CI Outlook - Archives

June 2009

June 2, 2009

By May’s end the market finally clawed its way back to even for the year.  The biggest winners were foreign markets and basic materials stocks.  Fortunately this is the area where most of your investments are concentrated.  This rally may continue in June as those investors who have missed the market rush to commit funds.  But just as the mood was far too negative at the March lows, investors may become excessively enthusiastic in the next few weeks.  If this happens we would attribute much of the irrational exuberance to buying by under invested portfolio managers, feeling pressure to perform, as the end of the June calendar quarter approaches.  This is a rally we would be tempted to sell into as we think the market is fully valued at today’s levels and much higher prices in the short term are not justified.    

While we believe the domestic economy will recover later this year we feel its growth rate will remain low.  Moreover we think that at these levels the stock market currently has this expected slow recovery priced in.  Therefore, if the market should suddenly accelerate and move sharply higher, it would reflect a changing belief that the recovery will be stronger and faster than even the most optimistic current predictions.  In our opinion that rally would be unsustainable and that is why we would sell those stocks which we think became overpriced. 

As you know we are much quicker than in the past to realize profits.  This is due to our outlook for the economy.  With the future of earnings growth uncertain, we would rather have sure gains from those investments which have become fully valued in this environment.   We are also quick to limit losses as market volatility could reappear quickly in this environment.  We expect this “trading market” to prevail through the summer and will act accordingly.

As always we thank you for your patronage and look forward to answering any questions or hearing any comments you might have about your portfolio.

CJ Brott                      Karen Burns

 


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