This week has been a reminder that all is not well with the US economy or the World at large.
Employment data was a bust as economists missed the number by a wide margin. Estimates were for a loss of 175,000 jobs when in fact the reality was 263000 job losses. Hence the Consumer in the US remains a headwind rather than a tailwind.
If you happened to watch the Chris Mathews Show early this week you saw a frightening analysis the Israeli – Iran situation. Both analysts concurred that Israel could take preemptive action within three months. We have scanned portfolios for stocks that could be unusually sensitive should war break out. We’ve sold our position in Internet Gold (IGLD) an Israeli based Internet Service provider. It remains an inexpensive growth name but the risk reward is just not in our favor with this present standoff.
This is not to say that only certain stocks would be vulnerable should a war start in the Middle East. All stocks would be vulnerable should a war erupt as the threat of Iran halting oil exports or Middle East exports in general be prevented would create a spike in oil prices that would place our shallow economic expansion in jeopardy. Massive strength would be seen in Oil and Gold. A lesser hedge wild card could be Alternative Energy / Solar stocks.
While we’re still Bullish…….we’re just not the Red Bulls of the Spring. Short of an all out war in the Middle East we expect any selloff to be shallow and short lived. However the rate and delta of the rally is expected to moderate now that we’re no longer in recession. Thus we continue to slowly reduce our exposure to equities, as we no longer believe the rewards warrant 80% to 100% exposure.