Is the Outlook From the Edge Hopeful or Bleak?

The media loves scaring us! In all fairness, it is how they sell advertising time but it still isn’t very comforting.

They get a panel of talking heads all trying to outdo each other to be first to forecast calamity. Do they apologize when they get it wrong? No! But if the markets descend, they will advertise their forecasting genius everywhere.

In discussions with our clients, there seem to be two major questions that come up all the time.

1) What do we hear about interest rates?
2) What are our thought about the markets?

Our opinion on interest rates are backed up by Pimco and Duetche bank’s analysis. We do not expect a strong increase in interest rates this year.
We do expect rates to slowly increase for the next several years, by maybe 0.5% by the end of this year. The one exception to this would be if there was a major country that fail, which might cause bond holders to reassess the risk of debt internationally. We believe that at present, Central banks recognize this risk and are working diligently to strengthen the confidence of bond holders. Because of the wide spread fear of increasing interest rates, It’s quite possible that the market has overestimated the actual pace of increases. We see very high prices on short term debt and dramatic under performance of mid and longer term debt.

The other question is about the stock markets. We expect equities to trade sideways as most investors await more clarity about the economic outlook.
From what we see the first quarter weakness was an anomaly, and better growth lies ahead. Global growth also appears to be improving. Although risks remain, such as ongoing concerns over Greece’s debt issue, right now the positives outweigh the negatives. The main unknown is what will happen when the Fed raises rates, due to the current backdrop we do not think equity prices will be overly punished.

Our short term indicators are currently negative, and some of our investment models have moved partly to cash. However, we still see positive mid and long term trends.
Equities have remained remarkably buoyant this year, for all the of rising uncertainty. We feel volatility is likely to remain elevated, and expect some sort of consolidation or downturn at some point. Over the longer term, however, modestly improving growth, still accommodative global central banks and relatively attractive valuations argue for retaining overweight positions in equities.

We think rather than predicting chaos, it’s better to respond when market trends actually change.
Decisions based on crystal balls, limited statistics or Ouija Boards are ultimately emotional decisions, not based on wisdom. Our portfolios are based on rules that work to keep us objective and clear-headed.

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This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.