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The Upside Down Map, August 2011

Did you ever visit a new city, and set out on a walking tour with your trusty map in hand?  The hotel was lovely, breakfast was great, and wasn’t the weather just wonderful?! Two hours later, you were probably standing at some busy intersection with the map upside down, and getting crabby because the park on your left wasn’t bordered by the street signs that you expected.  Welcome to Markets 2011, end of first half!  

The year started well enough.  The upward trending during the last four months of 2010 continued through the middle of February, with the Dow increasing by about 6% in the first 45 days.  (Compliance requires me to state that the Dow Index is not a security, and that past performance is not a guarantee of future return)  The walking tour was great, and 2011 looked like it was going to be a very positive year.  Then out of the blue, Japan was hit by one of the most devastating cataclysmic events in memory, Egypt’s Hosni Mubarak resigned and transferred his power to his military, the U.S. military crossed Pakistan’s borders and killed Bin Laden, and then we involved ourselves in an uncertain war in Libya. Here in the U.S., housing values continued to fall and unemployment continued to rise. The European credit crisis struck again in full force, and our own Congress began to play a game called “Draw your line in the sand, and don’t worry about the tsunami”.

Our delightful walking tour suddenly began to look like a disoriented Hokey Pokey.  The Dow dropped 6% from February 18 to March 16.  Then, it suddenly reversed course and jumped 10% (12,810) by April 29.  Just as we thought we had found our location on the map, the markets went south by a quick 7% by June 15. Then we caught a cab and headed north about 7% to July 7.  But, as walking tours go, our map was upside down and we caught a wrong bus, heading south again by 2% in the next 7 days. 

The creases on our map are split and torn, a piece is lying in the trash over by the duck pond, and I’m not sure what quadrant of the city we’re really in. We’ve pulled a Daniel Boone, “Never lost, but a might bewildered for a couple of months!”  So if this scenario sounds uncertain, let’s add a short round of optimism. We are NOT where we were a year ago; the Dow was at 10,359 on July 15, 2010 and is now at 12,479 on July 15, 2011, for a gain of about 20%. Japan is making Herculean efforts to rebuild itself, and the European Union fully recognizes how dangerous its debt levels really are. The Middle East will continue to be a problem area for years to come, and the cost of oil will fluctuate accordingly. Despite the many challenges so far this year, the Dow is still about 7% higher than it was on January 3, and there are signs the real estate markets may be turning slightly.  I expect that our Congress will negotiate a deal at the 11th hour, raising our debt ceiling to avoid a ruinous default.  The Dow will undoubtedly take a significant jump, as will the emerging markets which have generally lagged the Dow so far this year.  However, we’re still standing at a very confusing intersection with our map upside down.  Let’s make sure that we’re prepared for the downside, and remember our StoneRidge mantra, Safety first, Growth second.

Van Mason, CFP™, CLU, MBA


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.