March 2013 Client Letter: Goldilocks & Gridlock

Goldilocks, Gridlock, Diversification and Market Valuation

While the Easter bunny is popular at this time of year, it is the “Goldilocks” economy that’s got the stock market hopping.   Investors have woken from winter hibernation to find that the economic porridge is just about right for stocks – not too hot and not too cold.

Why is this important?  Historically, stocks have performed best under conditions of moderate growth and inflation.  Slow growth conditions beget concerns about poor corporate sales and recession.  On the other hand, very strong growth (think 1970’s) often leads to a spike in inflation expectations and shrinking profits from rising interest rates, materials and labor costs.  At the current time, the balance between growth and inflation seems to be in, well… in a sweet spot.      Continue reading and view complete letter