Weekly Market Commentary 3-21-2011

The World Is Falling Apart Again

Last week’s blog made a fairly easy prediction for rough market conditions and extreme volatility. As usual, the human predictive ability is limited, and that applies to me. Who could foretell a nuclear disaster on top of a brutal dictator dominating our headlines?

The markets were very extreme, especially in Japan.

The S&P 500 dropped as much as 3.14% before closing the week down 1.92%.

SP 500 drops

The Nikkei 225 fell as much as 19.7% closing the week down 10.22%.

Nikkei 225 drop

All the while, Muammar Gaddafi a crazy madman was taking advantage of a distracted world and began to brutalize his citizenry.

Personally, it was almost hard for me to stay objective and be an observer. As the week wore on, I reflected on cash. How comforting it is to have it and utilize it to reduce volatility in portfolios. The unfortunate part of cash, as I have said in the past, is it won't help you live very well in the future. While it will help you sleep well today, inflation will deteriorate its purchasing power and leave you wondering what happened. This is a paradox I regularly deal with when allocating assets.

In Search Of Meaning

I struggled to find my footing in all the turmoil. I allocated some cash into the markets and held more cash out of the markets. I might be wrong, but over time it probably won't impact returns too much in either direction.

I didn't really wrap my head around the big picture until I was watching Meet the Press on NBC. Mostly it's good background noise but they displayed a few photos that hit me between the eyes.

time meltdown

Gaddafi time cover

target gaddafi

What's amazing about these Time magazine covers is that they were not from the last few weeks; they were from over 25 years ago.

I was beginning my professional career in investments one year earlier and it looks like The World is Falling Apart Again.

SPX over time

This chart taken from Bloomberg represents the market cycles I've worked through. Shocking after 25 years it takes a Sunday talk show for me to get a little perspective and realize this time it's not different. While I can doubt markets at times as I'm sure you do, if you have time then risk can be shaped to your advantage.

Tim Phillips, CEO