It certainly isn’t a golf day as I write this early Sunday afternoon, and what it has done is give me a day or so to collect my thoughts as we come off a most volatile week, both politically and economically. If you were approaching or are ready to take a step onto “the ledge,” this communication, as all others, attempts to bring a bit of perspective and balance to all of these subjects.
I don’t know if I can say they actually “solved” the debt crisis last week, but what was done was to craft a piece of legislation which allows us to fulfill our financial obligations. I will let the commentators and op-ed writers chime in with their thoughtful opinions on what this means both short and long term. I can heartily recommend a piece in the August 6 edition of the New York Times entitled, “What Happened to Obama?” The author is a psychology professor at Emory University named Drew Westen, and presents a balanced, thoughtful, and insightful commentary on this administration. No matter on what side of the political dais you may sit, this piece has something in it for you.
Jim Cramer is a name that most of you are familiar with. He is a commentator on CNBC and hosts their successful “Mad Money” program. He is a former hedge fund manager, and is hardly a shrinking violet. He is probably wrong more than he is right, but presents his subject matter skillfully and with an abundance of passion. He was asked on Friday morning, the day after the Dow was down by 512 points, how this resembled 2008. His answer was that there were some similarities, namely sovereign debt, but three years ago we were facing Lehman Bros, AIG, the virtual dismantling of Fannie Mae and Freddie Mac, the sale of Merrill Lynch to Bank of America, and the “fire sale” of Bear Stearns to JP Morgan/Chase. Those crises are all behind us.
Earnings continue to remain strong, with 80% of companies reporting earnings at or above their anticipated amount. (Source: WSJ) In general, markets do not like uncertainty, and this is partially the reason the S&P is only selling at 13 times earnings. Analysts would argue this number is “lower” than normal considering the earnings growth over the past two years. Many would also argue that the current volatility is already factored into stock prices.
Monday morning update: The markets are reacting to the downgrade of United States debt by S&P on Friday evening. Warren Buffett is quoted as saying, “…the United States debt is still AAA and I’m not changing my mind.” In addition, Mr. Buffett comments that almost all of his own personal holdings in cash and equivalents are in T-bills. (Source: CNBC) I might add this is coming from a rating agency which rated mortgage backed securities AAA in 2008, and we all know how that story ended.
You have heard me lament for years that the most emotional thing in the world is dealing with other peoples children; the second most emotional thing is dealing with other peoples’ money. We would welcome any opportunity to discuss the current volatility and how it relates to your individual situation. In the interim, please “Google” a piece in Friday’s Wall Street Journal entitled, “Time to Panic? Just the Opposite,” by Dave Kansas. Again, this is a fair and balanced representation of the situation which reinforces basic principles which the majority of today’s press refuses to report.
We try to systematically contact all of our clients so they are informed about their own accounts, as well as the markets. We try to be proactive in taking profits off the table when the markets are up, especially for clients who receive monthly distributions. At the same time, when fear and emotion are prevalent, it’s equally important to take a deep breath and relax so that you do not make improper decisions which will hurt moving forward.
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