T2 ASSET MANAGEMENT - March 2014 Market Commentary

February is in the books, and it was a good one.  After a terrible start to the year for the markets, with the Dow falling 7% in January, they have rallied right back.  Our model correctly identified problems, so we moved to higher cash positions for the January selloff.  Once it became clear that the selling was over, we moved back to a fully invested position.  Our process is designed to stay with the market during rallies, but more importantly, hold cash during market declines.  This discipline has greatly helped performance, and we are beating all of our benchmarks for the year with less than half the risk of the market.

While many people focus on a single indicator, our approach is to take a comprehensive view of markets.  While it’s entertaining to “predict” where the market will end the year, it’s just a guess.  As Jesse Livermore once said, “Markets are never wrong, opinions are.”  Investors should be skeptical when pundits make these calls.  While we believe in the long-term integrity and benefit of the markets, we also understand that, at certain times, it is prudent to reduce your risk and hold cash.  By doing so, investors will generate better returns and not be exposed to significant market corrections. 

Economic data for the month showed some increasing weakness in the U.S. economy.  Much of it was excused by the frigid weather, but we will see how this plays out in the coming months.  Janet Yellen, our new Federal Reserve Chairwoman, admits she was surprised by the poor data but does not intend to change policy just yet.  Earnings season wrapped-up and results were generally good.  Unfortunately, corporate earnings may have been driven by companies buying back their own stock.  With interest rates so low, many companies have figured out that they can borrow cheaply, buy up their outstanding stock and therefore increase their earnings per share.  U.S. companies did this to the tune of $600 billion dollars last year.  It’s financial engineering, but it works, for a while.

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