The first quarter was “interesting” with the return of massive volatility. Overall, markets foreign and domestic reacted by wiping out the January gains to finish the quarter slightly underwater. We have long expected that the prevalence of increasing economic information and reporting combined with the ever-larger computer driven investment funds would result in a mass disarray, and boom, there it is!

Sometimes, a rise or fall is attributed to the same reasons. Russia! China! Trump! Trade! The Fed! Good News! Bad News! How else do you explain instances where the overall market (S&P 500) is down nearly 2% one day, up nearly 3% the next, and down almost 2% the next? Did fundamentals change that greatly from day-to-day? Did markets? Individual companies? The overall economy?

In general, we see more stability and opportunity overseas. In short, valuations are much more favorable abroad than in the US. We do not see structural defects with the US markets or economy overall, but we do see P/E ratios stretched to ominous levels here, with a market frothy at best; it is our opinion we are near the end of the current bull-cycle.

Just one sign of disruption: the S&P recently made moves in trading sessions of 1% or more for 12 out of 15 sessions; 30 times through April 12! As of now we are on schedule to see this happen over 100 times for the year. To put that in perspective, this has only happened five times in 70 years: 1974, 2001, 2002, 2008 and 2009. Already, the market has seen two 10% pull-backs this year.

While the recent volatility and pullbacks have been felt primarily in the US, foreign developed and emerging markets have also felt some reverberations. The 18-month foreign and EM rally was partially enabled by global growth, but overall the global economy remains fairly solid.

Business investment increased in the US both in anticipation and implementation of Trump’s tax reform bill, adding secondary support to the global pickup, helping even the eurozone’s shaky legs to strengthen.

China continues its concentrated effort to contain financial speculation by supplying credit to the real economy, and continues to put up GDP numbers two- and three-times that of the developed world. All of this has helped commodities, which are extremely beneficial to emerging market economies.

Emerging markets have seen an increase in capital inflows. They operate with higher leverage, helping profits grow at a higher rate than developed market economies, resulting in increased attention from investors. We do not see a change in this scenario for the near future and remain optimistic regarding our portfolio.