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In January, the Covestor Reasonable Price model’s net returns outperformed the S&P 500 Index (SPX). This year is off to a promising start. I've said regularly that investing based on the economic headlines is not for me. However, having been a fixed income trader for eight years (at Credit Suisse in the 1980s) I am predisposed to follow economic data, and my overall take is that the economy here continues to improve slowly. GDP growth was negative in the fourth quarter, but averages out to roughly 1.5% for 2012. In addition, corporate spending data on software and equipment, showed a 12.4% annual gain in the fourth quarter. A bearish interpretation of the report might conclude that defense and other sequestration cuts will be serious headwinds to growth, but (coincidentally) Federal Open Market Committee minutes also came out and disclosed that the Fed intended to maintain their massive bond buying program, providing oceans of liquidity to the financial system. Where and when that process ends is anyone's guess, but Fed Chairman Ben Bernanke's term has another year to go and the current speculation for his successor is Janet Yellen, who is also dovish with regards to monetary policy. In the meantime, employment seems to be improving as revisions to fourth quarter reports showed gains averaged 200,000 in the October-to-December period. January is a difficult month, I believe, despite being a historically good month for equities. Re-allocating and rebalancing programs can skew prices, so I am not reading too much into January's performance. One factor that I suspect did contribute to the market's strength is a return of hedge funds to US equity markets. After some hedge funds underperformed in both 2011 and 2012, according to press reports, I would guess that most hedge funds are fearful of missing another strong market, a mistake that might cost them their jobs. After all, how long can you persuade someone to pay exorbitant fees, commit to lockups, and then underperform the S&P 500 by 10%? In addition, equity mutual funds are beginning to see inflows and if large institutions, such as the bigger college endowments, choose to allocate more funds to equities that would provide a tailwind as well. Coupons on most treasury instruments are miniscule, and if rates go back up the commensurate drop in bond prices may compel investors to think carefully about their bond holdings. I think people have been scared away from equities by the events of the past 12 years, and no doubt there are large, structural issues to address. However, in addition to the ultra-friendly Fed, valuations are, generally speaking, reasonable in my opinion. I also believe that earnings will be strong this year. Some of the indicators I follow have begun flashing yellow, particularly the AAII Investor Sentiment Survey released on February 7, in which 54.3% of investors described themselves as bullish, and only 22.3% described themselves as bearish.