3rd Quarter 2011 Commentary

Posted on Monday, October 24th, 2011

Investments and Markets

The third quarter produced negative market returns in every equity asset class as global debt concerns increased and the Euro’s survival remained a question.  This time last quarter we were wringing our hands about raising the U.S. debt ceiling to avoid a default.  Since then, a temporary measure was passed, S&P lowered its U.S. credit rating, and equity markets everywhere declined…significantly.  Now, the focus is mostly on the debt problems overseas and the hope for the Euro’s survival which still remains very much in question.

Net, net, markets returned to their year-ago levels as the one-step back, two-steps forward market recovery continues.  In preparation of the Client Summit on the 27th (see below), we‘ve prepared some data on the market recovery since 2008 and the bottom that was reached in March 2009.  We were surprised at the numbers, and I’ll leave that as a tease to entice you to come.

Meanwhile, here are the most recent quarterly index returns.

Q3 2011 Last 12 Months
90-Day US Treasury (T-Bills) 0.01% 0.09%
BarCap Interm US Govt/Cr (Bonds) 2.39% 3.40%
S&P 500 (US Large Cap) -13.87% 1.14%
Russell 2000 (US Small Cap) -21.87% -3.53%
MSCI EAFE (International) -19.01% -9.36%
DJ US REITS (Real Estate) -15.33% -0.28%

Economics

Certainly, the theme for the last several years has been “debt,” and too much of it.  Europe’s issues are somewhat different than the U.S.  Ours is within our political control, but Europe has currency and loan problems that are not backed by any real authority.  Germany and France are still weighing the difficult decision of how much of the profligacy of other countries they’re willing to guarantee.  It’s not as if they can foreclose on the Parthenon or the Coliseum to get their money back.

Ultimately, the market is looking for a de facto joint and several backing of the Euro from all the countries, just like any other financial partnership would be required to do.  Basic issues of sovereignty and enforcement are in play, and it remains unclear whether an agreement among the parties can be reached anytime soon.

Politics

The election cycle politics is moving into third gear.  You must be as excited as we are.  Just wondering – are we paying too much for what we get, or do we get what we pay for?  Think about it.

Enough of the cynical comments.  The history of our political process up close and personal has always been ugly, and we shouldn’t expect it to be any different this time.  History also tells us that the results have been pretty darned good over time.  So regardless of your persuasion, we suggest you hold your nose, put on your hazmat suit, and jump in the political pool with both feet.  Elections matter, and this one is no different.

Come on in.  The water’s fine.

What’s New

The 2011 Client Summit, October 27, 5pm, Grand Hyatt, Buckhead.  Be there!

5pm – drinks and hors d’oeuvres.  6pm – Speakers – Dr. Rajeev Dhawan – “Global Economic Outlook” followed by Jim Heard – “The Markets from 2008 Until Now.”

This year’s Summit will be particularly special because there will be plenty of new faces due to the recent merger plus quite a bit of growth.  We’ve assembled a great team of professionals AND clients.  We’re excited about everyone getting together.  If you’d like to attend, call Chris Holland at 678-510-2740 to let her know.

Investments - We’re making some changes to our bond allocation.  These changes are very modest and broaden our bond diversification.  Specifically, we’re adding un-hedged short-term, high quality foreign bonds, and we’re slightly extending our maturity and credit quality.  The un-hedged foreign bonds will represent approximately 10% of the total bond allocation, the duration will extend from approximately 3.6 years to 4 years, and the average credit quality will drop only marginally and will stay at AA+.

Online Reporting – Finally, over the next six months, we will be rolling out internet access to your portfolio information.  In this day and age of instant information, online access is expected, but being able to provide it from a multi-custodial platform is a challenge.  We believe we now have a great solution.  As an added benefit, this also should reduce the urgency of having client meetings immediately after the quarter ends since portfolio information always will be current and available as of the previous day.  Expect to see more information on this in the next 90 days.

Hope to see you at the Summit!

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