2011: A Year of Financial Reckoning

FREDERICKSBURG, Texas, Jan. 18, 2011 /PRNewswire/ -- "I maintain something I call my 'Black List.'  It is a list of the top 4 or 5 game-changing events that, if they occurred, have the ability to wreak havoc with the economy and the portfolios I manage.  Currently in the #1 spot is the financial reckoning of America's incalculable debt and the consequences of a country in rehab," said Andrea Olsen-Condon, Chief Investment Officer of Tanglewood, A Private Family Office. 

"As a country, our ability to create more government debt without immediate repercussions is rapidly coming to a close.  And the outcries last November to reduce our deficits acknowledged this understanding.  Yet, it remains hard to see how our private businesses, municipalities, entitlement programs, pensions and fragile real estate markets will be able to stand on their own without continuing government life-support.  The private and public sectors have become too intertwined and can't breathe on their own.

"For example, cut military spending and tens of thousands of private defense company employees are laid off, increasing the unemployment rate along with unemployment benefits and home foreclosures. Reduce government employees and the results are the same. Too many jobs and too much of our success has been built on private and government deficit spending.  As our government's artificial stimulus program runs out this summer, 2011 may likely become the year of reckoning when the true validity and sustainability of our recovery is finally revealed." 

Ms. Olsen-Condon noted, "When the reckoning occurs, we may expect periods of increased volatility and downward market corrections as old ways of managing investment portfolios give rise to new opportunities.  The good news is we likely will get plenty of advance warning.  That will be the time when investors will want to fully engage their hedging and other risk–management strategies to contain some of the downside until the new opportunities emerge.  This is what we did during the 2007-2009 turbulence and I expect sometime in the next year or so it will be necessary again.  Maintaining protected long-positions, instead of outright stock selling during tumultuous times, reduces the need to know when to get out and when to get back in which, of course, no one ever really knows when to do. It further reduces the tax liability that occurs when equities are sold at a profit.  And it eliminates the need to make entertaining, but frequently incorrect, predictions of future stock movements.  Most importantly, it keeps the portfolio flexible and prepared for a systematic rotation into new opportunities once the markets settle down.  In the meantime, we can continue to make our clients money during rallies, artificially-induced or not."

"Just as in 2007, understanding and anticipating this economic reality, and the significant impact it may have on our economy and markets, will be critical to the short and intermediate-term success of investment portfolios of every kind, " concluded Ms. Olsen-Condon.

About Tanglewood:

Tanglewood is a private multi-family office firm headquartered in Fredericksburg, Texas, providing investment and lifestyle management to a small number of high-net-worth client families in Fredericksburg, San Antonio, Austin, Dallas and Houston. The Company's effective "risk-focused" investment style is a no-nonsense, hands-on approach utilizing economic, geo-political, market psychology and stock-selection expertise.

SOURCE Tanglewood