Making Chaos and Crisis Your Friend

“Chaos in the world brings uneasiness, but it also allows the opportunity for creativity and growth. Chaos is my friend.”
~Bob Dylan

Growing up I always admired my Grandmothers ability to be steadfast in the midst of chaos. My mother would often credit this ability to the tough upbringing my Grandmother experienced in the harsh streets of Pittsburgh during the 20’s and 30’s. As I’ve aged a bit, owned businesses and raised a few kids I’ve come to realize my Grandmothers ability to maneuver through chaos with grace and confidence was much more than just environmental influence. Wit, patience, insightfulness, fortitude and faith are powerful talents delivered from a source much larger than the streets of a growing manufacturing city.

While I desire to be an optimist just as my Grandmother was, I must admit it is difficult to reconcile the chaos and crisis that surrounds us with feelings of optimism towards the future.

With a backdrop of unsustainable debt, unsustainable entitlements and deficits, the coming social security and medicare entitlement issues as well as State and Municipal funding gaps it is easy to lose grasp of the art in making friends with the enemy.

In our past missives and open houses we covered in detail topics from Market Sentimentto How The Fed Works while rounding the bases of The Good, Bad and Ugly of 2011 Financial Markets while providing you actionable steps you could use to befriend today’s chaos. Now, sitting at 2011’s midway point it seems appropriate to invest a moment and review where we have been with the intention to talk about the interesting times to come.

As we have written before one of the indicators we like to pay a bit of attention to is market sentiment which reached an extreme high just a few months back as you can see by this graph provided by CMG Funds.

sentiment3may2011.JPG

The last time we talked about sentiment and warned that equity investors should be cautious the S&P 500 was near 1350 and optimism was at an extreme high. Since then volatility has picked up, the S&P 500 has declined to as low as 1256 (currently at 1275) while the news cycle has turned from recovery, inflation and rising commodity prices to concerns of a slowing economy, correction in all markets and concerns of a credit driven event lit by the kindling of Greek debt. Subsequently market sentiment has swung to a low as seen in the following chart.

With what appears to be the beginnings of an intermediate term low in sentiment and the likelihood the Obama administration will now start taking steps to find creative ways to stimulate the economy before election time (similar to releasing Oil from the strategic oil reserve) it may be time to start looking for an intermediate term bounce in equity markets that may last more than a day or two and provide some growth opportunities as we head towards the tail end of the year.

As I learned from my Grandmother it is easy to remain steadfast when you have a few elements on your side. One, was faith that through your past experiences you have confidence in the ability to create good from bad. Two, those that are educated and prepared will not only befriend chaos but will profit from it. And third, it is in the midst of crisis when you find the greatest opportunities.

Mark these words. The next year will become very interesting as The Obama administration will take the front seat in monetary decisions in an attempt to stimulate the economy prior to election time while The Fed rides shot gun ready to fire if needed. As our friends at Anchor Capital have recently stated Times Are Going To Get Interesting.

With all this said how can we as investors make this chaos our friend? As part of my Grandmothers second element mentioned earlier, education and preparation will make all the difference. It has become painfully obvious to us at Quiver that the equity markets are in a secular trend that will most likely keep the overall market stuck in a range with some impressive rally’s and spectacular declines. We have noted multiple times that we expect equity markets to range from as low as 1050 to as high as 1450 on the S&P 500 over the next 5 to 7 years. The distance between those numbers is plenty of room to find many different opportunities in the markets.

Outside of equity markets and closer to home you can most likely expect inflation in the things you need and deflation in the things you want. This should cause all investors to readjust their approach to diversifying their portfolios from the traditional mutual funds and stocks that can only make money if that respective market increases to management styles that are tactically adjusted and tactically diversified to include alternatives as well as methods to adjusting risk according to market sentiment. All this will require a greater need for education which you can participate in by joining us for our next open house on July 22nd in Irvine CA where we will discuss how to Make Chaos Your Friend.

This is not an environment that will be kind to the investor that prefers a buy and hold scenario within either stock or bond markets. Having tactical management and diversification will be key for investors that rely upon their nest egg for basic needs, comfort or joy.

I’ll wrap this missive with my Grandmothers third belief about chaos. It is in the midst of chaos and crisis you find the greatest opportunities. The trends that are developing in commodities, currencies and interest rates to name a few continue to offer investors opportunities to benefit. It is our belief every investor should consider examining their portfolio while educating themselves on how to make today’s crisis and chaos their portfolios friend. We hope to see you July 22nd.

Warm Regards

Colby McFadden
Quiver Financial


The views expressed are those of Colby McFadden and Quiver Financial as of 6-22-11 and due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Graphs provided are for illustration purposes only and do not represent a specific investment recommendation. With regard to any investments mentioned, it must be remembered that past performance may not be indicative of future results and that the investment, itself may not be suitable for your portfolio.. Securities offered through Newport Coast Securities, member FINRA/SIPC. Advisory services offered through Newport Coast Securities a SEC registered investment advisor.