Balancing

With all of the political and economic uncertainty surrounding us every day, we have seen a somewhat artificial breakdown of long-term technical support in the equity markets during the last week.  Accordingly, we have decided, as a precaution, to further reduce our equity market exposure, for the time being.  With these moves, our portfolios, which hold stocks, will be approximately 50% invested in treasury and government securities and medium-term corporate bonds, generating some yield while awaiting better buying opportunities.

 Among several moves, we have sold our last piece of Goldman Sachs (GS), a company which we expect to own again in the future.  Therefore, our only continuing exposure to the financial sector, at this point, will be General Electric (GE), which has been significantly impacted by its GE Capital business, despite the strength of its industrial segment.  Fortunately, we were able to sell our other financial-sector positions at advantageous levels, during 2008. 

We have been building our position in cash and bonds for several months, which has enabled us to stay well ahead of the continued downturn in the equity markets.  We believe this week’s move to an approximately 50/50 balance should serve us well in the next several months, as we await the effects of government stimulus spending and the ultimate outcome of continuing difficulties in world financial markets.  As we watch the markets rally modestly off their technical support, which is encouraging in the short term, we may decide to generate additional cash in order to further protect client capital.  Our strategy, as outlined in our February blog posting “Midwinter Thoughts 2009” continues to be as follows: 

“….It is our intent to find a conservative balance in our portfolios by investing in bonds, government money-market funds and high-quality, value-creating equities.  This balanced approach will provide our portfolios with consistent yield and staying power, while allowing for significant upside potential, as we patiently wait for the inevitable turn in both the United States and world economies.”

  

Jack and Peter Falker

March 4, 2009

 Note:  At the time of writing, Jack and Peter Falker and the clients of FalkerInvestments Inc. were long the bonds of GS and the common stock and bonds of GE.