Labor Day 2013: Risky Presidents, Risky Markets

In our US ETF Equity managed accounts, we enter Labor Day weekend in the highest cash position we have seen in years.

Tepid And Without Conviction
Why? The rationale is simple. First, the market action seems tepid and without conviction. That personal assessment, following four robust years, draws from experience with observing markets in all types of environments over four decades.

Admittedly it's an assertion not backed by absolute fact. Opinions and views about markets never are. Other factors causing concern are easier to pin down.

Geopolitical Risk Is Rising
Events in Syria lead to scenarios that are of deep concern. Iran has 10,000 troops in Syria. There are connections between the Syrian government and the Hezbollah in Lebanon. The rebel forces are divided. Al Qaeda is active. The complexity of the situation means that any action taken by the U.S. will provoke other actions. The sequence of unintended consequences is unknown.

Meanwhile, President Obama has drawn three lines in a row. This time he has moved warships and declared himself prepared to move ahead with a limited strike against Syria. Now he has to deal with international players who are not in agreement with him or who have other agendas. When a president is in trouble, markets can also be in trouble, as a sage investor observed sometime ago. His name was Gould, according to Jeff Saut at Raymond James. Jeff and I have had discussions about market risks and events that weaken presidencies. Our view is aligned and we are either both worried unnecessarily, or we will be validated as we see risk evolving.

Deteriorating Indicators
At the same time, our economy is uncertain. Sentiment indicators are deteriorating. We face a home mortgage interest rate that has risen almost 150 basis points in a matter of months. Housing is slowing and other issues concerning the economy are questionable. The Fed’s (Federal Reserve) policy is unclear and unknown. The Fed’s future leadership and the composition of its decision-making body are also uncertain and unknown.

There's safety in cash.

Happy Labor Day weekend. Best regards from Leen’s Lodge

David R. Kotok, Chairman and Chief Investment Officer.