Dear Investor,
Feeling rather silly after being cautious as of late, capital markets stumbled to the end of the Q2 2013, wiping out most gains for the quarter, but legitimizing our concerns.
Just as someone tells the kids repeatedly “You have to get out of the pool” Ben Bernanke’s latest FOMC meeting which concluded with a regularly scheduled press conference that said nothing terribly different, but left traders and investors feeling as if “I really have to finally get out of the pool.” Traders being traders, knee jerk reacted and interest rates began to fluctuate in a more dramatic form than normal, tugging down equity markets and lowering bond prices.
The US economy continues to heal in our opinion, and with equity and now bonds becoming less expensive we feel more confident as values are less rich, maybe still frothy, but more reasonable. In the coming months we expect a tug of war between rates, corporate profits, and economic confidence to ensue which will result in higher fluctuations in all areas of the capital markets than has been experienced as of late. We think it is highly likely that the economy will win, however we will watch closely for clues as we go through this transition period.
World economies continue to struggle and are showing only modest improvements in certain areas with the exception of China, as the jury is still out on their leveling off economically. Capital market participants will sniff the positive economic turn out before it becomes evident, often resulting in a quick upward move. We continue to diversify globally even as it has had the prior mentioned headwind. The world is global and diversification remains important even when all countries are not firing on all cylinders. Reallocation to softer economies is very similar to buying low and we will continue to do so.
Speaking of global economies, Axel Merk the founder of the Merk funds (A Global Currencies Fund Family) was our guest in a Private Client Roundtable and we look forward to bringing you his thoughts, ideas, and answers to questions in our coming Q 3 2013 Newsletter and our $treet-Ȼents blog.
Have a Great Summer!
John A. Kvale CFA CFP
Enclosure (Q2 2013 Quarterly performance review)