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July 16, 2014


July 16, 2014 Perspective

July 16, 2014 by Lesjak Planning

What a difference a month or so makes in the markets today. Towards the end of May, we printed that the small company stocks and technology were taking a beating in relation to their larger issues. Since then, the smaller caps have raced back near their all-time highs.

A recent wealth management survey shows that wealthy global investors are keeping almost 28% of their wealth in cash or its equivalents. That is more than their holdings in real estate (20%) or equities (26%). A Wells Fargo study showed their clients with 40% in cash. These numbers are still at historical highs and confirm that many have missed a large portion of the stock market’s gains since 2009. It also confirms that there is a historical amount in cash at very low interest rates that will be invested somewhere.

The past quarter has seen unexpected leadership from the likes of energy, real estate and international companies. Driving the rise in energy has been the U.S. Department of Commerce relaxing the laws regarding the export of U.S. crude oil. For the past four decades any export of crude has been banned. The less volatile light crude from the shale oil process has been Ok’d for export since we now have oversupply.

New home sales are up. The easy money in real estate may be over since recently very large investment firms that purchased thousands of homes when prices were low are now putting them up for sale. Real estate should still perform well as inflation heats up.

The past few years have produced leadership and large gains in large company stock, small company and technology, real estate, commodities, international stocks and still even bouts of growth in bonds. A balanced portfolio has exposed investors to nice gains during the period and has rewarded those who follow that type of investing strategy. It will be interesting to see what the rest of this year brings.

Enjoy the summer!

The fact that most equity markets are at or near their all-time highs leads to some anxiety about facing another free-fall in prices.

We continuously communicate with our fund managers and analysts about their thoughts and strategies. Their consensus remains that while stock valuations have increased very well the past few years, they are quite close to historic medians and are still cheap when compared to bond yields. Economic news is getting better with less unemployment and increased manufacturing output which should lead to a rebound in overall growth. International companies have also rebounded quite nicely and are expected to continue their growth.

Fixed income and bond funds continue to collect large inflows of cash while interest rates are being kept at extremely low rates. Rates should move higher going forward since inflation is becoming more apparent in everyday costs of goods. The reason interest rates have not yet risen is because the Federal Reserve is still buying bonds and the supply is about one third of what it was a few months ago, (more demand than supply). This creates an artificial demand that will disappear this fall as the Fed’s decision to stop the buying strategy is enacted.

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Lesjak Planning

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