For every finish–line tape a runner breaks— complete with the cheers of the crowd and the clicking of hundreds of cameras—there are the hours of hard and often lonely work that rarely gets talked about.-Grete Waitz
For basketball fans, little can compare with the annual NCAA Basketball Tournament which takes place in March. Teams from unknown schools go up against basketball Goliaths like Duke, UNC, and Kentucky…fortunes are won and lost and basketball reigns in the hearts and minds of the faithful. Last year Warren Buffet offered one billion dollars to anyone who could fill out a tournament bracket correctly forecasting the winner of every game…alas, this year fans have had to settle for the ESPN Tournament challenge, a much smaller prize for the most accurate forecaster. Regardless, the madness remains and everyone from advertisers to children gets in on the act. It is, after all, a classic American opportunity for the small and insignificant to triumph against great odds and upset the high and mighty. Strategy, hard work, skill, and teamwork are a huge component of the tournament, but emotion, luck, and perhaps fate also play their part. It is, of course, from these latter three that the “madness” moniker draws its name. It is in that vein that the subject struck us as we considered the current economic environment and the response of securities markets around the world. Consider a world where little Greece holds captive the fate of the entire Eurozone. Where the policies of a few Central Banks hold captive the securities markets of the world. This is the economic madness of March! In late January, the ECB (European Central Bank) announced its plan for a significant round of quantitative easing…i.e. the ECB purchases bonds in the open market with Euros. The size of the planned program was quite large…over 60 billion Euros per month through September of 2016 and perhaps beyond. The program instituted in March puts additional downward pressure on the Euro and strengthens our case for weak 2015 returns from unhedged International equity positions. In our view the QE program does little to improve the overall structural challenges faced by the Eurozone Economy, but perhaps when the only tool one has is a monetary hammer every problem faced becomes the proverbial nail. The Euro program coupled with the aggressive easing by the Abe regime in Japan poses an additional challenge for a U.S. Federal Reserve already struggling with the concept of normalizing monetary policy. Although the FED ended its QE program in October of 2014 it has been reluctant to actually raise interest rates, and the period of transition begun with Chairman Bernanke’s original comments (late Spring 2013) regarding the gradual limitation of QE continues.
Typically the period of transition in interest rate policy is positive for equities and we expect this period to be no exception. We continue to believe that equities, particularly U.S. Equities will move higher throughout 2015. However, the recent activity seems to confirm our belief that markets are likely to become more volatile as the FED approaches its first rate hike. In the madness of the current environment, positive economic data points, like the drop in the unemployment rate (5.7% to 5.5%), are actually taken as negatives, because the expectation is that they will cause the FED to act sooner and more aggressively. In contrary fashion, low inflation and the monetary antics of foreign central banks become significant positives for equity markets, because they may keep the FED on hold a bit longer allowing risky assets to continue to eurorise. All of which brings us back around to our March Madness analogy. It is difficult to get far in the world of NCAA brackets and tournament drama without considering John Wooden. Wooden, the famed coach of UCLA, and one of the greatest basketball coaches of all time was famous for his consistency, attention to detail, and work ethic. (He even instructed his players on how to wear their socks.) In his book, The Right To Lead, John Maxwell highlights a number of Wooden’s accomplishments among which can be found the following: Ten NCAA championships, an eighty-eight game winning streak, four undefeated seasons, the first person inducted into the Hall of Fame as both a player and a coach. Maxwell goes on to highlight Wooden’s attention to detail, work ethic, and commitment to excellence. These traits not only allowed Wooden to consistently perform in the midst of March Madness, but they deeply impacted those around him. My Pastor, Doug McIntosh played for Wooden on two of those championship teams. Wooden later described Doug as one of only two players “who came as close to recognizing their full potential as any two I ever had”. Wooden noted, that these two players may not have had as much athletic talent as others he had coached, but they used what they had to the utmost advantage. It is a focus on character and an emphasis on the little things, the hard work, attention to detail, and consistency that will ultimately produce the results we seek. In the economic madness of March and beyond consistency in our approach, and the character to diligently apply the investment principals we know to be true will help protect and grow our portfolios regardless of the chaos around us.
For additional information about Cornerstone Management or this report, please contact Bryan Taylor or Karen Sillay 770-449-7799
Financial Advisory Consultants DBA/Cornerstone Management Inc. is a Registered Investment Advisory Firm. Although the information in this report has been obtained from sources that the Firm believes to be reliable,All opinions included in this report constitute the Firm’s judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. we do not guarantee its accuracy, and any such information may be incomplete or condensed.
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