Held Hostage by the Pols

The economic malaise which is apparent in our unemployment, gross domestic output, and residential real estate values, continues. A double-dip recession is possible but not probable. Stock values which had held until this recent quarter were supported by rapidly increasing profits resulting from corporate austerity and good management..

Stock values have collapsed in recent months as investors became fearful after observing ridiculous behavior in Washington, D.C. and confused, ineffective actions by the European Union. Both bodies have shown an unwillingness (inability?) to deal with embedded fiscal problems. Until they get their acts together, we are in trouble.

Because our fate is in the hands of politicians, we have good reason to be worried. Volatility in the equity markets is at levels that I cannot recall. 2%, 3% and even 5% movements in market averages are not unusual on a daily basis.

We have made some trades to decrease our exposure to this volatility and to raise our cash level to approximately 30%. We have been humbled as our earlier profits for 2011 have turned into losses despite these measures. We believe our portfolio is well diversified and very cheaply valued by any historic view. We now await prudent actions by our elected officials to indicate they are aware and in charge.

I do not expect the pols to save us. That is not a job they are up to. My hope is that they can do their jobs and let the economy recover from three decades of excessive spending and debt accumulation. Let the government become part of the solution or at least stand aside.

Our citizenry has learned some important lessons that will serve them well, but repairs to household balance sheets take time. Consumer spending has held up well during this period of repairs and should benefit from pent-up demand after confidence is restored.

I believe we are well positioned to benefit if and when the political smoke clears.

Very truly yours,

Michael F. Cantlon