Market Commentary for the week of February 11, 2013

Chicken or egg.
For many months I have been commenting that the critical element most lacking from our rebound in economic development has been “consumer confidence.”  Wouldn’t it be nice if we could not only quantify confidence but also to define it, accurately?  After all, something so nebulous as one’s opinion about something, also has the power to shape behavior and consequences for a myriad of financial and economic events.

Besides, one man’s opinion might not be shared by a multiplicity of others.

We hear and read everyday about how excited the markets and its participants become over a series of news data.  This is unfortunate, as the panoply of behaviors and activities this “excitement” generates causes peaks and valleys in our emotional responses.  As a result we might be emboldened one day, downright depressed the next.

The era of buy and hold investing has been supplanted by a technology-driven short-term orientation whose effect has been either to shake “confidence” or to bolster it.

In fact, not only are these demarcations driven by daily news, but they are also shaped by one’s financial status before the events unfold.  In other words, if you’re well-off financially some things might not bother, or influence, your perception the same way as if you’re living paycheck to paycheck.  Middle-to-low income consumers are being/feeling squeezed by “fiscal cliff” stuff, so much so that their confidence is nearly exhausted.

At the same time, Washington’s dalliances are simply a minor nuisance for the well-to-do.

Overall, consumers either zip up their wallets, or open them, based upon the financial pressures they feel, individually and collectively.  Right now, a significant majority of us are grateful for small recoveries, but still not feeling exuberant as the global economy trudges out of its depths.

Success or failure.

Still, maintaining the discipline to forge ahead without the brief staccato of everyday interruptions takes a hearty constitution.  We must continue to monitor our goals, and our methodology, diligently and not allow our horizons to be affected by exogenous noise.

It is always fun to see our valuations increase.  One’s mood rises or falls sometimes, based upon the value of our monthly brokerage statement.  But the reality is that all cycles are evolutionary.  They do not traverse a straight line but do, over time, define a trendline which is either rising or falling.  It is toxic to be on a falling trend; but it is equally dangerous to allow our mood to be affected by short-cycle variances.

Last week the market logically began to tread water.  As I wrote prior, it would be unrealistic to expect an unimpeded upside.  We will continue to vacillate, up and down, and no fear should be engendered by that fact.

Which comes first, confidence or momentum?  Ask a golfer and he might tell you momentum, you know, five birdies in a row.  It’s a tricky tightrope we walk as investors.  But there’s no question that building confidence, and gaining momentum, are inextricably linked through a kaleidoscope of factors.

At present, we’re looking ahead at building a fair measure of small, incremental successes to erase any uncertainly about the sustainability of our recovery.