So far in the year 2010, the stock market has continued to advance as important segments of the economy continue to improve. The rally that began with fear of a depression and collapse of the global financial system was one year old in late March, and it shows no signs of slowing down.
Some of the cross currents of the market continue to concern us, but the old adage “you can’t fight the tape” drives us as we continue to see a recovery in the markets. Unfortunately, some of the underlying metrics of the economy are not showing the strength that we would like to see. One of our favorite economists, David Rosenberg, has written that…”a recovery premised on the Fed’s incursion into the home loan market, the government’s move to buy equities and allow banks to manufacture their own earnings stream and at the same time embark on a borderline welfare state path whereby almost one-fifth of personal income is coming from the generosity of Uncle Sam - well, who wouldn’t be questioning the veracity of the recovery. We know. The equity market.”
All that said L & S continues to find pockets of “value “ and potential growth appreciation situations that we are comfortable in using in our client portfolios. One such sector that is one of our favorites is Master Limited Partnerships (MLPs). MLPs are essentially energy companies that own and operate pipelines and storage facilities for natural gas and oil. They generate revenues by essentially collecting fees from energy exploration and production companies that use their properties. Their yields are central to their appeal. On average MLPs are yielding roughly 7% now, an unusually high level of income in today’s markets. In contrast the S & P 500 index has a yield of 1.9% on average. The MLP benchmark, the Alerian MLP Index, had a 19.6% annualized gain over the past decade and a 10.8% rise thru April 10th this year.
We remain generally constructive on the markets and continue to look for appropriate opportunities. While opportunities may be here today, they may be gone tomorrow; therefore, trading volatility has been high. Unfortunately, market conditions and momentum do not allow us to simply buy and hold. Active trading at times can be the most effective hedge and insurance to protect against significant down turns. This enables us to benefit from upturns in the market.
Past performance is no guarantee of future results. The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.
The performance of DJIA and S & P 500 may be shown as a general market indicator only and should not be considered an appropriate benchmark for individual account performance; the management style for client accounts may utilize positions and strategies, such as covered calls, that are not reflected in the index. Indexes are calculated on a total return basis with dividends reinvested and are not available for direct investment.
