Lonely boat on beach under a stormy sky


Content by Matt Santini, CLS Portfolio Manager

For the mariners amongst us, we know the above statement is a gross generalization. An anchor’s rode must have enough scope to allow for the biggest tides, especially those encountered during a storm surge. Two scenarios can happen: Either the mooring pulls from the bottom, or the boat pulls from the mooring. Both of those typically result in an expensive call to the claims department. When a storm has been named, maritime insurers offer to haul your boat as a courtesy (ironically known as the sidelines in our business).

I like to equate the Fed’s stimulus as the rising tide. Thus far it has been relatively orderly, and the market has accepted it with open arms. Most indexes have experienced healthy gains since the crisis. But what happens when the tide cycle is no longer orderly? Tropical Storm “Taper” could present us with a scenario in which we have inadequate scope. Without the Fed’s stimulus, we would be forced to fall back on the age old market catalyst known as earnings and more importantly, expected earnings growth.

The N/P, or negative/positive ratio, is a measure of negative vs. positive corporate guidance. Reuters announced that the second quarter N/P ratio at 6.6 is at its most negative reading in 12 years. This is almost two points more negative than last quarter’s reading. Multinational healthcare companies are the most pessimistic, as they continue to harp on the lack of a global recovery. A significant equity retraction, severe bond market volatility, and continued weak data could all combine to keep “Taper” offshore for a quarter or two more.


This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance.