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| Investment Advisor - Market Perspective August 2009 |
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The first week of August has passed us by, and as we move into the most active portion of the Hurricane season, things are very calm. Let’s hope the entire season remains calm!
We can certainly say the same thing about the stock markets. Since the lows of March, we have seen a fairly consistent rally in spite of the very poor economic news. You will recall from last month's update that the majority of the markets’ Gurus have still been bearish and I gave you some input from several analysts who have been bullish. As I have mentioned to you in past communications, Couture Financial has consulting agreements with five independent analytical firms that provide us with constant evaluations of current economic and market analysis. Four of the five are bullish at this time and we have cautiously moved back into increased stock positions.
There is no doubt we may very well see a number of surprises in the markets and the economy over the next 12 months. As you can imagine, I am keeping a very close eye on any changes in the data trends and will push the exit button immediately if concerns arise. I thought you would be interested in hearing some of the research analysis again. The following paragraphs are part of the recent data from STIR Research:
On the plus side we could see upside surprises on the economy over the near term. Historically the stock market bottoms and starts to rally four months before the economy. Looking at March as the launch point for the stock market, July would then be the start of an economic upturn.
And that is what we have been seeing. The 2nd quarter, while still down, showed a slowing or ebbing in the decline and signs of some strength. Companies’ earnings on balance were better than forecast. Sales still down, but companies had pared costs even faster. This will lead to the real possibility of better than expected earnings recovery when sales show even the slightest improvement.
As our friends at Ned Davis recently mentioned, "Bearish economists may be right, but nothing has happened so far that is out of line with economic history. I’d rather follow the lead of the stock market than the economic profession’s predictions."
Longer term and we will have to see how this really plays out, could we expect a repeat of the great bull market from 2002-2007? Please keep in mind, that bull market was either #2 or #3 in length (rarely do they go that long) and with a gain of +100%, this is almost twice the average gain in a bull market.
What we have new this time is a staggering debt load by the U.S. government. Along with staggering debt loads are the staggering debt service requirements. That type of government spending isn't really stimulative to the economy. Just more transfer of wealth to those who lent us the money, primarily foreign governments. And to service that debt load and any new economic programs, like health care, requires higher taxes, and therefore another drain on the economy.
Only time will tell us what the real results will be, but along the way, we will maneuver through these mine fields for you. What we do know is that by continuing our diligent adjustments of your investments as these trends change, we can continue to protect your portfolio from the huge losses that most people experienced over the past 2 years. In fact, we can make that same statement for the past ten years as well! Undoubtedly, you hear friends’ and family’s tales of woe regarding their portfolio losses over the past few years. We appreciate your continued confidence in Couture Financial, and encourage you to tell these friends and family we can help them the same as we do for you.
Sincerely,
Phil Couture, President, CFP®
Couture Financial, Inc.
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