FDR’s Fiscal Policy Redux

After a very strong 2009, markets rallied briskly through most of April and a whiff of “maybe we are truly out of the woods” exhilaration swept through the still traumatized crowd, most of whom were still licking their wounds. We gained almost 6% in March, then abruptly a painful correction began at the beginning of May. Once again the chorus of “sell in May and go away” was heard.

We begin the diary in the first days of July 2010 with the S&P 500 down and the fund off 6.6% for the year to date. Not a happy time. As you will see, I was too cautious and as a result missed the first somewhat timid leg of the move higher that was developing. As usual, there were compelling arguments from both the bulls and the bears, but as markets fell, for uncertain souls like me the negative case became more compelling. Fortunately, long positions in U.S. energy stocks and in Asia kept me going. The gains of July were mostly retraced in August. The moral of the story is that you were probably better off to keep your powder dry until the fog of war lifted and then load up in late August, early September.

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July 8, 2010

Equity markets and the high-frequency economic data around the world are weakening. Over the last couple of weeks, employment numbers, production indices, house price measures, and funding market stresses have been uniformly disappointing—and disconcerting. ...

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