2 April 2012

“And the lamb shall lie down with the lion”…

This particular line is quite possibly one of the most referenced, but generally misattributed lines in English speech. The lion and lamb juxtaposition is often quoted with regard to March weather, i.e. “in like a lion, out like a lamb”. Many folks seem to believe that the line was used by the legendary poet and philosopher William Blake. Although he wrote poems entitled “The Lamb” and “The Tyger” (close to the king of the jungle anyway), there is no interface other than asking in the latter poem about the “tyger”: “Did he who made the lamb make thee?”

The vast majority of people are of the opinion that the line is a direct quote from the Bible. Preachers use the phrase on many an occasion, and it has entered our own popular lexicon. However, there is actually no direct quote from scripture that mentions the alleged coupling. In Isaiah 11:6, we see “The wolf also shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them.” Later in the same book, we encounter “The wolf and the lamb shall feed together, and the lion shall eat straw like the bullock; and dust shall be the serpent’s meat.” Close, I guess, but no cigar…

You’re doubtless wondering why I’m parsing this quote in a letter about investments. You might be saying “Gee, Bill, has tax season finally gotten to you?” While the latter may indeed be true, it’s not the reason for the topic.

I headed in this direction today because I’ve sensed a bit of peace over the past month. Our weather in central Ohio, albeit punctuated by a few nasty storms, was by and large benign. We had the warmest March on record, and vegetation is three weeks ahead of itself. Lawns are lush, and the birds are out in force. It was wonderful for our heating bills, and it’s terrific to see so much green. Speaking of green, March was also a placid month for equities. According to Standard & Poor’s, the first quarter of 2012 was the strongest one since 2009, and your statements will reflect that fact. The lion roared a bit from time to time, but it was mostly a lamb-like tableau. On the world stage, conditions were calm as well. Can the proverbial lamb and lion continue to exist in harmony, or will the second quarter upset the applecart?

From an equity market perspective, I think that we need a breather. We’ve experienced nice gains based upon a mix of hope and slightly improving reality. The next round of earnings will flesh out the story. They should be solid once again, but I feel that there could be some sizable disappointments. The most interesting facet of March’s action was in the bond market. Long-term Treasuries fared quite badly, as the 10 year rate rose from roughly 1.8% to over 2.2%. This rise in interest rates, though not alarming in and of itself, could prove to be so if rates continue to go up. As I’ve opined many a time, the bond folks are usually closer to the truth, and perhaps they’re seeing more halcyon conditions ahead for our economy.

While things have been non-volatile of late, we’re only a major event away from bonds being the flight to safety again. Gas prices could certainly slow down growth if they get much over the $4./gallon mark. We’re getting closer to the November elections, and there sure isn’t much lion and lamb reconciliation talk between Republicans and Democrats. Many of us still believe that Iran is the ultimate wild card. Any incursion in the Middle East would almost assuredly throw a monkey wrench into the proceedings. We also can’t forget Europe. The biblical characters may be in the same room for now, but perhaps not for long. Moody’s downgraded five large Portuguese banks on Friday, and I’m not sold on the European Union remaining peaceably intact.

The bottom line is that I’m still cautiously optimistic, but not ready to abandon fixed income or commodities. We live in an uncertain world. Any de-coupling of the lion and the lamb could prove deleterious to equities. I continue to be more protective than aggressive in my outlook, and I feel that it’s wise to leave risk exposure at lower levels. Broad allocation of assets has helped us through difficult times, and it should continue to be a tenet of prosperity for the future.

As always, I thank you for your support, faith, and trust. I also appreciate your interest in our monthly musings. Let’s hope that the story of the lamb and the lion, although often misused, holds fast on a number of levels. I look forward to seeing you soon.

Sincerely,

Bill Schiffman
Registered Representative

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The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.
Diversification cannot assure a profit or guarantee against a loss.