The document summarizes several shocks that occurred on a single day in May 2012, including Greece potentially leaving the Eurozone, the eurozone nearing recession, troubles in the European commercial real estate market, losses for J.P. Morgan from speculative bets, an upcoming debt ceiling showdown in the U.S., and heightened currency market volatility. In response, the author's firm has positioned its portfolios to have little exposure to Greece, be underweight Europe and the euro, and underweight U.S. Treasuries. While continued challenges exist, the author believes diversification may benefit investors and that progress is being made in addressing issues plaguing the global banking sector and European economies.

1. A Day’s Worth of Shocks
By: SEI Investment Management Unit
May 16, 2012
Looking in the rear-view mirror, our first-quarter 2012 economic outlook’s theme of “watching out for
shocks” appears nearly clairvoyant. A glance at financial headlines on just a single day reveals a long list
of concerns, including:
Greece Is Teetering on the Brink of Collapse
The country’s election ousted the pro-austerity government. The new leaders are unable to form a
coalition government. Depositors are pulling their money from the banks, and the country’s departure
from the European Monetary Union (EMU) appears imminent.
The Eurozone Is Near Recession
After losing ground in the fourth quarter of 2011, the eurozone posted 0.1% gross domestic product
(GDP) growth for the first quarter of 2012. Growth in Germany helped the region post a gain by the
slimmest of margins, narrowly avoiding two quarters of negative GDP growth.
The European Commercial Real Estate Market Is in Trouble
Falling occupancy rates and lower rents are causing defaults in Europe’s commercial real estate sector.
This comes as a long list of European nations slips in to recession.
J.P. Morgan Casts a Cloud on the Market
The big bank made what appears to be a speculative bet that blew up, costing the firm billions. While a
few billion dollars barely makes a dent in the company’s profit margin, the timing could not have been
worse, as regulators are focusing on exactly this type of risk in their efforts to shore up the banking
sector.
The U.S. Government Is Heading Toward Another Debt-Ceiling Showdown
Political squabbling highlights the ongoing dysfunction in Washington and undermines the nation’s credit
rating by calling into question its ability to pay its debts. The end result could be a financial crisis.
Currency Markets Are Showing Heightened Volatility
Concerns about Greece and the possible breakup of the EMU are fostering volatility in the currency
markets.
As of May 16, 2012, the Dow Jones Industrial Average Had Fallen for Nine of the Previous 10
Trading Sessions
The markets are displaying short-term reactions to current concerns.
Our View: Addressing the Shocks
The smorgasbord of negative headlines—from just a single day—is enough to cause unrest among
investors. SEI’s active investment management process takes issues like this into consideration every
day. Our perspectives are reflected in the ways in which we have positioned our portfolios for current
market conditions. In general:
• Our Funds have little or no exposure to Greece.
• We are underweight Europe in our equity Funds.
• We are overweight Europe in our fixed-income Funds.
• We view the J.P. Morgan/regulatory issue as good news for fixed-income markets.

2. • Our Funds are underweight U.S. Treasurys.
• Our Funds are underweight the euro.
• We are strategic investors. We do not believe investors should be holding stocks if short-term
losses are a primary concern.
While there is no doubt that we are living through some challenging times, we think we see continued
progress. The U.S. economy is slowly muddling along, the U.S. election will bring clarity for the next four
years, the global banking sector is addressing its challenges, European elections will provide insight into
what comes next for EMU, and—perhaps most importantly from an investor’s perspective—diversification
may be working in investors’ favor. While we are not raging bulls and still anticipate volatility ahead, we
are significantly happier today than we were in 2008 or 2009. We think investors should be, too.
The Centennial Group
511 S. Washington Ave.
Lansing, MI 48933
(800) 999-9350
www.centennialgroup.com
505680 DOFU 5/12
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