Market Commentary for the week of April 21, 2008

Because of a run-up in energy and food prices, we are experiencing a rate of inflation not seen in the last two decades. Of course, statisticians like to talk about inflation without including these staples, but that seems foolish when faced with the realities of reconciling a balance sheet, or managing home finances. The rise in prices is causing a hoarding of natural resources, and a land grab worthy of the gold rush in the late 1890’s.

The battle between the “haves and the have-nots” is taking on epic proportion, favoring those who own the commodities versus those who consume them. As I have written many times before, agriculture and energy are the most significant components of economic development during the first half of this century.

Within this landscape, the opportunities for capital gains are actually magnifying the significance of global integrated commerce. We know, for example, about the rise of consumerism in China, the Middle East and Latin America. Political instability and the lack of true Western-style democracy dissuade venture capitalists from plowing money into these regions with abandon, or without iron-clad guarantees that their money will be safe. As always, if the payoff outweighs the potential risk, money flows into a vacuum of opportunity. Sometimes it’s all in the presentation.

At first blush, the potential for further development of natural resources tips the balance in favor of those regions with a plentiful bounty of product above and below ground. One might wonder why these wellsprings of opportunity haven’t already been mined. The answer usually lies either in political will or lack of resources. As one of the “youngest” democracies in the modern world, America has shown the fortitude to reward capitalist enterprise in areas of natural resource exploration. The rest of the world is now taking heed of its own potential for doing business ethically and profitably.

My data is indicating that these diverse global regions are catching on in developing regulatory guidelines that create an even playing field for the rest of the world to acknowledge the capitalist potential which abound. By cultivating an ethic of commerce and profit, countries can maintain their individuality but compete in a world of economic synergy.

In particular, the US market has been showing signs of maturity and slowing down. Investors are recognizing the allocation potential of the rest of the world. Our portfolios, for example, have increased asset allocation into non-domestic securities each year during the past three years.

It goes without saying that the best place to look for opportunity is in those companies with the highest rate of capital gains and earnings increases. Despite any question about political stability in these unexplored territories, our proof has been demonstrated in the meteoric rise of commodity and agriculture equities. Thus, I actually find the landscape of potential new investments to be rising, not falling, despite the lack of psychological exuberance about stocks.

I find this to be an especially creative time to be using my data analysis techniques. More and more we are demonstrating that the ability to navigate through difficult markets is a methodological conundrum, not an anecdotal exercise in speculation.

Sometimes the predictable path is not so predictable. Performance is the ultimate barometer.

The object is not always to act upon what is visible, but to seek out a methodological continuity that performs under any duress.