Insight & Commentaries

The second quarter showed a “bounce” in activity from the first quarter’s “dip.” The first quarter gross domestic product registered the first quarterly decline in three years during the first quarter. Steady final demand and the fading of weather effects and inventory drag are helping to right the ship. Foreign conditions are relatively weak, but we believe these trends are likely to reverse in the months ahead.

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Looking for Lift

Our barometer for measuring changes in fundamental conditions is hovering just north of 50. Recent incoming economic data are also generally supportive of continued growth.

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Indications of steady final demand by domestic consumers, along with improving cyclical components like production and orders, sets the stage for a bounce in activity through the second quarter.

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A lull in the data through the winter months appears to be giving way to better economic performance as we head into the second quarter. Employment, production, and final demand seem to be firming now that the winter is over.

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Ukraine’s interim government is calling for more support from its western allies to force Russian troops to leave the country, increasing pressure on the United States and Europe to craft an appropriate response. Ukraine adds further uncertainty on top of an already noisy data flow obscured by weather, inventory, and other effects.

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There are signs that the economy is seeing some lift as we write this outlook for 2014. Not only has most of the economic data been behaving nicely of late, but private credit growth is picking up, fiscal drag is running off, and signs of a pickup in global growth are emerging.

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A discussion of the potential impact of rising rates on the fixed income investor. The rationale behind a simple bond ladder is also featured.

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One way to help minimize the impact of potential inflation on your purchasing power and lifestyle is to focus on stocks that have the potential to produce a rising stream of income. This report looks at the rationale behind investing in companies who regularly increase dividends.

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This report discusses current recommended allocations in light of evolving fundamental conditions. A special focus is presented on the upcoming election, debt issues, and the fiscal cliff along with an update on the WCA Fundamental Conditions barometer, which showed the first month of improvement in September following six months of slippage. The report also includes a long-run outlook with forecasts for a wide range of asset classes.

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We expect a debt ceiling agreement to be met, since the consequences of one not being met would be unthinkable. Still, markets remain highly sensitive to events in Washington.

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Fundamental conditions appear to be gaining some momentum in the back half of the year, and equity valuations remain within reason. After a slower spring and summer, which recently caused the Fed to cut their forecasts, we are again seeing signs of improvement in most of the data we review. Foreign manufacturing seems to be leading the cycle this time, but domestic conditions are holding relatively steady. Therefore, portfolio allocations continue to emphasize shorter duration bonds, while gold remains sidelined, and equity allocations get a boost.

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Our View on Gold

Earlier this year, we reduced and subsequently eliminated gold from portfolios based on price, anticipated policy changes, and poor relative price momentum. We remain underweight gold ahead of the Federal Reserve’s September Federal Open Market Committee meeting. We continue to monitor gold, however, and are maintaining the metal as part of our long-run policy allocations. We continue to see its value as an alternative asset under a variety of market conditions, since gold prices and the dollar often move in opposite directions from one another.

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