June started off on Friday, June 1st, with amuch worse than expected employment re-port in the U.S. along with increasing concernabout rising yields in Spain and Italy. Whilethe following Monday exposed weakness inU.S. factory orders, there were hints that Ger-many may soften its stand against Eurozonebonds that would be used to socialize Euro-pean debt and relieve pressure.Tuesday brought more potential good news with a growing prospect for coordinated globalpolicy action to forestall further economicslowdown. Wednesday was a red letter day with several Fed board members hinting atfurther easing in the U.S. helping the S&P gainover 2.5% (a technical bounce reacting to prior
Stock Market Commentary
May 7, 2012
Lane Asset Management
The news of the momentis the growing anticipationof further policy action inthe U.S. and Europe toprovide a backstop to theeconomies and to protectthe European banks frominsolvency. While I findsupporting these actionseasy considering the alter-native, it needs to be re-membered that these areartificial means to addressa far more serious prob-lem and sow their ownseeds for future difficul-ties. The European andU.S. economies of roughly1990-2008 were built onsand (debt). Restorationof broad participation in athriving economy will re-quire much more funda-mental changes than canbe offered by centralbanks around the world.loss may have also played a part in the rally).Thursday started strong but ended essentially flat.Investment Outlook In terms of short term performance:
Markets are concerned about a global slow-
down/recession and each day’s news that rein-
forces that view is met with further market de-terioration
While there is political concern about the po-tential long term expansion of sovereign debt,the markets are overjoyed to hear of govern-ment action to bolster economic growth andavoid bank failures (when the chips are down, we all become Keynesians)
The back-and-forth of these messages are con-tributing to market volatility and the bi-modalnature of expected investment returns.I believe we are at one of those investment cross-roads where almost overwhelming fundamental
headwinds are meeting the world’s best attempts
at reversing the global economic slide. Frankly, upto now, policy actions have been short-lived and in-adequate to the task.How an investor responds to the current environ-
ment depends on one’s risk tolerance and invest-
ment time horizon. My own view at the moment isthat the downside risks outweigh the upside oppor-tunity for at least this year, so invest accordingly.
The charts on this and the following pages use exchange-traded funds (ETFs) rather than market indexes since indexes cannot be invested in directly. The ETFsare chosen to be as close as possible to the performance of the indexes while representing a realistic investment opportunity. Prospectuses for these ETFs canbe found with an internet search on their symbol. Past performance is no guarantee of future results.