We haven’t written in about a week.  Things have been pretty busy here as we gear up our marketing efforts ahead of the third year anniversary of our investment track record this summer.  For the last three years our primary goal has been generating strong performance results for our growth equity portfolio.  As we approach our three year number, we’re pleased to report that we are well ahead of our performance objectives and benchmarks on a net of fee basis.  

Now, back to the ballgame.

Some air has finally started to come out of the commodity complex.   What many may not realize is that many commodities, including wheat and rice, have fallen significantly in recent weeks and months.  In fact, oil is one of the few commodities that has continued its relentless march upward, but even it has turned down a touch in recent days.  

As we’ve written in past blog updates, we think the commodity is in bubble territory.   Whether or not this is related to speculation or the strong fundamentals of Chindia may be irrelevant.  The formation of bubbles doesn’t cause the pain for investors, their deflation does.  The fundamentals always look great during the rise of an asset bubble.  Few technology or housing related management teams were blaming speculators for the massive, positive moves in their technology and housing shares in recent years.  Rising prices merely reflected the strong fundamental demand for computers, networks, and the American dream that these companies provided.  And yet burst, these bubbles eventually did.  

More than anything else, “Fund Flows Gone Wild” seem to be a pretty good indicator of the potential damage down the road to investors.   It usually takes a catalyst to get the accident started, but once that happens, things can get ugly pretty fast.  Revelations of the use of excessive leverage and ultimately, criminal conduct, invariably surface.   For technology stocks, a weakening economy got things started and for housing, prices simply stopped going up as much and incremental flippers got caught in a bind.  

We suspect that a slowdown in China, where the stock market and many leading indicators have recently turned down, may represent an early warning signal.  The Beijing Olympics may represent a climax of sorts for China’s fiscal stimulus, as she puts the finishing touches on her beautiful bride ahead of her great day on the world’s center stage.  While we don’t think that the piercing of the commodity bubble will have disastrous consequences for the world economy, it should at the very least bring price levels back down to a point where longer term trends can be sustained and inflation concerns be put to rest.  Studies of past economic cycles suggest similar patterns.

Consumer confidence also hit another long term low yesterday.  For an explanation of why we dislike the indicator, please read our past blog entry on the subject.  Suffice it to say, the fact that this indicator has hit a new multi-year low, might mean good things for the stock market over the next three to twelve months.  I don’t know why it always seems to work out that way, but it invariably does with pretty amazing consistency.  Blessed are the poor and meek in spirit?  Perhaps.  Call us if you’d like to see the numbers.   

Yesterday, consumer discretionary and technology shares were the strongest sectors of the market, which fits with some of the views we shared on CNBC regarding High Flyers, Washed Outs and Have Beens.  Time, of course, will tell if we’re right, but that’s where we’ve placed our incremental bets in this long term game. 

Speaking of game, last night I went to watch the Indians take on the White Sox with my son Pete.  After losing five straight to the Sox, we finally got a win.  Lots of folks have said that pitching is the key to winning baseball games.  While the Tribe’s awesome pitching has kept us in the hunt, you still need runs to win.  Our Tribe has been plagued by poor hitting this season, in fact the worst in the league. 

Baseball, unlike any other sport, reminds me a great deal of the portfolio management business.  I elaborated on this theme a number of months ago following a visit with Mark Shapiro, General Manager of the Cleveland Indians.  Perhaps today’s comparison is that having great pitching and playing great defense can keep you from losing to the markets by a significant margin, but you still need good and consistent hitting to win the game over time.  

In spite of some entertaining errors on both sides of the plate last night, a nicely rounded Indians portfolio of youthful pitchers, better hitting, and an early Grand Slam, earned the Tribe a nice 8-2 win last night.  It seems a balanced approach is the key. 

If you’ve enjoyed our blog and think we might be able to help you or someone you know achieve a better balance in your investment portfolio, please keep us in mind, or better yet, give us a call.  For information on the products and services we offer, please click here.

We’d love to help you “Play ball!”