The end of the third quarter of 2011 has raised as many questions about the world’s economic condition as it has to the dysfunctionality of both the front office and clubhouse of the Red Sox. No doubt you have heard the news reports that the third quarter of 2011 was the worst quarter since 2008. What the media failed to add to that statement was the fact that the markets were up approximately 8% thru June of 2011. The year to date return of the Dow is down about 5%. Certainly not acceptable, but a far cry from what we went through in 2008.
Since our last communication to you about six weeks ago,
frankly, not much is appreciably different. Uncertainty is as prevalent as ever, and much more daunting than actual reality. What’s going to happen to Greece? Is BNP in trouble? What kind of exposure to foreign debt does Morgan Stanley have? In absolute terms we can report as follows. Companies, according to former GE chairman Jack Welch, are doing quite well in an environment which is showing only 1-2% GDP growth. Earnings were quite strong last quarter, and third quarter numbers will be reported in the next few weeks. Auto companies have reported record sales for the past two months (source: WSJ), and oil prices are currently below $76 per barrel. Another interesting statistic about auto sales is that there was a less than 1% default rate on auto loans last year. (Source: CNBC) What has not occurred has been a solution to the housing crisis and unemployment, or the emergence of any leadership on either side of the aisle in Washington. Personally, the thought of going through this type of malaise, coupled with a leadership vacuum leading into next year’s election, makes me want to do much more than just shake my head!
Political uncertainty can always disrupt the market,
and history will confirm that. What drives the market upward are strong earnings, and we have been fortunate to see that, at least domestically. Joe Kernan from CNBC remarked recently that economists have predicted “10 of the last three recessions.” Neither Warren Buffett nor Jack Welch feels as if our economy is headed for the infamous “double dip.” Time will tell who the better prognosticator was. For every person given to doom and gloom, there are actual stats which will repel those dire predictions. For instance, well known bank analyst Meredith Whitney stated one year ago that she would avoid municipal bonds because of the likelihood that many municipalities would default. Just recently, she needed to do a huge “mea culpa” as her dire prediction did NOT come true. We believe the road to any semblance of financial security is paved with the same basics as has always been the case. Live within your means, stay as debt free as possible, maintain a reasonable cash position, and invest for the long term while occasionally rebalancing. Don’t be afraid to take profits off the table, and read and watch the news by taking a deep breath. Fear and greed are everyone’s two worst enemies. Greed is gradual, fear is instantaneous. Don’t succumb to either emotion.
Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trend, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
Indices are unmanaged measures of market conditions. It is not possible to invest directly into an index. Past performance is not a guarantee of future results