The NYSE Finance Index is down 18.6 % YTD
while the Dow Jones Utility Index is up 10.8 %. Since the financial
meltdown in 2008, markets have lived in fear of another like event. Dread of a
similar meltdown scenario in Europe haunts investors. Ongoing liquidity
concerns and the recent debt downgrades of
the U.S. and several European countries has ironically caused investors to seek refuge in U.S. Treasury notes, German
Bunds as well as bonds issued by Japan
and Switzerland and the U.K.. All of these government bonds have recently
reached yield levels not seen in 50 years. Additionally, lower quality debt
issuers and global stock markets have all underperformed the US Treasury bond
market.
Emerging Equity Markets have led this year’s declines
with negative returns ranging from
- 32.9% India, - 23.7% Brazil, -
27.2% China Small Caps, -15.9% China Big Caps to -17.7% in Russia. The equity
markets in developed countries have also produced negative returns across the
board; Australia - 8.6 %, Canada -11.4%, France - 16%, Germany -13.8% and Japan
-13.7%.
Widespread fear of an encore performance of the
recent bear market, combined with negative sentiment and sickening volatility
have caused investors to flee equities. Corporate earnings however have climbed
back to 2007 levels above $100 for the S&P 500 Index. This has resulted in a significantly below
average Price/ Earnings ratio of approximately 12.5 times , calendar year 2011
earnings estimates.
The problem is clearly not in the earning power of
our corporations, but in a lack of confidence in global economic growth
prospects. Investors see weak political leadership in Europe, Japan and the U.S.
Politicians are unable to face the realities of growing deficits and ageing
populations. Promises that have been made to voters have proven to be as
illusory as the proverbial free lunch. Until we get a reset of leadership and
renewed political resolve with an eye toward fiscal responsibility, this fear
based environment will continue. The problems we collectively face are not
unsolvable, but growth oriented policies and a downsizing of entitlements
requires difficult and unpopular actions.
Our approach is to take advantage of this confusing
environment and position our portfolios to earn attractive yields from dividends
of high quality companies and bond issuers who can weather this fiscal
deleveraging storm. In sum, our strategy is to be paid while waiting for the
winds of change to calm. In addition, we
continue to believe that gold, energy M.L.P.’s, REIT’s and other tangibly
backed assets can provide significant returns in this stealthy inflationary
environment.
We welcome your comments and look forward to
helping you design and monitor an investment portfolio that suits your specific
needs.
Douglas Coppola
Client First Advisors, LLC is a
Registered Investment Adviser. Advisory services are only offered to clients or
prospective clients where Client First Advisors LLC and its representatives are
properly licensed or exempt from licensure. No
representation is being made that the information presented is accurate,
current or complete, and such information is at all times subject to change
without notice. Client First Advisors, LLC does not provide legal, accounting or tax
advice. Any statement regarding legal, accounting or tax matters was
written in connection with the explanation of the matters described herein and
was not intended or written to be relied upon by any person as definitive
advice. Each person should seek
advice based on its particular circumstances from independent legal, accounting
and tax advisers regarding the matters discussed in this e-mail.
