I’m writing to update you on recent changes we’ve made to client portfolios, where we have discretion, and to discuss both our rationale and where we’re probably headed from here.
As you know, last month we sold a defensive moderate allocation fund – partly to help protect against a nuclear and market meltdown and partly to reposition into an investment with more opportunity. When it became apparent Japan’s situation was stabilizing, we completed the repositioning into a Recovery and Infrastructure position that invests in companies of all size, both in the U.S. and abroad. While the rebuilding required because of Japan’s Tsunami and Australia’s Floods is an obvious reason to invest, one of our primary reasons may not be. We wanted to increase exposure to the rapidly growing infrastructure of the developing markets without having such direct exposure to their somewhat volatile economies and companies. Developing markets are projected to continue to lead a global recovery, but we felt a more conservative approach was warranted – especially given the headwinds we face today.
Headwinds? Yes, like speculators pushing oil prices higher and from diminished spending/stimulus by the U.S. Government as we battle over the speed and direction of getting our fiscal house in order.
Which brings me to our second portfolio adjustment. Last Friday we exchanged our commodity position for an ultra short term, high-quality bond position. Because the commodity position was heavily weighted towards energy, we felt the timing was right to take profits and to safely rest, temporarily, on the sidelines. What motivated us? Goldman Sachs announced they were expecting about a 20% decline in the price of crude. They felt speculation, not demand was pushing prices. We all know consumers can’t afford gas at $4 or $5 per gallon and still have much left over for discretionary spending. And when the Saudis cut production last week, citing a real drop in demand, we felt it was time to take profits until fundamentals were restored.
So what’s next? Fortunately prices are starting to fall. It may take a month or longer, but we’ll be patient and re-enter our position when we have conviction that global demand is driving prices. Ironically, prices are also being pressured by the spending cut battles and the recent S&P changes to the U.S. debt outlook – from stable to negative. The International Monetary Fund (IMF) also recently suggested that U.S. deficits could pose a real threat to Global economic growth. So headwinds – yes -but ones that I hope blow us back on a more sustainable course of moderate prices and moderate growth. Markets have been resilient because jobs and consumer spending are moving in the right direction. If we can get prices and government spending into a more fundamentally sound place, things should continue to improve for everyone – including our Minnesota Twins!
Donald J. Miller, CEO, CFP®
LPL Registered Principal
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
This entry was posted
on Wednesday, April 27th, 2011 at 8:18 am and is filed under Market Commentary.
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April Market / Portfolio Update
I’m writing to update you on recent changes we’ve made to client portfolios, where we have discretion, and to discuss both our rationale and where we’re probably headed from here.
As you know, last month we sold a defensive moderate allocation fund – partly to help protect against a nuclear and market meltdown and partly to reposition into an investment with more opportunity. When it became apparent Japan’s situation was stabilizing, we completed the repositioning into a Recovery and Infrastructure position that invests in companies of all size, both in the U.S. and abroad. While the rebuilding required because of Japan’s Tsunami and Australia’s Floods is an obvious reason to invest, one of our primary reasons may not be. We wanted to increase exposure to the rapidly growing infrastructure of the developing markets without having such direct exposure to their somewhat volatile economies and companies. Developing markets are projected to continue to lead a global recovery, but we felt a more conservative approach was warranted – especially given the headwinds we face today.
Headwinds? Yes, like speculators pushing oil prices higher and from diminished spending/stimulus by the U.S. Government as we battle over the speed and direction of getting our fiscal house in order.
Which brings me to our second portfolio adjustment. Last Friday we exchanged our commodity position for an ultra short term, high-quality bond position. Because the commodity position was heavily weighted towards energy, we felt the timing was right to take profits and to safely rest, temporarily, on the sidelines. What motivated us? Goldman Sachs announced they were expecting about a 20% decline in the price of crude. They felt speculation, not demand was pushing prices. We all know consumers can’t afford gas at $4 or $5 per gallon and still have much left over for discretionary spending. And when the Saudis cut production last week, citing a real drop in demand, we felt it was time to take profits until fundamentals were restored.
So what’s next? Fortunately prices are starting to fall. It may take a month or longer, but we’ll be patient and re-enter our position when we have conviction that global demand is driving prices. Ironically, prices are also being pressured by the spending cut battles and the recent S&P changes to the U.S. debt outlook – from stable to negative. The International Monetary Fund (IMF) also recently suggested that U.S. deficits could pose a real threat to Global economic growth. So headwinds – yes -but ones that I hope blow us back on a more sustainable course of moderate prices and moderate growth. Markets have been resilient because jobs and consumer spending are moving in the right direction. If we can get prices and government spending into a more fundamentally sound place, things should continue to improve for everyone – including our Minnesota Twins!
Donald J. Miller, CEO, CFP®
LPL Registered Principal
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
This entry was posted on Wednesday, April 27th, 2011 at 8:18 am and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.