Second Quarter 2011 Review“Change is rarely comfortable.” As our clients are aware, LCM Capital Management repeatedly states that “volatility is here to stay.” While we realize this statement is a repetition from prior reports, it serves to punctuate our belief in maintaining a long-term focus, and leaving the day-to-day guessing to traders. The second quarter saw the Dow Jones rally 4% in the month of April, decline 7% through mid-June and then rise 4% in a four-day gain to finish the quarter up only 0.8%. The S&P 500 and the NASDAQ both finished down 0.5%, as did the Dow Jones World Index (ex U.S.). The Russell 2000 Small Cap Index had the largest quarterly decline at 1.9%. The major winner for the quarter was Treasuries of all maturities, gaining 2.78%, which continues to mystify the “experts.” Now that Quantitative Easing II has ended, we expect the bond market to become increasingly volatile, perhaps even more so than the stock markets. This past quarter, 10-year U.S. Treasuries had a 20% movement from top to bottom. If this is any indication of what is in store for bonds, we urge you to call us should you, your family, friends, or colleagues own any bond funds. The amount of risk most bond funds are taking today will unequivocally result in greater potential losses for investors than the bursting of the internet bubble, largely because these investments are perceived to be conservative in nature. Commodities have also become extremely volatile. Oil finished down 11% last quarter and had single-day price movements of 8.6%, 5.5%, and 4.6%. In the past, these movements would occur over a year’s time, not a day’s. Wheat plummeted 23% last quarter, corn dropped 20%, and cotton collapsed over 26% in the month of March. We mention this only to strongly recommend turning off CNBC and the various “noise” around the financial markets, in order to focus on the long term view. The economy will continue to recovery slowly while the jobless rate remains painfully high. GDP growth is widely accepted to be at 2-3%, which is in line with LCM Capital Management’s forecast of the past two years. This reality should rein in unrealistic strategist expectations. Tax rates will also remain high and could potentially move higher, validating our conviction for high-grade insured municipal bonds. We will eventually recover from this fiscal morass our country is in, but not without sacrifice, and ideally not without holding our elected leaders accountable for their actions. Whether in the streets of Athens, Greece or Trenton, New Jersey, government employees are slowly coming to terms with Arno Penzias’ reality of change and the meaning of austerity. LCM Capital Management remains accountable to our clients as we build the most transparent, low cost, fiduciary focused private money management firm in the country. Thank you for your continued trust, business, and referrals. LCM Capital Management The view expressed reflects those of the authors as of the date of this commentary. Any such views are subject to change at any time based on market or other conditions, and LCM Capital Management (LCMCM) disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for LCMCM are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of LCMCM. Thoughts about investing, the direction of the market, and individual securities are based on the author's own analysis and are not representative of actual future performance. Investing involves risk including the possible loss of principal. |