Better Safe Than Sorry

While we applaud and enjoy the wonderful returns of the stock market over the last couple of months, we are maintaining our relatively careful approach to equity allocation. It is not that we disagree with the reality of better news that is coming. Ironically, it is exactly because of the good news and what we believe the reason for it that is concerning. Corporate profits are strong, but at the expense of most hiring. The domestic efficiencies of business at the largest companies is not translating into profits for smaller companies; nor is it creating jobs. Not to sound too pessimistic, we do believe that we will get ourselves out of the mire of low GDP, but it may just be coming in the face of an economic mess in Europe. This will cause, at best, a tepid acceleration of US growth. In combination with the recent spike in gasoline prices we find it wise to be safer, rather than sorry.

A research group that we place significant value in determining our overall economic view is Economic Cycle Research Institute. Their system for identifying recessions, slow downs, recoveries, expansion, etc. is undeniably impressive. That said, this video has give us reason to temper our enthusiasm and even begin to prepare for this "likely" economic surprise that the current market action is not taking seriously.

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