1st Quarter 2012 Commentary

Posted on Friday, April 20th, 2012

What’s New

We generally end with our “What’s New” section, but we have so much that IS new, we thought we would start here this quarter.

Seasons of Planning – This quarter kicks off our “Seasons of Planning” initiative which more formally focuses our planning around key wealth topics each quarter.  This quarter, we are focused on investment review and due diligence, while future quarters will cover topics such as estate, tax, insurance, asset protection, etc.  We want to continue to deliberately add to our clients’ experience beyond investments, and our “Seasons of Planning” will do just that.

We are growing…AGAIN – We’re excited to announce three additions to our staff – Samantha Suhajda, Kristin Zeigler, and Zack Slappey.  Kristin and Samantha join our client service team, and Zack will be our new dedicated portfolio manager.  In addition, Jennifer Fazio who’s been with us since 2008 will transition to the Role of Admin Manager and Assistant to Jim Heard. Jennifer will continue to work with clients but also will support the management team, too.  We hope you get the chance to meet or speak with them soon.

Client View/Client Portal –  Accessing your accounts through our website isn’t new anymore, but you may be accessing this newsletter for the first time from the document vault in Client View, and that IS new.  Feedback from clients has been VERY positive, and we will continue to expand our use of it in the future.

Investments and Markets

It was a very good quarter – the best in over a decade for the S&P 500.  Challenges remain, and we all know what they are.  No one’s celebrating, but it sure is nice to see one of these again.  See the key market indexes below.

Q1 2012 12 Months Last 3 Years*
90-Day US Treasury (T-Bills) 0.02% 0.04% 0.11%
BarCap Interm US Govt/Cr (Bonds) .61% 6.09% 5.88%
S&P 500 (US Large Cap) 12.59% 8.54% 23.42%
Russell 2000 (US Small Cap) 12.44% -0.18% 26.90%
MSCI EAFE (International) 10.86% -5.77% 17.13%
US REITS (Real Estate) 10.78% 9.59% 40.78%*annualized

Two things stand out.  Markets are up dramatically from 3 years ago.  Second, Real Estate performance has been nothing short of unbelievable since 2009.  Few investors thought equity markets would recover this well from the market bottom.  Almost no one believed that real estate would even have positive returns for several years, much less the returns we’ve experienced.  Many thought we were facing economic Armageddon in 2009, and just consider what’s happened since then.

Here’s the takeaway – Human emotion and current news do nothing to inform us about future market direction.  Never have.  Never will.  What we know, what we think we know, what we feel, and everyone else’s knowledge, perceptions, and emotions, which we DON’T know, are already reflected in market prices.  Future market changes are based on future events and information WHICH…are not known yet.  That’s the nature of investment risk, and it’s exactly THAT for which you are paid over time.

Economics and Politics

The U.S. fiscal profligacy is terrible.  A few billion of savings here or there do nothing in the face $1+ TRILLION of annual deficits.  In 2000, total federal receipts were just over $2 trillion, and we had a budget SURPLUS of $250 billion.  2012 projected receipts are almost $2.5 trillion, and we’re projected to have a budget deficit of over $1,300 billion (yes, that translates into a deficit of $1.3 trillion).

Even adjusting for inflation, 2012 receipts are approximately the same as 2000, and if you’ll remember, 2000 was a banner economic year for this country.  However, inflation adjusted expenditures have increase by $1.2 trillion since 2000.

There isn’t enough tax revenue to offset the current spending.  This is solvable without hyperinflation, and several credible solutions have been offered, but we need to start soon.

We’ve spoken enough about the euro in our letter last quarter (click here for our 4Q11 Commentary). Today’s markets are reacting less dramatically to changes in the European outlook, and they seem resigned to the prospect that it will take years, not months, to solve.  We are still of the belief that the euro in its current form will not survive, and thankfully, a number of strategies have been proposed on how to unwind the euro if it becomes necessary.

China feels like it’s a bubble, but we really don’t know.  We can’t help believing that China’s economic numbers are what they want them to be, but if it really is an illusion, it will come to light in time.

And politics.  Yes, lovely, lovely politics will be the top news for the rest of the year in our country.  And the economy, spending, and deficits will be its backdrop.  Won’t it be FUN?!

So what are the investment implications of all this?   As we already stated above the future remains unknown.


We are concluding with last quarter’s summary, because we can’t improve upon it for today’s environment –We continue to hear from our clients that they’re concerned about the current sustainability of markets, economies and politics.  We understand the “it’s different this time” feeling, but we respectively disagree.  Why?  Because it’s always “different this time.”

We still have confidence in our political and economic systems.  Not because they’re perfect, but because they’re better…much better than the command-and-control alternatives.  The wisdom of the many far exceeds the intelligence of the few, and our political and economic systems still are based on this core belief.

When you’re on the front lines, sometimes it’s hard to get the perspective necessary to believe that it’s really getting better.  But it is.  Markets lead, not follow, and markets are telling us that we’re making progress.

And we are.

Best regards –

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