Market Commentary for the week of February 22, 2010

Value?
Let’s not get carried away by short-term bursts in the market which, seemingly, ease all the pain we feel from a ubiquitous bear trend. Although the past twelve months have been a salvation to our portfolio values, we have not really eradicated the causes of a bear in the first place, not the least of which is lack of confidence in the financial markets/institutions, themselves.

The prevailing view amongst the cynics is that unless a clearer social agenda is presented, rewiring the game for game’s sake is an empty offering.

Investors seek enduring earnings growth, growth that engages all elements of the business/social compact, not just those that enrich a few or that presume “efficient productivity” is a synonym for philanthropy and sustainability.

The markets are transitioning from “old industry” to “new industry,” creating and responding to new challenges in emerging markets, emerging technology, and emerging demographics.

These transitions are multidimensional, requiring unique partnerships across many industry sectors, and many global regions. We’re not there yet, but the markets await such a bold confluence of factors to rid themselves of the same-old climate of inertia.

As a result, what passes for surges and retreats in the market’s current cycle is simply a resolution of old wounds without much headway. Nonetheless, I see the potential for these cross-currents producing something dynamic, enduring and innovative.

Wider aperture.
To do so, we have to avoid the “daily trap” of valuing our self-worth by the value of our portfolio, or the integer of that day’s closing price on the Dow. The most aggressive capital gains are those that emanate from prudent portfolio methodology and a long-term orientation about economic dynamics.

Perhaps it’s our appetite for instant results that accounts for the impatience we all feel during the natural parabolic course of financial events. We love linear spikes, up and down, because they provide exactitude, point A to point B in no time.

Adhering to a wider aperture is not in our corporate culture, either. Boardrooms manage a 24 hour profit/loss balance sheet. All of their favorites, products that are working today, are held onto, because it is easier to avoid innovation, capital expenditure, and new science if shareholder’s equity is doing well.

I prefer to look at portfolio management as a balance between risk/reward, current/future, moral/inconsequential. I find, too, that it’s easier to glean direction from the market as a whole than from any particular constituent element that comprises it. As a result, disparate readings about interest rates, inflation, consumer demand and earnings might have a short-term negative impact upon the value of global equity prices, even though one or more of those factors could be improving.

I look for a “Spring-rally” after the dust settles…and the snow melts.