Fed is beginning to withdraw from its stimulus program, Congress is starting to act as if it may begin fiscal economic stimulation with tax reform and other measures.  Furthermore we are just starting to see the rebalancing of major endowment and retirement funds from cash and bonds into stocks.  In addition to expanding demand, corporations appear to continue shrinking the supply of stocks with buy backs and mergers.  When combined these are powerful forces.  So if today’s events do not derail world peace these formidable factors should continue to push markets higher.  And while we are apprehensive concerning the outcome of today’s events we are encouraged by the relative calm of Monday’s market.  Unless events become much more critical we plan to remain invested here and abroad.


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