The ACM Journal 2013 Q2

Despite overhyped fears that the Fiscal Cliff and subsequent budget sequester would derail economic growth, send us headlong into another recession, and plummet the capital markets into a financial darkness so complete that we might never see the light of day again, the capital markets actually did pretty darn well in the first quarter of 2013. In fact, despite all the negativity, the S&P 500 reached a new all-time high.

I’m not saying that politicians and financial journalists lack all credibility, but, well, okay that’s exactly what I’m saying. The point is, you can never trust “the experts”. There are no crystal balls in this world (at least not ones that predict the future), so the best bet is to pick an investment strategy, stick with it through thick and thin, and tune out all of the noise from the media and talking heads.

Stocks Hit Record High
The stock market defied all odds and rose 10.6% in the first quarter of 2013. Mid-cap and small-cap stock performed even better, showing that investors, rather than being risk averse, are again willing to accept risk in order to realize stronger returns. Indeed, much talk has turned these days to being left out of the rally, which is a dramatic turn from all the talk of preservation of principal the past few years.

To be sure, there are still problems in the economy both domestically (huge federal debt) and abroad. The recent implosion in Cyprus is a reminder that we’re not totally out of the woods. The troubles in Cyprus, in fact, weighed on international stock market returns so far this year. However, valuations are still quite low and the odds of another financial catastrophe in Europe appear more remote. Accordingly, we’re expecting the international stock rally that started in 2012 to continue for some time.

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