TGIF January 24, 2014

It’s been a bumpy start to the New Year for stocks.  This comes as no surprise to us.  2013 was a banner year, and the 20%+ rally needed consolidation.  The Market is due for a breather.  We expect 2014 to bring more choppiness, but still see plenty more life in this Bull.  It’s smack dab in the middle of earnings season now, and thus far it’s been a mixed event.  Corporate America remains in strong shape, but investors’ expectations might have gotten a little ahead of reality.  Not so overseas. 

International Markets have been another story altogether.  Emerging Markets, led by the BRIC nations which are Brazil, Russia, India and China, have struggled mightily while the DOW has soared.  Rampant inflation, slowing growth and rising geopolitical tensions have plagued the emerging nation stock markets.  China is the second largest economy in the world, behind the US.  China has been trying to manage its transition from an export economy to a consumption economy.  There have been many bumps along the way.   There will certainly be more, but our feeling is that China is pretty far along in the process and could experience an acceleration of growth in 2014. Ironically, the one place where the Chinese data didn’t have a negative effect today was in China, as the Chinese stock market closed out the week up nearly 1%.  Our strategy to play this potential recovery in China is not by owning Chinese stocks.  We want to own what the Chinese are buying.  Right now they’re buying a lot of iPhones, energy, beverages and other consumer goods.

Naturally, investors are wondering whether the losses this week signal the start of a bigger correction. The DOW and S&P are only 2% off historic highs but fear is creeping back in, which generally is a good sign.  Bullish complacency often leads to sell-offs; it just takes a while.  Our feeling stands that a correction is overdue, and would be welcomed, and we are positioned accordingly.  We still see more life in this Bull.

You know what is doing well right now?  Bonds… but few are talking about it.  January has provided a nice backdrop for the Bond Market, beginning the year with the 10-Year Treasury at 3% yield.  Today it’s below 2.75%.  Lower yields mean higher prices for bonds.  And we were buying them in December.  Our bonds are looking good.  They’re doing their job quite well.

Speaking of looking good; we have a new logo.  After many years, we ditched the Purple & Gold, and have introduced a new look.  We hope you like it.  Have a nice weekend.  We’ll be back dark and early Monday morning.

By: Mike Frazier

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