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The Strategic Times: The 2012 Annual Review and our Best Ideas for 2013

We view the next phase of the markets move as one of sequencing. We have often referenced our outlook to that of Wayne Gretzky’s unique ability to be in the right place. It has been said that he always was looking to skate to where the puck was going and not where it is at. We often find many economic and market calls simply taking the current conditions and extrapolating them for future outcomes. If this were to work, the most accurate outcomes would be dominated by the engineering field.


Perhaps the best ways of detailing our sequencing argument is the game of chess. The best players think several moves ahead. However, to be successful, they don’t move their pieces out of order. Rather, there is the sequencing of the moves that determine their success. After the deleveraging and rebuilding of balance sheets and continued accommodation of the Federal Reserve (Fed), the next phase is asset inflation. This will be driven by the immense amount liquidity that not only remains at historic levels, but is increasing. We see several forecasters moving on to the impacts of the Fed several years down the road and missing out on the events that have large impacts on portfolios and consequently, their returns. In fact, the markets primary concern is not inflation, deflation or stagflation, but rather dehydration. Consider the immense amount of liquidity in the marketplace:


  • Households hold over $8.0 trillion in deposits and cash equivalents
  • Commercial banks hold $1.807 trillion in cash
  • Global currency reserves total $10.478 trillion
  • As for corporate balance sheets, according to H. Silverblatt, Senior Indices Analyst at S&P Dow Jones Indices, cash on the S&P 500 balance sheet is almost 10% of market capitalization and an estimated 130% of 2013 operating earnings.


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Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.