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What should we be telling our clients after last week's selloff?

The Global Perspectives October 2014 article gives an in depth assessment to the issues that started with poor German reports on exports and factory orders. The other surprise was the unprecedented climb in the dollar in the third quarter creating disruption in commodity markets especially oil. The dollar rising is not especially a problem it is the speed in which it rose. The biggest concern for global markets is a lack of inflation and this makes it worse since a strong dollar essentially "imports" DEFLATION, in that it lowers prices of imported goods. Europe is the wild card since it looks likely that they are entering a 3rd recession since the end of the financial crisis. The markets are quickly erasing all gains year to date, which is very scary to investors, but we think selling is a mistake, especially before what we expect to be an exemplary 3rd quarter earnings season. Further positives, U.S. GDP hit 4.6 percent for the second quarter bolstered by consumer, manufacturing and housing strength. Although Europe is weak, they have been for the past 5 years, Emerging Market Asia is strong growing at a 5 percent rate.

How much cash do you think is still on the sidelines? Could you please share with us your thoughts on this topic and what we are seeing in the market?

There is over 8 trillion in money market and savings accounts. Please refer to slide 74 in the Global Perspectives book. We dislike cash because it locks in a losing rate of return. A broad globally diversified portfolio is a better way to mitigate risk. Ask yourself - what has been the biggest risk investors have faced in the last five years? It has not been any geopolitical event despite all of the headlines. Rather it has been NOT being in the market. Sometimes risk is what you don't own not what you do own. The market will continue to move forward based on better than ever corporate earnings which are poised to grow even higher into 2015.

Are gold and silver prices going to continue to increase?

The trend on gold and silver are negative. The metals climbed on the fears of Fed tapering and the commensurate hit to selected emerging market currency and stock markets. Gold in particular has been a fear trade, alternate reserve currency and a hedge against inflation and deflation. In other words the expectations are unreasonably high and I expect that it will continue to lose its luster until it gets to a more sustainable level. Our forecast for gold in 2014 is $999.

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