Winter 2014 Newsletter

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Thirty-nine years ago, when our firm was founded, Gerald Ford was in the White House, disco was all the rage, Jaws hit the big screen, the Pittsburgh Steelers were building a football dynasty and the Dow Jones Industrial Average (DOW) was at 600. The DOW entered 2014 at an all-time high of over 16,000. We learned the lesson of patience over the past four decades: investors who embraced long-term investing have been rewarded.

We are now five years from the financial crisis of 2008. Out of this “economic cleansing,” a new Bull Market was born. The U.S. economy has been accelerating. Inflation is still benign. The job market improved significantly in 2013, but 7% unemployment is still too high. Short-term interest rates will stay low, thanks to an accommodating Federal Reserve Bank hell-bent on keeping money cheap so banks can lend and businesses can borrow. Longer-term rates, however, are on the rise; this is actually a good thing. It means growth. Janet Yellen will take the Fed reigns and appears intent on following Ben Bernanke’s roadmap.

2013 was the best year for stocks in two decades. His­tory has shown there’s reason for optimism in 2014. Good years follow great years. Since 1927, after a 25%+ gainer, the Stock Market has risen the following year over 66% of the time. Washington shouldn’t be as big a thorn in the side for investors as has been the case the last few years. The government shutdown is behind us, but there is a midterm election in 2014. Might we see the Market return to more stable and boring days, like the 1980’s? Slow and steady with gradual ascension? Probably not. We still see some more life in this Bull.

Growth investments have been the biggest market driv­ers in the current rally, and we don’t see that changing in 2014. There’s still lots to like in the U.S. We continue to find our three favorite growth segments at home: Ad­vancements in Technology, Biotechnology and Energy in the U.S. are unrivaled around the globe.

by Mike Frazier

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