“The afternoon knows what the morning never suspected.”  
- Robert Frost

April 5, 2013

Our investment strategies in the beginning of the first quarter of 2013 reflected our investment posture from the close of 2012.  In the last quarter of 2012, we saw economic expansion not only in the U.S. but in Asia and in Northern Europe.   We track a dynamic list of more than 25 global economic indicators; however, we follow some more closely than others.   Two of our more favored indicators gave support to our view in an expanding global environment.  The credit markets throughout the world began to experience both increased yields coupled with good liquidity, a perfect recipe in our minds for economic growth.   In addition, we also observed the price of crude rising in a slow and measured manner.  These positive global economic indicators led us to continue to position both our Growth and Growth & Income or Exit strategies in sectors primed to participate in a worldwide economic expansion during an economic “risk-on” cycle.  These sectors included deep cyclicals, cyclicals, industrials, transportation, technology and financials.  In our Income strategy, our end of 2012 and beginning of 2013 posture was more defensive and yield sensitive, and thus we favored healthcare and consumer staples sectors.   For all our strategies, we continued to hold our positions throughout January and most of February, and as a result experienced significant appreciation in keeping with the total markets performance.

Towards the end of February and continuing into early March, our indicators began to reflect a slowing in the various worldwide economic regions such as Europe and Asia and, to a somewhat lesser extent, here in the U.S. as well.  We saw the 10 year note yield, crude and manufacturing numbers begin to deteriorate at a slow but measured rate throughout March.

Given these signals, we slowly began to realign our Growth and Growth & Income or Exit strategies to join our Income strategy in reflecting a more “risk-off” posture.   As of the end of March, all strategies tilted toward defensive stocks sectors such as healthcare and consumer staples.

We continue to monitor our data points to see if the U. S. economic momentum follows the rest of the world.   In particular we are concerned that the yield on the 10 year note continues to drop (1.84% as of April 1st).  This does not correspond to a healthy growing and dynamic economy.  The same can be said for the declining price of crude.

Going forward it is not about being bearish, bullish or agnostic.  It is about managing risk and generating decent risk-adjusted returns across all of our investment strategies.  Managing risk remains paramount – all the more so as the market continues to make new highs and renders future expected returns more difficult.  We are alert though to the nuances in the markets and are prepared to react accordingly as they develop.