Summer slowdown?  No way!  The news is full of compelling story lines.  Some of them have investment implications, some do not.  Here, we briefly sort them out.

 


 

 

* Current news items and our view on them:

 

* Russia/Ukraine - may disrupt oil markets temporarily, but issue will fade within a few months.  We are not going to start WW3 over Ukraine.

 

* Gaza/Israel - not a market-related issue at this point.  If Iran were to get involved, and oil stockpiles threatened, its another story.

 

* ISIS terrorist group invading and taking over major Iraq cities - this is the most overlooked threat.  Europe, Asia and the U.S. all have much to lose by the danger or at least     distraction of dealing with another major round of Islamic Jihadists.  But like many such geopolitical issues, this may rock the markets at some point, but down the road will     create an overreaction and thus a market low. As for the timing, who knows?

 

* Federal Reserve policy (low short-term interest rates for the foreseeable future) - the economic recovery has been spotty and slow, with the Fed suppressing rates for years.  There will be hell to pay at some point, in the form of high inflation and massive losses on the bond portfolios and bond funds that investors have seen as "safe" for 30 years.  The stock market may benefit from some asset flight from bonds to stocks, but the stock market has its own internal issues.  That's why we are hedged investors in the equity market and largely absent from the bond market, and expect to remain that way for as far as our eyes can see.

 

* Stock market dropping from its recent all-time high - is this the start of a big drop or just another short-term spill?  We can only guess along with everyone else, but we do see a pattern in the 100 stocks we follow.  It is tougher to find stocks that have more than modest upside from here.  Having been through two of the biggest market tumbles in history (2000-2002 and 2007-2009), we see many similarities, particularly in the rising level of investor hubris and the money chasing unproven technology businesses in the public and private markets, and at ridiculous valuation levels.  There are more negative signs, and the main positive is the same one we have had for years: loose monetary policy by the Fed and other central banks, delaying the inevitable.  Enjoy it while it lasts, but this is precisely why we practice a hedged approach to income, growth and preservation of capital at Sungarden.

 

* Ebola Virus - we are certainly not medical experts, but this seems like more of an unfortunate situation for a very small portion of the population.  Survival rates have varied historically and those numbers are not encouraging.  However, its possible that survival rates were so low because the cases occurred in parts of the world where medical care was not as advanced as it in the U.S. and other developed economies.

 

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