The point of this very true event is that we go through life with things where we don't truly understand how close we were to dramatically different outcomes. The events that unfolded from September 15 of last year through October 15 were indeed enough to cause a collision with economic fatalities with extreme global ramifications. For Iceland, the wreck clearly occurred. For those of us with assets, we feel like we were in a wreck that required hospitalization perhaps but not a mortician! Friends, rest assured, your economic fate and mine was spared by a few inches in my opinion.

Some will clearly say this is a dramatic over statement and things weren't that bad. Others will say the wreck could still happen. Most of us are like me and Barb in the incident above - the occurrence was so incredible that a few miles down the road we discussed examining the tread on the tires or what the street department should have done differently. The majority of the world watched the 30‐day time period unfold in 2008 and has now moved to their version of the "street department" and their errors, as we haul people before Congress and the regulators. Just as Barb and I are blessed to be alive, so is our current economic system even if it is badly bruised.

This is not to say that questions shouldn't be asked and lessons learned, but to point out that we as individuals have a tendency to assume no risk was taken once the outcome occurred. You surely recognize the risk to life in the near accident above, but you don't necessarily understand the risk of being in all cash if the market had gone up as much as it went down last year. We don't naturally understand the risk of economic outcomes different than what happened to play out. This understanding of "rear view risk" may seem meaningless, but it is crucial to the concept of asset allocation.

The thought was that if I were all in cash, I would still have my cash - true enough. But if the market had rallied as much as it went down, then you would have had the same money but not necessarily the same spending power. Loss to inflation is not like a car wreck that we can visualize and sadly, most of us don't understand the "wreck" that it can cause in a retirement strategy.

2008 offered other unconceivable issues as well. Last year the top performing sectors in the S&P 500 for the first six months were precisely the worst performing sectors of the second half. The rear view risk here underscores the rational for diversification within equities, regardless of the economic appearance AND without the inclusion of market pricing as a tool to determine value of an asset (stock or bond) in a portfolio decisions. The need for asset diversification is and was clear.

Interestingly enough, we compared long-term U.S. Treasury bonds to the tech wreck stocks of the roaring 2000s in the fourth quarter of last year. Our unwillingness to participate in that market environment caused us to miss our benchmark measurement by a large portion and looking at the year­end results as the selected data point made us appear to be wrong - dead wrong. As of this writing, the long term U.S. Treasury, as priced by TLT, is off more than 15 percent year‐to‐date. The once-bestowed safest investment on the planet fell by 15 percent in less than one quarter. Wow! Off more than the equity markets this year.

We have no way as mere mortals to play out all the implications of rear view risk and honestly, that is not our job from an economic standpoint. We buy that type of work from the world of academics who write papers and create models that "suggest" what the risk measurement was, but even those are distorted in my opinion. We filter information and apply it to our strategy and we must be cognizant of distortions.

That is the second or third time I have used the word distorted in this paper. It is a powerful word. The intended definition is that things we are seeing are not entirely accurate. Think about your side door mirrors where the label clearly reads, "objects may be closer than they appear." These distortions include market prices, as well as economic indicators, and we get no warning labels!

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