Over the past two weeks the market advance has weakened a bit, but not enough to warrant further defensive action at the present time. As of the close of business yesterday, each of our managed portfolios was holding an approximate 55% allocation to equities (mainly domestic equities with a small exposure to international), a 15% allocation to U.S. real estate, a 10% allocation to U.S. high yield bonds and a 20% allocation to money market assets. We have begun the process of adding a 10% allocation to emerging markets in most accounts (which is reflected in the 55% figure above). We had eliminated that position several weeks ago but the market has stabilized enough to warrant a bit more exposure at the present time.
With the tragedy in Japan on all of our minds, the global economic impact could be significant enough that further portfolio adjustments may be needed in the coming weeks. The Bank of Japan has injected significant liquidity into their system, which should help to stabilize their economy in the short run. The recent devastation reminds me never to take our good collective fortune for granted, and that our shared economic stability is so important during periods of great stress.
The major economic issues remain the same as they have for the past several years: the Federal reserve is working to create inflation (which they are), and deficit hawks in congress (and now in state governments) are working to ultimately bring spending and wages and compensation down (which they probably will). So far, the inflation camp is winning but the market is still so sensitive to any sign of deflation or of a slowing global economy that it can be quite bumpy. We would expect that to continue for a while.
So here’s our current “bird’s eye view” of the markets – our five-year ETF charts with both their respective short- and long-term trendlines. With the aforementioned exception of emerging markets, you can see that all major market segments remain firmly in a rising trend environment. We will continue to sport this moderately bullish posture until such time as a significant adjustment is warranted.
As always, I welcome your comments and thoughts…