RIP eMag; Long Live the Blog!

We recently decided to return to a more traditional blog posting process with "new post" e-mails issued whenever new articles are posted. Returning to a traditional blog posting process allows for more timley posts, albeit at the loss of some local content.

We want to thank Bob Kretschman, in particular, for helping us create content and develop article ideas over the past several months. It could not have been possible without the help of his Kretcom Communications. Many readers have spoken with Bob in interviews and I have personally come to appreciate his sense of humor and business perspective, in addition to his ability to put May-Investments “on the map” in the local media community.

The eMag was designed to be a ten-article monthly publication incorporating timely and interesting articles of local interest to our target audience, folks enjoying and beginning to plan for their retirement. Our strongest readership, however, has always been the articles that detail what is happening in portfolios. What I hadn’t anticipated, however, was that by tying ourselves to a monthly publication schedule, the timeliness of what we write would be impacted as well. In the past, we’ve been free to write about portfolio changes shortly after they occur, and market events as they unfold.

Just as you read a newspaper for one purpose, and a monthly magazine for something else, our most widely read articles were about time-sensitive issues more appropriate to a blog or newspaper, than to a monthly reader.

Another goal of the eMag was to incorporate information about broader financial planning topics, taking advantage of the expertise that Barbara Traylor Smith (President of Retirement Outfitters) has in Income Planning and insurance, and the experience that Kim Last (Kimberley A. Last Financial Services, Inc.) has in Long-term Care planning and many other topics. Unfortunately, because they own their own companies and have their own compliance people to satisfy, it was never really possible to integrate our information dissemination and education efforts.

While it’s easy for us to “play in the same sandbox” in order to provide clients with better and more comprehensive financial services, we were never able to convince the bureaucrats that “doing a better job for clients” was, in fact, an industry “best practice.” Too bad.

Fortunately, the short experiment with our eMag did teach us a lot about formatting and publishing, in addition to what we learned about misguided and inflexible regulatory insanity. We can continue to use parts of the eMag format to get the message out about upcoming workshops and seminars, and we will continue to include links to outside articles of interest, as well as our own internally generated posts.

Most importantly, our keys goals of being cooperative with clients’ full team of advisors, and fully transparent about the portfolio management process, still rule the day.  Let us know your thoughts so we can continue to improve the May-Investments communications strategies. 
 
 Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

Go to Investments main page.

The Will Rogers Portfolio Maneuver

Will Rogers once counseled investors to “only buy stocks that go up.” About stocks that go down, he replied famously, “don’t buy them!” While his counsel frustrates portfolio managers because it creates an impossible performance benchmark by applying a standard of 20/20 hindsight to a world fraught with uncertainty, it is an important remark to consider if the market cycle is ready to roll over and start going in a generally downward direction.

The market is always moving, but it doesn’t only move “up” and “down.” It also changes in character – the type of stocks with the biggest moves up or down varies through the course of the market cycle – on a weekly, daily, and even intra-day basis. We do our best to monitor these changes and, ideally, stay in the way of what’s working and get out of the way of what isn’t working.

At the moment, international investing isn’t working. The U.S. stocks have been dominating the performance derby for the past few months. At the beginning of the year, perhaps coincident with the Arab Spring events, commodities rocketed higher and dominated the market’s move higher. Most recently, however, defensive stocks have been moving into the spotlight.

Many of the sectors that are doing better than average are considered “defensive” sectors. Consumer staples (soft drinks, personal care products, drug stores) have started doing better than average. Healthcare stocks, like the pharmaceutical and biotech companies in which we’re invested, are moving up near the top of the performance derby. Utility stocks, which were on the verge of getting kicked out of the portfolio a couple of months ago, are now back “above water” (doing better than the market over the past six months).

One problem that I have, personally, in trying to “hide out” in defensive stocks is that when they are doing best, often you would have been better being out of the market altogether. If you try to hide out in stocks that are going down less than the market, then you have good “relative performance,” which means that when the stock market turns in dismal performance, the good news is that the amount of money that you lose isn’t quite as bad – but losing money is always bad! The last time we bought consumer staples was in 2008. While the sector gave us good “relative performance,” we would have much rather just owned cash.

Good “absolute” performance means that your money wouldn’t have gone down at all. The problem that I have in hiding out in defensive sectors is that, often, you would have been better not being invested in stocks at all during those periods. If you knew that stocks were selling off, then rather than tweak the portfolio by owning defensive stocks, you would cash out of stocks altogether. Then, again, there’s that Will Rogers 20/20 hindsight problem. Without a crystal ball, sometimes it will make sense to stay on the sidelines, and at other times buying consumer staples truly does represent an opportunity to make more money than the broad market.

In any case, signs that defensive stocks are doing relatively better is a red flag that concerns us. In spite of a few economic variables that concern me – including a slight inventory build and unemployment starting to get slightly worse – our Leading Indicators remain stable. But problems in Europe seem to be serious, getting worse, and potentially as devastating as the sub-prime problems. Greek two-year bonds yield 25%. The market is clearly expecting a default in Greece, and worries about Spain are increasing as the dominos overseas weary of leaning against one another in order to support the fiscal irresponsibility of the European Union’s weaker and most profligate members.

There’s also our own government deficit in the U.S., and the unwillingness of either party to risk offending their political base in order to solve the problem. If a “Mediscare” can be used to win elections, then “truth” and problem-solving will be sacrificed to the greater God of partisan politics, until we experience Greece-like interest rates in this country.

Many client portfolios recently sold off gold, in spite of our long-term concerns about inflation and the dollar. Similarly, this week we further reduced our commodity position, which was starting to lag and really acted as a drag on portfolio performance during three successive sell-offs over the past two months. The main reason, I think, for commodities to decline is that the U.S. economy may be joining other global economies in a slowdown. In the long-run, the dollar may decline and inflationary pressures may continue, but if the U.S. economy goes back into recession, industrial demand for commodities will slow and commodity prices, likely, will fall.

If a slowdown is indeed what is being priced into the market, apparently it’s too early for it to show up in our Leading Economic Indicator. Though the LEI could be turning down, it hasn’t yet. However, the sell-off in commodities has been serious enough for us to sell out of some of our commodity investments and for now the proceeds of the sales remain in cash.

We’re taking reinvestment on a day-by-day basis. There are some new asset classes and industry choices that are beginning to show up as “buyable.” Most of the new alternatives are these “defensive” sectors. If they are just going to fall at a slower pace than the rest of the market, then perhaps we would be better off holding cash.

Hopefully the pause will be temporary and the economy can work through this. However, I still believe that the potential upside, from this level, is not as large as the potential downside should Europe implode. These problems in Europe, which caused us to get defensive a year ago, were never really resolved. Things are worse now. It is somewhat reminiscent of the sub-prime problems which were pooh-poohed by the incompetent bank managers that created them, and when the Fed started cutting rates in 2007 the strategists said that the issues were resolved. In fact, they weren’t, and a year later the bank panic unfolded with the bankruptcy of Lehman Brothers.

A year ago, the international bankers told us that they had bailed out Greece, and the problem would not spread beyond that country. They also implied that if problems did spread, they would be solved, just like the Greek bailout solved Greece’s problem. A year later, we know for a fact that the problems did spread and the the Greek problem wasn’t solved. The problem is growing and spreading and threatening Europe’s largest banks. Will Rogers also observed that, “If you ever injected truth into politics you’d have no politics.” So true.  Like the old saw - how do you know that a politician is lying?  Answer: his mouth is open.

Europe might well experience 2008 redux. It won’t be centered in the U.S., this time, but it would be silly to think that the U.S. would be immune to a bank panic on the other side of the pond. Since we never fixed our own “too big to fail” problem, a crisis will likely bring another round of misguided and costly political response. The risks are large enough to justify selling off a portion of our beloved commodities position, if only for a little while.
 
For the past year, we’ve been asking our “red money” clients to re-affirm that the long-term appreciation portfolios are truly invested with a long-term investment horizon. I don’t know if we’re going to have another big dip or not, but it’s always a good time to be certain that your long-term portfolios have only long-term money invested in them. 
 
 Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

Go to Investments main page.

Palisade Greenhouse builds gardens -- and business -- from the roots up

Take a good look at those young flowers that you brought home from the garden center and carefully transplanted into the garden.

They don’t look like manufactured products, do they?

But they are. And many of them probably were built on an 11-acre site along the Colorado River east of Palisade. Each year, Palisade Greenhouse churns out about 3,000 different product lines supplying hundreds of grocery store chains, landscapers, and garden centers throughout the intermountain West.

“Essentially it’s like any other production facility,” says Mark Anema, chief financial officer for Palisade Greenhouse. “You’re taking raw materials and putting them together for an end product.”

Palisade Greenhouse has been owned since 1977 by Tom and Carolyn McKee, and the general manager is their son, Brad McKee. The operation is a wholesale grower and supplier; it grows and sells its products only to retailers, who sell the end products to consumers. In other words, you can’t buy plants from Palisade Greenhouse, but the garden center where you buy your yard supplies can.

Converting soil, seeds, water, and sunshine into finished products that consumers want to buy – and timing the products so that they are ready precisely when those warm spring weekends invite gardeners to part with their hard-earned dollars at their local garden center – is a constant challenge, Anema says.

An added pressure is to keep up with trends in plant development and the ever-changing tastes of landscape designers and gardeners.

“Hopefully we come up with things our customers like, and their customers like in turn,” Anema says. “It’s always a challenge trying to determine what our production is going to be the coming year.”

For Palisade Greenhouse, a lot rides on getting the right plants to the right places at the right time. Anema says more than 90 percent of the company’s revenue comes in during April, May, June, and July.

On its 11 acres, Palisade Greenhouse has about 100,000 square feet in greenhouses that are an oasis of color in late winter when the landscape outside is cold and brown. The operation has three divisions: one for annuals (plants that must be replanted each year), a perennial division (plants that survive year after year), and a small-plants division that produces seedling “plugs” that are sold to other commercial greenhouses.

Anema says he is particularly proud of a computerized inventory system that tracks tens of thousands of plants at any given time. The computerized system helps the greenhouse develop an inventory that appeals to the widest number of customers. For example, blooming plants can be tracked and timed so customers receive plants in exactly the stage of bloom they’re seeking. Customers submit orders online in real time.

“They can order based on bloom stage,” Anema says.

Such production procedures are necessary because greenhouses are a highly competitive business dealing in perishable products, Anema says. Operating such a company successfully requires the perfect blend of sales expertise, customer service, inventory management, high-quality facilities, and product selection.

Palisade Greenhouse works to improve its operations each year, refining the art of growing and selling plants in a region where spring weather is notoriously fickle and can greatly impact operations. Anema says he enjoys the challenge.

“I feel really blessed to be here,” he says. “It’s neat to be able to take some soil and a seed and water and sunshine and see what God does with it. We put it together, and He grows it for us.”

Go to Investments main page.

ID theft workshop to examine causes and prevention

When Ron Rehberg talks to people about identity theft, he knows of what he speaks.

Several years ago, Rehberg – who is a certified identity theft consultant specialist – was a victim of medical ID theft. An individual who had been diagnosed with cancer used Rehberg’s medical information, probably to get health insurance. Even though Rehberg was healthy, the medical ID theft compromised his health and medical history. His blood type and other vital information were changed in some records.

In Rehberg’s case, the company he works for – risk consultant Kroll – stepped in and cleaned up the damage. Still, Rehberg reflects that if certain medical records had shown an incorrect blood type and he had been in an accident, the ramifications could have cost him his life.

“Medical ID theft can be fatal,” he says.

Rehberg will be the featured speaker at an educational lunch, Protecting Yourself from Identity Theft, sponsored by Kim Last, CFP®, CLU®, CLTC, president of Kimberley A. Last Financial Services, Inc., and Barbara Traylor Smith, president of Retirement Outfitters, LLC. The lunch is scheduled for noon Tuesday, June 14, in the conference room at 244 N. 7th St. Those who attend should plan to arrive about 15 minutes early to get lunch and get settled before the presentation begins. For more information, call Carolyn at 256-1748.

ID theft is a broad term that includes many types of information theft. They range from medical ID theft, such as Rehberg suffered, to theft of credit card information, to theft of other data used in routine transactions. Rehberg says about 27,000 cases of ID theft happen each day, and people should take steps to protect themselves.

“There is nothing that can prevent it. But there are many things you can do to be careful and cautious,” he says. “The time to pay attention is before it happens, not after.”

Rehberg says it can take nine months or longer for someone to become aware that his or her identity has been stolen. After that, it can take three to five years to clean up the damage, and the recovery effort can require hundreds of hours and thousands of dollars.

Since many stolen identities are used for illegal activities, you might not even know your identity has been stolen until a police officer notifies you that you’re wanted.

“Sixty-two percent of people with an ID theft issue end up with a warrant (for their arrest),” Rehberg says.

So what are some common-sense steps you can take to reduce that chance that you’ll be a victim? Don’t put outgoing mail in your mailbox and put the flag up. Outgoing mail can easily be stolen, and much of it contains bank account numbers, credit card information, and other types of information that ID thieves relish. Use a secure outgoing mailbox to send your bills and other mail.

Make sure you burn or shred everything that has identifying information and/or account numbers on it. Try to make it as difficult as possible for ID thieves to learn anything about you through your mail or trash.

“You can’t live in fear. Do what you can, and feel you’re protected the best you can be for all types of ID theft,” Rehberg says.

Rehberg will provide more details and information about ID theft prevention at the educational lunch June 14. Plan to attend.

Go to Investments main page.

Service clubs work hard to provide extras to JUCO baseball teams

When the Central Arizona Vaqueros baseball team comes to town this week for the Alpine Bank Junior College World Series, members of the Grand Junction Downtown Rotary Club will be as busy as the players.

The Downtown Rotary Club is hosting the Vaqueros, which won the Western District title last Saturday to earn a place in the JUCO tournament. And spearheading the Rotary group’s efforts will be Barbara Traylor Smith, president of Retirement Outfitters, LLC, and chair of the club’s JUCO team host committee.

“We are essentially their concierge while they’re here,” says Traylor Smith, who is in her fourth year of serving on the club’s host committee. “There are lots of details that have to be addressed.”

Each of the 10 teams from throughout the country that come to Grand Junction for the tournament has a local service-club host. The hosts play a crucial role in keeping the teams and their fans happy and comfortable during their stay.

The JUCO organizing committee takes care of basic logistics such as booking hotel rooms and practice facilities for the teams. But the hosts provide many of the extras, such as a barbecue for the team and their families.

Because some teams exit the double-elimination tournament as early as Sunday, Traylor Smith says the trick is to schedule the barbecue early. For Central Arizona, the barbecue is Saturday night at Canyon View Park.

“We will feed somewhere between 80 and 100 people,” Traylor Smith says.

Hosts also provide water, Gatorade, and other supplies to teams for practices. Occasionally, hosts run errands for the teams – Traylor Smith says she once had to go back to a team’s hotel and retrieve a player’s forgotten glove. She once took a player to the JUCO doctor for a sinus infection.

The host club also supplies bat boys and bat girls for its team’s games at Suplizio Field, and the club serves as a tour guide for teams and their families. When teams win and remain in the week-long tournament for several days, players and their families often take in some sights around the Grand Valley in their spare time. Such touristy activities can include golf and visits to Colorado National Monument and Grand Mesa.

“Some of these kids have rarely or never seen snow, so we’ve taken them to Grand Mesa to play in the snow,” Traylor Smith says.

The host club also makes sure members of the team get to the annual youth clinic, in which JUCO players and coaches teach baseball basics to local kids.

All in all, the host clubs work to make sure the tournament and Grand Junction are positive, memorable experiences for the players.

“Some of these kids will go on to four-year schools, and some of them will be drafted. But for some of them, it’s their last time in a uniform,” Traylor Smith says.

JUCO is a Grand Junction tradition, and this year’s tournament opens Saturday, May 28, at Suplizio Field at Lincoln Park. For information about the tournament, visit http://www.jucogj.org/.

Go to Investments main page.

Model RFP can help you ask the right investment questions

You’re an investor, you want help managing your funds, and you’re trying to figure out which investment manager to choose. How do you avoid casting your lot with the next Bernie Madoff?

Matthew Orsagh, CFA, CIPM, senior policy analyst with the Capital Markets Policy Group for the CFA Institute Centre for Financial Market Integrity, says in CFA Magazine that the Model Request for Proposal (Model RFP) developed by the CFA Institute Centre can give investors some questions to ask prospective managers.

Although the Model RFP is intended for use by institutional investors, individuals can use it to develop their own questions to ask potential investment managers. Using the tool to ask the right questions can help investors see red flags that indicate possible problems with an investment manager. Conversely, answers to the questions also can help confirm investors’ faith in their investment managers.

Orsagh contends that many red flags were missed by victims of the Madoff scandal, and if some of the investors had asked the right questions before investing with Madoff, they might have used a more cautious approach. The Model RFP can help investors formulate the right questions.

The Model RFP consists of three parts: Equity, Fixed Income, and Real Estate. All three parts are available free in PDF form from the CFA Institute’s website.

The Model RFP – Equity can be found at http://www.cfapubs.org/toc/ccb/2008/2008/6.

The Model RFP – Fixed Income can be found at http://www.cfapubs.org/toc/ccb/2008/2008/5.

The Model RFP – Real Estate can be found at http://www.cfapubs.org/toc/ccb/2008/2008/4.

Go to Investments main page.

Self-funded reverse mortgages can work in the right circumstances

Reverse mortgages, in which retirees borrow against their homes to create an income stream during retirement, typically are funded through brokers and financial institutions.

However, under the right circumstances, a wealthy family member can take the place of the brokers and institutions and finance a reverse mortgage for close family members. For lack of a better term, call it a privately financed reverse mortgage, or perhaps a do-it-yourself reverse mortgage.

Travis Perry, a Grand Junction attorney, assisted some clients who wished to set up such a private arrangement between an individual and his retired parents.

“This circumstance worked out well because there was a family member who had done well (financially) and had significant cash savings,” Perry says. With that savings, a loan for the parents was created and structured as a reverse mortgage on their home. In a reverse mortgage, the borrowers receive regular payments from a loan on their home, and the lender receives repayment when the home eventually is sold.

Perry says the arrangement in this particular case utilized a deed of trust on the real estate and a promissory note. A loan agreement spelled out details of the deal. The loan carried the going rate of interest on mortgages at the time the deal was closed, and Escrow Specialists of Grand Junction handled the financial arrangements.

“What we avoided were the majority of closing costs,” Perry says. Among the costs of the transaction were attorney’s fees and escrow costs, but most other typical closing costs were avoided, which resulted in a “significant savings,” he says.

“It’s kind of a win-win,” Perry says, pointing out that the borrowers received a low-cost loan at a competitive rate, and the lender received a competitive rate of return on his money.

Perry cautions, however, that such an arrangement for a reverse mortgage is rare and works only when a good relationship exists between the borrower and lender. “The perfect elements to come together haven’t appeared too often,” he says. “But this is a good alternative in the right circumstances.”

Go to Investments main page.

You’ve Got Mail: Pros and Cons of Going ‘Paperless’ with Fidelity

On June 7th, Fidelity will send an e-mail notice to each of our clients who have an e-mail address on file with them. This notice will ask for your consent to enroll in the electronic delivery (eDelivery) of trade confirmations and legal documents, including shareholder material and revised account profiles. The express purpose of these e-mails is to make it easier for you to enroll in eDelivery of documents, and at the end of the message, you will be given a choice to agree with or ignore the e-mail. Agreeing will result in electronic delivery of the said documents, while ignoring it will allow you to continue to receive paper docs. Please note that while we are not necessarily advocating that you switch to electronic delivery of your documents, we do want to explore the issue as an option.

What exactly are the pros and cons of going paperless? In addition to reducing ‘clutter’, there can be some monetary advantages for certain clients – namely, those with less than $1,000,000 in cumulative balances at Fidelity. Fidelity offers a significant discount on trades for clients who go completely paperless – from $17.95 per trade for shares up to 1,000 and a penny and a half for each share over 1000, to $7.95 per trade for shares up to 10,000 and a penny per share over 10,000. On a $500,000 account where Doug is trading a block of 10,000 ETF shares valued at $5.00 each, that would mean a cost of $7.95 for the ‘paperless’ client versus $138.95 for the ‘papered’- a significant savings on an example that Doug describes as ‘very reasonable’. Please note, for this discount to apply, a client would need to be entirely paperless, meaning that they receive their statements electronically too. The message you are receiving on June 7th will strictly be to opt in or out of electronic trade confirms and legal documents - opting for electronic statements can easily be done with a call to our office. Also note that clients with cumulative balances of $1,000,000 or more at Fidelity already receive the discounted fees, so there would be no additional monetary advantage for them.

In the past, the per trade discounts have not really mattered much for clients under $1,000,000, since most tend to be invested in the Fund Scout strategy, which employs the use of mutual funds rather than individual stocks; however, Doug does expect to begin using ETF’s in these portfolios, and these are subject to the same fees as stocks. For that reason, switching to the electronic receipt of documents might make sense going forward.

In order to 'go electronic’, you must be prepared to organize the files on your computer and back-up your files regularly. This can be one significant disadvantage (though you can always print a copy of the documents you receive electronically if you feel you can’t get away from storing the paper copies).

As stated above, we do not necessarily advocate going paperless; in fact, our past recommendation has been against it since we didn’t feel that most of our clients were adequately prepared to organize, store, and back-up their electronic files. This is an issue that is going to continue to come up, however, as businesses continue to strive for more digital and less paper. The paperless movement is not likely to go away, and we are at a point where the cost savings might begin making sense for some clients. If you would like to talk to someone about your specific situation and whether or not it would make sense for you to transition into paperless, please feel free to give us a call at the office – we are always glad to help.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

Go to Investments main page.

Economy Still Indicated To Grow Through Summer

The stock market’s ups and down, and economic growth – or lack thereof – are not random, but they are difficult to understand at times. May-Investments developed its own Leading Economic Indicator that helps the firm understand the current economic environment. Today’s LEI readings forecast continued economic growth during the months ahead.

May-Investments developed its in-house indicator rather than rely on the more traditional LEI, which is published monthly by The Conference Board. With the Federal Reserve adopting Enron-style off balance sheet financing vehicles in order to move the government’s new bond issuance out the doors into buyers’ hands, the old economic indicators are at risk of becoming obsolete. Investors are having difficulty understanding whether today’s economic growth is a mirage, an encouragement, or a house of cards about ready to fall and take investors down with it.

The resulting economic uncertainty causes many investors to remain on the sidelines for fear of a repeat of the 2008 banking panic. Unfortunately, “the sidelines,” as represented by bank and bond interest rates, pays investors little or nothing, so savers are being hurt by the Federal Reserves’ low interest rate policies, which have been crafted to benefit bankers instead of savers. Long-term investors are being asked to use yesterday’s economic indicators in spite of the apples-to-oranges comparison between the economic environment that preceded the 2008 collapse of Shearson Lehman, and the capital-starved world that we’re in today.

Investors could ignore the big picture, but 2008 proved that approach is too risky. Investors could remain on the sidelines, but inflation is persistently destroying the value of money held in the bank while food, energy, and import prices soar higher. Some investors will decide to use the old indicators, ignoring the sea change in monetary policies that have been adopted since 2008. That approach has worked fairly well since the market bottomed in March of 2009. On the other hand, ignoring the new reality won’t make it go away, and doesn’t mean that it won’t eventually matter (a lot).

May-Investments responded to the new economic realities by replacing outmoded economic indicators with a new Leading Economic Indicator of our own. Built in-house and updated monthly, it shows that the economy began a sharp decline in mid-2008, a few months before Lehman’s bankruptcy and the Wall Street implosion. Through 2009, the economy remained mired and didn’t actually turn up until mid-2010, despite traditional indicators that showed the economy recovering a year earlier. The old indicators put too much emphasis on low interest rates, a traditional indicator of stimulative Fed policy. In fact, low rates were put in place to bail out the distressed banking sector, but bank regulators were busy tightening bank capital requirements and lending rules that left banks shrinking loan portfolios, firing commercial loan customers - even those that were current on their loan payments. The world had changed, but the old indicators weren’t reflecting this new world.

As a result of developing our own indicators, we can say with more confidence that the recovery that began in mid-2010 is still underway, and is not a mirage. Retail sales and drilling activity turned up early and are still positive. Corporate profits have fully recovered. In contrast, small business confidence remains spotty. Even bank lending, which held back the recovery for months, recently turned up. These are healthy signs that give us confidence to invest for the long-term, rather than hiding on the sidelines.

There are certainly concerns, and our indicators help us know where to look for them. Overseas activity has been weakening for several months as higher interest rates abroad slow down the rate of recovery in our export sector. More recently, the technology sector has dropped a bit, presumably (but who knows for certain?) as a result of problems facing the tech sector related to the tsunami crisis in Japan.

When we build client portfolios, we can design them to reduce exposure to some risks (we currently have little foreign stock exposure) while embracing other types of risk, where evidence of the recovery gives us more confidence that risk taking will be rewarded. Most importantly, it has helped us keep our foot off the portfolio brakes when the market began rallying last Fall. We still think that the brakes are important. Our best guess is that we remain in a “trading market” that could go down, a lot, just like it has soared off the 2009 lows.

At times we want to be playing offense, while at other times it makes sense to be more defensive. Our Leading Economic Indicator helps us make sense of this new monetary world in which we find ourselves. As I write this, the view is still encouraging.
 
 Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies .

Go to Investments main page.