Featured Essay
The Bridge Between Chaos and Opportunity
February 2010
A year ago, the world was on the brink of economic collapse. Unprecedented government intervention in the form of zero interest rate policies, the backstopping of financial institutions and some modicum of economic stimulus brought us back from the brink. Financial markets, hitting their stress points in early 2009, staged unprecedented rallies as cash flowed from low interest bearing Treasury Bills and money market accounts back into financial instruments. The S&P 500 rallied 67.23% from its March low of 666.79 to close the year at 1115.10. Bonds also rallied as the combination of artificially low interest rates, the compression of risk premiums and hundreds of billions of dollars of new money forced yields lower. Despite the poor economic backdrop, investors focused on the potential for future inflation. Market participants flocked to gold, moving the price from $880.80 to $1,095.60 on December 31 after an interim high of $1,214.80 on December 2, 2009. On a broader basis, the Goldman Sachs Commodities Index gained 11.22% in 2009. The dollar lost roughly 15% versus a basket of global currencies. So……where do we go from here?
We view 2010 as a transition year—a bridge between chaos and opportunity. Investors need a chance to catch their breath and reposition portfolios for longer term opportunities. 2010 will represent the year of portfolio reconstruction. Below, we’ll set forth key points for consideration, recognizing that each pool of capital we advise has its own unique set of guidelines, risk tolerance, and time horizon.