Aspiriant | Insight October 2010 | Volume XVII No. 3 | Third Quarter Recovery

Third Quarter Recovery

As we had expected, the third quarter of 2010 showed significant continued volatility in investment markets but as we had hoped and believed likely, produced net positive results for all asset classes.

Source: Zephyr StyleAdvisor; Bloomberg

Overall, the quarter produced substantial gains in equity classes (the All Country World Index was up 14.46%) and the closing month of September was the strongest in many decades. As a result, performance for most client portfolios has recovered from negative at mid-year to very respectable positive numbers, year-to-date, as we move into the final quarter of 2010.

Source: Zephyr StyleAdvisor; Bloomberg

Still, from one month ( to the next, global investment markets respond to current news that shows actual growth in the world’s economy, but with significant variation from one region to another and at an overall pace that remains weak. Most investment gauges are below their 2010 highs in late April and still far below the pre-crisis highs of late 2007.

Many market participants remain unconvinced that economic conditions warrant a commitment to riskier assets. From one day to the next, some not really wonderful news spurs positive market performance and some not such bad news produces market declines. No strong, clear conviction appears in evidence. Some commentators have likened investors’ mood to suffering post traumatic stress disorder where modest reminders of pain cause disproportionate fear of a return to the disaster of late 2008 and early 2009. Those times were traumatic indeed and the stress they caused was very real and, for many, very severe. It may, realistically, take significant additional time and a period of sustained market performance for true healing to occur. We hope that, despite the frequently renewed pain, the results of this past quarter demonstrate that significant rewards for risk-taking do occur.

Meanwhile, virtually all of the factors we mentioned in Insight three months ago are still in play: a very poor job market, excessive sovereign debt, terrorist threats, lousy consumer sentiment, and tax and regulatory uncertainty, to name just a few on the negative side, and very low interest rates, low inflation, growing corporate profits, an apparent bottoming of the residential real estate market, modest equity valuation levels, and an immense pool of investable cash, on the positive side.

Where the balance will be struck, no one can be certain, especially in the near term. We suspect that it will take both significant recovery in employment statistics and sustained advances, even if modest, in housing prices to convince many US market participants. This optimism may already be well underway in many markets outside the US. We are convinced that long term and durable investment commitments to the full scale of global investment opportunities will very likely be well rewarded. Our job is to help you best participate in that expected reward at a level of risk that you can tolerate and that may be necessary to achieve your goals.

As always, we are eager to continue the dialogue about how you make that match between needs, desires, and opportunities and the resources available to fulfill them.

Tim Kochis

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