Founder & Chairman
Given the upheaval in the markets over the last two weeks, we thought it would be a good idea to provide you with an update on our thoughts as to where things stand right now. We have been expecting something like this for longer than we care to admit, however, the ironic part is that we are getting more bullish now. While panic is in the air for sure, a closer look at both the fundamentals and the forward-looking economic indicators suggest that we are technically oversold (meaning the market has fallen further than the indicators deem appropriate). That doesn’t mean it will turn around immediately, nor does it mean that it won’t go lower from here. It does appear that the markets are looking for some kind of direction from the Fed or some other form of potential government intervention. It is difficult to say what form it will take, or from where it will come, but you can’t rule anything out at this point.
Consumer Metrics Institute is showing a major increase in consumer activity over the last 30-60 days, which apparently hasn’t been picked up by mainstream media yet. We expect 3rd quarter profits to still look pretty juicy, which could help the market bounce when this round of selling ends. There are signs that the Japanese economy has bounced back faster than anticipated which could help bolster the global economy as well. Stocks that pay dividends in many cases now have seen the dividend yield increase dramatically. If the S&P downgrade of the U.S. Treasury market was the true driver of the free fall in the markets, then why have those same bonds rallied so heavily? I suspect the real culprit here is the programmed computer algorithms (AKA high-frequency traders). Think flash crash. From the research we collect, it would not surprise us at all to see the markets move higher in the near future, but we need to see the technicals get much better before we make any moves. In general terms, it is our plan to recommend an increase in equity exposure once we get buy signals from our research providers. To be clear, you have the option not to increase equity exposure if you feel uncomfortable taking on any more risk, but we think this recent downturn has the potential to create a nice short-term buying opportunity in certain assets. We are currently evaluating various investment options, and we will give you specific recommendations once we have received the appropriate signals.
The key here is to be patient, and not to over-react. This is what makes investing so difficult, and exactly why we were so hesitant to over-commit to the markets. The issues affecting the market today are not new, have not been solved and will not go away for years, not months. Investors have gotten too complacent, and have once again vastly underestimated the risk inherent in the markets today. I hope you understand now, why we have maintained such a high percentage of our assets in fixed income, and why we have deliberately avoided investing heavily in stocks. Soon we will look to find value, and we will recommend moving back in and try to take advantage of better pricing. We will send you an update as soon as we have something important to report.
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