This is a Marathon NOT a Sprint

As we write this market update the capital markets remain in a state of flux. We see “ebbs and flows” and market increases followed by market losses.

We see three potential risks to the capital markets at this time.

China
China is aggressively attempting to hold-off inflationary pressures by raising interest rates and taking other steps that could send shockwaves through the global markets. The fear is that China will slow their economy too much. The recent run up in many commodity prices has been predicated on the assumption of double digit economic growth in China, in our opinion. Therefore, if they successfully slow growth in a manner which is perceived to be too aggressive, commodity and broad markets could be negatively impacted.

Europe
Ireland is being forced to tap the “bailout” fund established by the European Union and European Central Bank. Could Spain and Portugal feel compelled to do the same? If so, are the funds that are allocated for the “bailout” adequate?

Retail Sales
Much of the “good news” is already factored into the stock market. If there is any shortfall in the expected levels of retail sales the market could react negatively. Many retailers are already discounting goods at levels not normally seen until the day after Thanksgiving. If that is true and consumers are spending now, will they continue to spend throughout the month on November and December, is it possible that retail sales might peak early and then stagnate?

Given that the stock market is often a forward looking “entity”, one must ask if all of the good economic news is already factored into the current levels. The current stock market levels have already factored in robust holiday sales and continued strength in consumer spending. While it is perfectly reasonable and plausible that retail sales will be good and that consumer spending may continue to improve, we ask, how long can it continue without significant improvement in unemployment?

We believe that our conservative approach remains appropriate based on our assessment of the current economic and stock market environments. We anticipate holding elevated levels of cash for the next 30 to 45 days in our actively managed portfolios.

It is our belief that the potential risks and unknown factors will be worked through by the end of that time-frame. The goal of holding cash is to potentially minimize the impact of the “ebbs and flows” of the market and of equal importance, have capital ready and available to put to work when the economic and market factors are what we believe they should be. If the market rallies will we lag the benchmarks? Yes, and we as fiduciaries of our actively managed discretionary accounts are comfortable with that in the short term. We simply feel that chasing returns in a market that is in a state of flux, along with the risks above means taking unnecessary risk.

We could try to sprint and take an early lead in the race. However, this race is a marathon and we would rather start slow and potentially finish strong. At the end of a marathon, nobody asks how quickly you started. The only thing that matters is where you finish. This approach requires patience, but we are confident that with patience comes opportunity.

Have a great weekend and as always, we would be glad to discuss our view and strategies in depth should you desire to do so. Just let us know!
Greg, David and Harold

For more information about our strategies we are pleased to provide a recording of a Q&A session with Morris Segall from November 11th. Note: The conference call is designed to be informational in nature and should not be considered specific advice. Opinions about the economy and stock markets are opinions of Morris Segall and actual market or economic performance may vary.

To listen to the conference call click here: November 11 Conference Call With Morris Segall

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us. Generally accounts less than $150,000 are not actively managed. An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Important Disclosures

• Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
• No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
• An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.

*Lowe Wealth Advisors is a registered investment advisor.