Current Commentary

This was one of the best quarters and is one of he best half-years for our Balanced-Value style of investing that I can recall in our 13+ year history. Most client accounts will see a half year cash flow adjusted increase in the range of 7% to 10%, topping the performance of broad stock and bond indices. Our superior performance was driven by a relatively heavy weighting to the energy industry which had been under market suspicion until things began to unravel in Iraq in June. An ocean of new oil is being produced in North America with more to come, and as with natural gas, there is worry that oil prices may become depressed for a time by surplus. However, the unexpected sweep by extremist Muslims into Northern Iraq seems to have driven investors to buy energy companies, despite little movement in the benchmark Brent Crude price. Since our approach to energy is dominated by ownership of pipelines, and because these stocks are in high demand for their dividends, our clients enjoyed a double barreled lift to their portfolios as both energy and utilities were among the strongest performing sectors in the past quarter.

The quarter’s performance was aided by new price highs for a number of our holdings.

The Fixed Income Story

Meanwhile, surprising the consensus, including me, was the strong showing of bonds as interest rates stubbornly refuse to rise, even after five years of economic recovery. I reduced bond holdings a year or so ago in the face of the first significant correction in bond prices in five years. At the time it appeared the long predicted turn for interest rates was upon us. Not so. Rates have backed off...

It was about five years ago that the current equities bull market began, although you would have had to search far and wide to find any investor, professional or retail, who properly called that bottom at that time.  At Trusted Financial, suspecting we were in a bottoming pattern, we were continuing our program of selective buying of stocks and bonds at what were bargain prices. Please take a few minutes to read the words I wrote for our Trusted Advisor Client Newsletter - April, 2009.

For Quarter ending March 31 2014, client accounts saw a modest gain of 2% to 3%. This topped most domestic stock indices. New price highs were experienced in cyclical holdings and in non-cyclicals such as Utilities. In other words, it was a pretty satisfying quarter.

Fixed Income Strategy
I share a widely held belief that we are in the trough of interest rates and that the next move will be higher. However, this change appears likely to manifest itself only gradually. I’m not one who believes that the massive money creation by monetary authorities across the planet will lead to runaway inflation or to interest rates rocketing upward to contain it. That was the scenario between 1972 and 1981, but that was forty years ago and something has changed: productivity. We are still in the early-to-mid innings of an electronic (i.e. silicon based) productivity revolution. Fewer employees can accomplish more tasks at lower costs than at any time in the past fifty years and this trend continues apace. Labor costs, on a unit of production basis are falling. Further, the North American energy bonanza will, for decades, dampen the cost of energy, a key input to inflation.

As we approach the half-way point for the current quarter (was New Year’s Day that long ago?), I wanted to briefly summarize financial market news and our response thereto. Hope was surging along with the market as the books were closed on 2013. As indicated at our client Holiday Luncheon in December and in private conversations with some clients, value investors such as ourselves have been uncomfortable with the dramatic lift off in share prices that manifested itself so widely during the last three months of 2013....

Finally, after thirteen years, the broad U.S. stock indices achieved inflation-adjusted records in 2013. Responsible investors with a functioning memory were unlikely to have participated in the 30% rise of U.S. Equities, because no one in their right mind committed their entire liquid net worth to such a volatile vehicle. For those of us who had a substantial amount in stocks, along with other vehicles, the overall results have been decent, pretty much in line with Trusted Financial’s long-term rate of return.

 The truth about stock ownership is that it has been only a marginally productive endeavor over the past 13 years, once performance is adjusted down for the effects of lost buying power (aka “inflation.”) ...

We think this article posted in the Wall Street Journal will most definitely be of interest for our clients and those thinking about hiring us.  "Thinking About Hiring an RIA?  Here are Ten Things You Should Know"  

As the third quarter came to a close, eyes were on Washington as the House of Representatives escalated what has been an annual brawl over the budget into a shutdown of mostly non-essential functions of the Federal Government. Congress has been rehearsing for this Kabuki dance since the last government shutdown in the mid ’90’s. They have made sure to insulate themselves from the most powerful constituencies by exempting Social Security, Medicare, Federal Aviation Administration and National Security related entities from the “shut down.” This keeps most voters from flooding Congress with hate mail for a while, unless they happen to have planned a national park vacation. If predictions that the stand off will continue for weeks is correct, then the buffalo in Yellowstone will be free to roam without those annoying cameras clicking, at least for a while.

Should you be worried? Bullish equity markets are said to "climb a wall of worry."  The media can be reliably counted upon to magnify the crisis du jour, but economic fundamentals trumps temporary crisis in the long-term. I believe there is a good chance that the shutdown and the debt ceiling debate to come will cause a market sell-off. Since Trusted Financial Advisors invests based on long term fundamentals, a healthy sell off will likely be an opportunity to pick up some good merchandise for client portfolios.

The positive fundamentals driving the US equity market at this time are: