Daily Bullets…..for August 29, 2014

·         “U.S. way outperforming rest of the world”…..This is a quote from a Wall Street “expert” supporting the view for a continuation of the bull market based on strong fundamentals including strong U.S. corporate earnings growth and accelerating economic growth.

What’s the point? The article in the link below provides some interesting commentary from several Wall Street strategists discussing the current surprising strength of the stock market of late. One trader states that if the market stays strong for a few more days he will “throw in the towel” on his call for a correction. Why even talk about this stuff? It points up the difficulty (and futility) of trying to forecast the market, particularly in the short term. In our latest quarterly strategy, we slightly reduced our exposure to equities as a measure of risk management. We too share some concerns, primarily around geopolitical factors, such as Ukraine and ISIS. As the one trader comments in the article (Mr. Iuorio), a market correction will probably “blindside” investors. They usually do. As financial planners, we believe it is important to protect against market uncertainty by investing in a diversified portfolio that includes multiple asset classes. This helps to reduce portfolio volatility and helps in delivering improved risk-adjusted return, which we believe is the most relevant indicator of performance in prudent wealth management.

Link: http://finance.yahoo.com/news/real-stock-correction-going-blindside-135557230.html

·         Brazil in recession…We note with interest that one of the supposedly strong Latin American economies, Brazil, has officially entered a recession (see article for more information).

What’s the point? The point here is that global economic growth continues to remain fairly weak. The Euro economies remain mired in virtually zero growth and Latin American economies have experienced a significant slowdown. China appears to be on a slower “glide path” to 5-6% growth. All this continues to support the outlook for subdued global growth with the U.S. now being one of the strongest economies. The collateral implications of this would appear to support continued accommodative central bank policies, continued low interest rates, more capital seeking higher returns in higher risk assets such as stocks and real estate, and more capital flowing into U.S. markets. The fact the U.S. corporations are cash flush and can enhance shareholder return through both dividend increases and M&A, makes U.S. stocks relatively more attractive, and is another factor that supports demand for and valuations of U.S. stocks. We think the biggest risks now remain exogenous geopolitical events or some dramatic hiccup in either the Eurozone or Chinese economies.

Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140829&id=17893456