Author: Jonathan Tunney, Atlas Capital
Covestor models: Broad ETF, MergerArb
Disclosure: Long VGK
Most markets performed well in 1Q2011 despite continued European sovereign debt concerns, spreading Mid-East/North Africa (MENA) societal upheaval and Japan’s triple disaster.
Crude oil moved above $100/barrel in sympathy with concerns of potential flow interruptions associated with the changing MENA landscape. Commodities in general benefited from the continued euphoria of global central bank induced liquidity.
Interestingly, precious metals didn’t react in unison as recent history would indicate – calamity in this case did not equal rising prices. Gold barely moved in the aftermath of the Japanese disaster, while silver continued its hockey stick shaped run-up. We smell a modest correction for silver on the horizon.
California municipal bonds improved throughout the quarter and we continue to believe that fears of widespread defaults are misplaced.
We are moving to an overweight position in European stocks as we feel they offer value despite expectations that the ECB (European Central Bank) may start tightening in the near future. However, raising rates at this time on the Continent will clearly put more pressure on the weaker economies (Greece, Portugal, Spain, and Ireland) and increase stress on their respective political institutions; look for populist opinion to drive one of these countries to pull out of the euro.
In the US, the debt markets seem finally to be discounting an end to QE2. However, while we think the original $600B war chest may not be used, we strongly doubt the Fed will raise rates before the end of the year. Unemployment is too high, economic growth is anemic, and we as a country derive too much current benefit from a weak dollar.
