It has been awhile since
my last email commentary on the markets, but there are some important
developments playing out. For those of you I have had the opportunity to
meet with in 2012 I’ve shared my theme of “Policy Driving”. Policy
being driven by Governments
and Central Bank actions are continuing to have a substantial effect on
the markets. You turn on CNBC or Bloomberg there is constant talk of
“QE”, “LTRO”, “Stimulus”, etc. The latest iteration of that was the
European Central Bank (ECB) Long Term Refinancing
Operations (LTRO) that was in effect from December 2011 until February
2012. The market responded extremely well. So I must have a Mae Culpa
for not predicting the effect this would have on the markets as a lot of
our positioning was defensive. However a lot
of the funds in the portfolios by design did take advantage of the
rally.
Going forward the market since March and really April has been
hitting some resistance. This seems to be playing out similarly to 2010
& 2011 where the US stock market tops around April then runs into
trouble during the summer followed by stimulus from
governments/central banks making the markets take off. So I think
remaining in the defensive positioning going into summer is very
prudent. Especially when one of my main concerns is that the US Debt
Ceiling is projected to be breached after August in an election
season no less! When the debt ceiling was extended it was suppose to be
good until 2013, but the government deficits so far have been larger
than projected. I will be monitoring this extensively as we get closer
to the date. So for the time being let's hunker down and wait for intervention. Hopefully the market takes to the "medicine" like in 2010 and 2011. What I fear and what keeps me up at night is when the "medicine" doesn't take. But that's another post in the future because it's not a question of if, but when....
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