VOLATILITY CONTINUES, WITH THE MAJOR indices off over the last three weeks. By the numbers, for the three weeks ended Friday, March 11, 2011, the Dow Jones Industrial Average closed at 12,044, down 86 points, or 0.7%. The Standard & Poor’s 500 closed at 1304, down 15 points, or 1.2%, and the NASDAQ Composite closed at 2715, down 66 points, or 2.4%.

Japan has captured the world’s attention, with a major earthquake setting off a tsunami, and a string of other challenging events. It’s probably too early to assess the number of unknowns in this particular equation, let alone have an accurate assessment of the losses that have occurred, in lives, futures, and property damage. Let me encourage each of us to reach out, with prayer, dollars, and time, to those in Japan and around the world, who are hurting.

Actual inflation for the average American household continues to march unabated, if measured by nothing more than the price of gasoline and coffee. The official inflation rate, as measured by the federales, has been showing a fairly benign rate of growth. This type of statistical reporting calls into question all government statistics, though this isn’t new information for most of us.

Chris Liddell, who left Microsoft a year ago to become GM CFO, is stepping down. He is being replaced by Dan Ammann, a Morgan Stanley alumnus. Luxury brands, whether manufacturers or retailers, may take a hit in sales as a result of turmoil in the Middle East and North Africa. Everyone from LMVH to Mercedes generates an appreciable portion of both top and bottom lines from the money in this region.

In economic news, retail sales were up 1% in February, making for almost a 9% year over year increase. Consumer credit was up $5 billion in January, much of it for vacations and autos. Business inventories were up in January, the 13th consecutive monthly increase, and the U.S. trade deficit jumped to -$46.3 billion, meaning consumers increased their buying of foreign made goods. In general, good news.

Employment remains weak, however. Even more disconcerting, long term, is the unwillingness of politicians around the world to wean themselves from debt. Though national debt serves to keep politicians in office, and voters on the plantation either sated or numb, it is destructive to the long term health of economies.

There must come a point where all governments become willing to spend less than they make. Without this discipline, currencies eventually become worthless, terms such as “full faith and credit” become meaningless, and dictators making big promises thrive. We have read a white paper that describes several outcomes of this lack of discipline. If you’d like to read it, let us know, and we will forward it to you.

Quote of the week:

“The problem with socialism is that you eventually run out of other peoples’ money.”
                                                                                         Margaret Thatcher