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Transcript
May 2013 Update
Economic Update: There is much recent hullabaloo over the famous Rogoff
and Reinhart finding that high levels of govt debt severely impact a country’s
growth. I’ve cited their work before and I will stick to their findings: at some
point when govt debt is greater than 90% of total country GDP, private sector
growth will slow dramatically. This, of course, impedes any country’s effort to
grow their way out of the debt hole. Per their research there eventually
comes the BANG moment where rates soar and the govt is then bankrupt.
Our economy was decent in first Quarter—just a slow plodding along, but well
below prior recovery rates. The good news is that the private sector is
growing enough to offset the reductions that are starting to ripple through all
the public sector. We’ll need this private/public dance for a while since the
private sector is the golden goose for taxes to the public sector.
Market Update: After a brief sell-off stocks have come right back to their 5 yr
highs. My indicators still point to some correction in the near future: insiders
are selling too much, advisors are way too bullish, and 5 years is a long time
for any market to be climbing. But all the chart gazers will tell you we are
onward and upward since most indices have gone to new highs. I’m happy to
have an excess of bonds and cash just in case the markets want to correct.
Mutual Funds and Asset Allocation: The big winner this year, and for the
past several years, is Biotech stocks! They are up about 25% this year and are
proving to be the source of most new drugs coming to market. With this latest
plunge in gold prices, the biggest loser is gold mining stocks, down some 35%
for the year, and putting that group with no gains over the last five years--an
interesting outcome in a world full of Central Bank money printing. The short
answer is that we are facing tremendous DEFLATION from all our debts and
the money printing and zero interest rates cannot seem to help at all.
Bond funds have recovered a bit, showing gains of about 1.5% YTD, which
would annualize to a pleasant 4-5% return for the year.
As always, I thank you for your business and your support!!
John