Our Quarterly Commentary
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Quarterly Investment Commentary

As we look back on a tumultuous first half of the year, we are struck by the degree to which conflicting signals characterize the investment and economic environment. After a horrendous 2008 and a dismal first quarter in 2009, the second quarter saw robust gains – stocks in fact had their best quarter in more than 10 years.

The Market and the Economy – Uncertainty Reigns

The conflicting signals on the economy include several positives that helped drive the market’s rebound from its March low. The prospect of a meltdown of the financial system appears to have subsided; the government has demonstrated it will do whatever is necessary to avoid a disaster of this scale. As economic activity continues to worsen, it is doing so at a slower rate, which suggests that we are getting closer to an economic bottom. However, the global economy remains in a fragile state as the effects of massive wealth destruction and the unwinding of huge debt bubble continue to play out. The ultimate result will likely be lower spending by both consumers and businesses in the years ahead, as the economy in effect resets to the level where it might have been without the artificial boost of the credit bubble. The massive federal bailout and stimulus spending (along with longer-term demographic factors such as spiraling health care and other entitlement spending) probably allowed us to avoid a depression, but may also cause the federal deficit to balloon, which could lead to further weakness in the dollar and increased inflation down the road.
Tarpley & Underwood Financial Advisors, LLCSecond Quarter 2009
The overall environment has improved, but plenty of problems remain.
Macro issues are unusually important in this environment, and there are several key areas we are assessing to help us make portfolio-level decisions.
Highly significant questions include when housing will bottom, what the longer-term impact will be of gov-ernment stimulus and other policy actions, and whether investors will remain risk averse in the years ahead.
Our current portfolio positioning has a modestly conservative bias.
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