“The future is certain. It is just not known.”- Johnny Rich

Things are not as good as they seem. The economy, while improving, continues to show signs of distress. Something just doesn’t seem right.

Why do we say that? Housing is coming back; unemployment is looking great; but that is the extent of it. The world is suffering from an economic malaise. The solution, according to the experts, is government stimulus. We did it here in the United States through last year (we called it Quantitative Easing). Japan started doing it last year. Now Europe is on board with their own brand of government stimulus. On the positive side, government stimulus does seem to help a country’s economy in the short term. It drastically improved our employment situation in the U.S. It also seems to be bringing the European economy back to life. But the question is whether the economy can transition from living on government stimulus to growing via the private sector. Here in the U.S., we are at that point of transition between government stimulus and private sector growth. The jury is still out as to which direction we are going to go. Here is what we do know. In the fourth quarter, the U.S. Economy grew 2.2%. For the first quarter of 2015, we are expecting only 1.0% growth.

What are our current headwinds? The dollar has strengthened against all major foreign currencies. This is harming all U.S. based international companies. Why is the dollar strengthening? We have some of the highest interest rates in the world. As investors around the world look for safe investments, our 10 year government bond that pays 2% looks very attractive compared to Germany’s 10 year bond which currently yields 0.16%. As investors continue to invest in U.S. bonds, the dollar continues to strengthen. As the dollar continues to strengthen, the price of oil continues to drop. In addition to the strengthening dollar, oil has the additional pressure of oversupply. Both of these factors have contributed to a 60% drop in the price of oil over the past 9 months. While the price of oil is very volatile, this large of a price move is causing reverberations in many different industries. To add to the confusion, the U.S. Federal Reserve Bank is looking to raise interest rates. No one knows when, but it could be as early as this summer. If the Fed raises rates too soon, it could stifle our economy. If the Fed waits too long to raise rates, they could create asset bubbles that would create financial instability.

All of these issues are combining to make it a tough investing environment. We have changed our investments to take advantage of the lower price of oil. We are hedging companies with international exposure to account for their decreased prospects overseas. We are looking for opportunities to take advantage of a rising interest rate environment. As you have probably noticed in your portfolios, we have been busy.

From a personal perspective if you would like to travel internationally, now is a great time to do it. Specifically, the dollar’s strength against the euro gives you 20% more buying power in Europe. We always enjoy hearing about our client’s adventures, so keep us in the loop.

As always, give us a call any time. We are here to serve you.

Very truly yours,

Michael F. Cantlon

Thomas E. Guyett

Robert T. Gephart