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

One thought on “March 2013 Client Letter: Goldilocks & Gridlock

  1. Hi Bruce,
    I think your reference to the 1930s is very pertinent. We also have a case study right before our eyes with the European austerity policies of the past 3 years. My worry is that the self-interested policies of Germany could cause a real trainwreck over there, and reverberate around the world. They like the Euro because the Deutschmark would be highly valued if it existed now and would really hurt their formidable export-driven economy.
    I also agree with your yellow light analysis.

    Enjoying your letters once again,
    Joe DiBello

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