Hutchens Investment Management -- “Catch-22”

CONCORD, N.H. - May 7, 2013 - PRLog -- The current US foreign policy of re-engagement expounded by President Obama in his 2009 Cairo speech is on the cusp of failure.  By shunning unwise foreign entanglements, the President believed that the Administration could focus on nation building (universal health, immigration reform, alternative energy, and broader government regulation).  However, the trade-off rarely resembles the expectation.  Immediately, the Arab Spring and its initially perceived benefits come to mind.  Balancing US interests and values is difficult; in the Mideast it is impossible, said David Minor of Hutchens Investment Management.

Syria has become the focal point for US foreign policy as the Bashar Assad regime’s dependence on Iran for military aid increases.  Whether the US is openly drawn into the Syrian civil war is questionable, but the assurances made by Obama during the most recent visit to Israel increases potential US exposure in the region. As the US resets the ever-fading redline in the Mideast sand, Israel took action.  Using air power, the Israelis attacked the store of Iranian missiles earmarked for Hezbollah to be used in the continuing cross-border rocket assaults reaching further and further into Israel.  These attacks pinpointed advanced missiles, located outside Damascus and ready for shipment.  A broadening beyond Syria’s borders will push Iran into the open.  A Mideast crisis would clearly disrupt oil shipments and could cascade into unchartered consequences qualifying as a Black Swan.  Markets globally will react negatively.  

The unemployment data released for April, along with the upward revisions for February and March, at the very least, convinced the equities market that jobs are holding their own.  These data gave reassurance that the soft patch in the economy experienced over the past few months was just that, and not as pervasive as many commentators believed.  It was widely acknowledged the stock market, despite an uneventful earnings season punctuated by weak guidance, moved higher in response to Fed quantitative easing.  Perhaps it was partially attributable to a better earnings and economic outlook over the rest of 2013.

Our investment strategy remains a full position in equities.  The recent run-up since the beginning of the year and a more bullish sentiment for equities opens the possibility of a correction.  However, the impact of Fed expansionary policy on asset values has more than offset any definable correction to date.  Longer term earnings growth should rebound later in the year and along with a dose of inflation may be the ultimate catalyst for a sustainable bull market and deficit reduction.