{"id":28915,"date":"2012-04-09T09:57:22","date_gmt":"2012-04-09T13:57:22","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/04\/sizemore-capital-first-quarter-2012-letter-to-investors\/"},"modified":"2012-04-09T09:57:22","modified_gmt":"2012-04-09T13:57:22","slug":"sizemore-capital-first-quarter-2012-letter-to-investors","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/04\/09\/sizemore-capital-first-quarter-2012-letter-to-investors\/","title":{"rendered":"Sizemore Capital First Quarter 2012 Letter to Investors"},"content":{"rendered":"

By The Sizemore Letter<\/a><\/p>\n

The following is an excerpt from Sizemore Capital’s First Quarter Letter to Investors.<\/em><\/p>\n

2012 is off to a torrid start.\u00a0 The S&P 500 finished the first quarter up 12 percent, its best start to a year since 1998.\u00a0 The Nasdaq had an even better quarter, up nearly 19 percent\u2014its best start since 1991.The more staid Dow Jones Industrial Average gained \u201conly\u201d 8.1 percent, but this put the index to within just 7 percent of a new all-time high.\u00a0 Most European and Asian markets posted healthy gains as well.\u00a0 The German Dax rose a full 18 percent.\u00a0\u00a0 Spain was a notable exception, as the only major market to see a decline.<\/p>\n

There is good news in these numbers and bad news.\u00a0 The good news is obvious, of course.\u00a0 Stocks are enjoying one of their better rallies in memory, and the gut-wrenching volatility that defined 2011 seems more distant every day.\u00a0 The downside is that stocks have already come close to returning in a quarter what most money managers\u2014including Sizemore Capital\u2014expected them to return for the entire year.<\/p>\n

This leaves investors to wonder what to expect for the remainder of 2012.\u00a0 Will the volatile opening weeks of the second quarter of 2012 be a harbinger of things to come?\u00a0 2011 also started strong before degenerating into three quarter of \u201crisk on \/ risk off\u201d volatility.\u00a0 Might we expect more of the same?<\/p>\n

Sizemore Capital does not spend an inordinate amount of time pondering such questions.\u00a0 Instead, we concentrate our efforts on finding attractively-priced investments that offer the potential for reasonable return with only modest risk.<\/p>\n

Still, the overall direction of the market does matter, and the vast majority of equities and other traded securities\u2014no matter how well researched\u2014tend to follow the direction of the broader market.\u00a0 And there are certainly times when it makes sense to be out of equities altogether.<\/p>\n

We do not<\/em> believe that this is one of those times.\u00a0\u00a0 <\/strong><\/p>\n

With the European sovereign debt crisis looking to enter another rough patch, we expect the month of April to be choppy and volatile.\u00a0 And once all is said and done, 2012 may prove to be one of those years where it pays to \u201csell in May and go away.\u201d\u00a0 That would have been good advice last year, even if over the longer term that maxim has had a mixed record of success.<\/p>\n

Still, looking at the bigger picture, we continue to find ourselves cautiously bullish.\u00a0 While the March employment report disappointed investors and sent world markets sharply lower in early April, the economic news is for the most part improving.\u00a0 Unemployment is falling, even if it is doing so slowly.\u00a0 By many measures, it appears that the U.S. housing market is beginning to firm up (though a real recovery is still probably a few years away in most metro areas).<\/p>\n

And perhaps most importantly, U.S. companies find themselves in the best fiscal health in recent memory.\u00a0 Profits are near record highs, and corporate treasuries are flush with cash\u2014cash that they are belatedly starting to put to work with dividend hikes and share buybacks.\u00a0 Stocks are also relatively cheap by most measures and exceptionally cheap when compared to the returns offered on cash and most categories of bonds.<\/p>\n

In Europe, the bond markets are rebelling against Spain\u2019s more relaxed approach to cutting its budget deficit.\u00a0 But given the safeguards put in place, it is difficult to see this degenerating into a repeat of last year.\u00a0 The European Central Bank has made unlimited liquidity available to Eurozone banks, which has eliminated the possibility of a \u201cLehman Brothers\u201d moment in which a major bank goes through a disorderly default.\u00a0 Several large European banks\u2014including UniCredit, BNP Paribas, and Soci\u00e9t\u00e9 G\u00e9n\u00e9rale\u2014have already stated their intent to pay back their loans in the next 12 months, nearly two years ahead of schedule.\u00a0 The performance of non-Spanish equity and debt markets also indicates that the concerns surrounding Spain will be contained.\u00a0 Sizemore Capital remains bullish on Europe in general and Spain in particular, as we believe that the attractive prices on offer on some of Europe\u2019s finest companies more than mitigates the risk of short-term volatility.<\/p>\n

As contrarians, it is refreshing to see continued skepticism among individual investors.\u00a0 American equity mutual funds continue to see weak inflows, and most investors we come into contact with are simply too paralyzed by the trauma of recent years to put their money to work.\u00a0 Psychological indicators (like all tools in the investment management business) are imperfect and sometimes deliver contradictory results.\u00a0 Randomness and \u201cnoise\u201d play an enormous role in short-term market moves that often swamp any useful information gleaned from sentiment indicators and anecdotal investor behavior.\u00a0 Still, we consider the skepticism of rank-and-file investors to be a bullish sign, all else equal.<\/p>\n

Finally, we\u2019d like to make a point about the sustainability of the current rally.\u00a0 In the April 9, 2012 issue of Barron\u2019s<\/em>, Michael Santoli commented that the S&P 500 had risen 28 percent in the past six months\u2014a feat recorded 20 times since 1927.\u00a0 Santoli noted that after such a run, the market was generally higher in the one-, three-, and six-month periods that followed.<\/p>\n

While Sizemore Capital would never depend on this kind of data mining for serious investment decision making, we mention it to make a point: the market\u2019s strong return over the past six months does not mean that a serious reversal is imminent\u2014or at least this has not been the case historically.<\/p>\n

To read the full letter, please see Sizemore Capital First Quarter 2012 Letter to Investors<\/a><\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter The following is an excerpt from Sizemore Capital’s First Quarter Letter to Investors. 2012 is off to a torrid start.\u00a0 The S&P 500 finished the first quarter up 12 percent, its best start to a year since 1998.\u00a0 The Nasdaq had an even better quarter, up nearly 19 percent\u2014its best start … <\/p>\n

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