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Ruminations on Q1 of 2013

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punxsutawney-philLike the winter that will never end, the US stock market continued its unwavering advance in the first quarter of 2013. And just like those that planned their spring planting around the forecast of Punxsutawney Phil on Groundhog Day, folks relying on the state of the global economy to predict the direction of markets are experiencing a rough spring.

How long this market advance will continue is anyone’s guess, but rather than attempting to predict that, we will continue to focus on establishing a sound financial planning and investment framework that provides the highest likelihood of achieving long-term objectives regardless of short-term gyrations.

Over the last several months, we have endured more of the same political discourse in the form of debt ceiling negotiations, “the sequester” and “furloughs.” Once again, Congress enjoyed getting a bunch of attention for a few days, and then punted.

As predicted in January, once we passed the February debt ceiling deadline and ran out of things to report here in the US, our media turned their attention overseas.

KCNA/AFP/GETTY IMAGES

KCNA/AFP/GETTY IMAGES

We started to hear of more nuclear threats from North Korea, but fortunately for all of us, the great US ambassador, Dennis Rodman, made his way overseas to hang-out with Kim Jong Un and patch things over.

On a more serious note relating to the threats from North Korea, there was a wonderful op-ed written about a week ago by a young woman interning for The Verge (www.theverge.com), titled “What North Korea’s Threats Sound Like to a South Korean College Student.” It is a wonderful read to provide some perspective about life on the Korean Peninsula. Those of you viewing this via PDF can simply click the link. Alternatively, if you have a moment to search for that title online, it will pop-up as your first search result.

We also turned our attention overseas just in time to learn about the country of Cyprus, which bolsters an economy smaller than the state of Vermont – the smallest state economy in the United States. The country made headlines by suggesting that they were literally going to take money out of people’s bank savings accounts to help maintain the solvency of their banking system. This prompted many pundits to begin suggesting that if it can happen there, it can happen here. That proclamation is utter nonsense for more reasons than we can get to in this letter.

bitcoinFueled, in part, by the bank crisis in Cyprus, we also saw the rise and fall of the “bitcoin,” a so-called digital currency that is supposed to provide an alternative to the risks of holding actual money. The creator of this digital currency remains anonymous today. This is not a joke.

Bitcoins have actually existed since 2009, but were relatively unheard of until gaining enormous attention the past few months. As a byproduct of that attention, the price of a bitcoin has swung wildly from $13 on January 1, 2013 to as high as $266 on April 10, 2013. Within 6 hours of hitting its high, the price of a bitcoin dropped from $266 to $105 before closing out the day at $160. Given that the most important tenet of a reliable currency is price stability, it is safe to say the bitcoin is anything but that. Not surprisingly, this sudden rise in demand for bitcoins coincides almost perfectly with the recent drop in commodities prices, particularly gold and silver.

Investors must recognize the difference between speculating and investing. Making investment decisions based on anything written above is nothing more than speculation, no matter how much support and conviction you believe you have. But it is far better to invest your hard earned assets in things (companies) that actually make more money, rather than hoping a greater fool will come along and pay more for something you previously purchased.

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