TGIF June 1, 2012

Sell in May and go away? You bet.  The DOW had only 5 up days in the month.  It is the first time that has happened in 43 years.  There were no back-to-back up days the whole month.  It was the worst performing month in 2 years.  There was far more selling than buying.  You get the point; It was ugly.  Good riddance.

But June started with troubling news that theUSeconomy is slowing faster than feared.  There were only 69,000 jobs created in May, less than half the 150,000 estimate. Unemployment rose to 8.2%.  Adding to the disappointment, both March and April numbers were revised downward.  Stocks were sent lower on this news.  But Bonds were rock solid in May, they just never get the same attention as stocks.  That’s misguided, but it’s been the case for decades.  You know what we think about Bonds.  We love them for the predictability and safety.  Bonds are key to our investment strategy and philosophy. Bonds are doing their job.

We prepared for this renewed turbulence, and remain very defensively positioned.  We have been selling stocks for months now, and are maintaining the largest cash position we’ve ever had.  Cash is a great short-term asset amidst Market declines because it provides a cushion for losses, and is ammunition to buy the weakness.  We utilize cash quite tactically.  We also have other hedges in place which are working in this environment.  We are long-term investors, but are active portfolio managers.  In our minds, in early Spring, the growing risks were outweighing the near-term rewards.  The Market is clearly focused on the risks now, and they seem to be growing still.

What we know is Europe is still in a crisis, bothChinaandIndiaare struggling for growth, and theUSis showing signs of contraction again.  The Political backdrop, both here and abroad, is quite cloudy, with elections and policies yet to be played out.  This complicates things for the Market, because as we all know, the Market hates uncertainty.  So hold on tight.  What is certain is that we are on it, and have portfolios defensively positioned for whatever comes our way.

Enjoy your weekend.  We’ll be back dark and early Monday.

By: Mike Frazier

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