Insights on Today’s Market

THURSDAY, May 6, 2010

I’m sure you already heard the news. The Dow Jones Index dropped by close to 1000 points before closing down only 347 points (3.47%). Let that sink in – 1000+ points down .

Here are some of my thoughts:

What is Happening?
As you know, Greece (and more broadly the European Union), has been in the news a lot lately. This is due to Greece needing a lifeline from other European countries to handle their overload of debt. They are so overloaded they cannot service the debt and if they default, they take European Banks and potentially other European Gov’t Bonds with them. The EU has rules for staying financially sound in order to be in the union. Greece cooked their books in order to get in, in the first place. They continued spending more than they brought in, with money borrowed from European banks, and now the clock is striking midnight.

Furthermore, data suggests other European countries will be coming into a similar situation as Greece. Therefore, as Europe tries to ‘solve’ Greece … it isn’t over. The question is: Is Greece’s problem enough to topple the worlds equity markets? Answer: Not alone, but then again, they are part of the EU and there are consequences to others.

What else is going on?
On the other hand, stats say that we are in an economic recovery. The US Stock Market has recovered over 75% from the low of March 9, 2009. But surveys are showing, and clients and friends are telling me, that something just doesn’t feel right. I have said to many of you, that after such a quick recovery in the last year, I do think we will have a market pullback this year. But I’m not sure it is because of Greece alone. But the fact is, Greece and Europe are affecting investor sentiment across the globe in a negative way.

What to do?
For most of you, we have been taking a very conservative approach for quite a while. Its times like today, that a conservative approach certainly makes us feel better. However, we need to be planning for the longer term (I certainly am) and there are still bumps in the road ahead.

I think a conservative slant generally speaking is still in order. No need for panic or major changes. However, I want to remain cautious. In addition, I think we should continue preparing for a likely bout of inflation in our future. It won’t happen this year for certain, but when it comes, it will be very painful. So, we should continue to overweight investments that will hedge against inflation… (TIPS, Commodities, Gold, short-duration bonds, & emerging market bonds and equities).

And one final thought.

Today was very choppy. The recent weeks have grown more choppy (volatile) too. These are different times. Traditional investment strategies are not likely to give us the returns we’ve seen in the past. But remember… I have been working with you to make sure your “eggs are not in any one basket”. We need to be open to investment ideas the will allow us (you and me) to take advantage of opportunities … wherever they may be.

Please feel free to call with any thoughts or concerns.

Best regards,