CI Outlook - Archives

Client Newsletter 2nd Quarter 2004

July 6, 2004

Mr. And Mrs. Investor
123 Elm Street
Dallas, Texas 71234

Dear John and Jane,

So far 2004 has been the equivalent of a baseball “no hitter’. Here we are halfway through the game with lots of tension and plenty of anticipation but “nothing has happened”. The S&P 500 is up about 3% and corporate bonds are down the same amount. This ongoing listless market action is highlighting the success of our tactical allocation strategy for your account. Combining active stock selection with the right exchange traded funds has yielded double digit returns for the year to date. Like the pitcher in our no hitter we hope to finish the year with a boring but very welcome win. Like that pitcher we will have to overcome problems both foreseeable and unanticipated. What are some of these concerns?

Looking to the November elections there is always concern that the party in power may lose. The markets hate change and have trouble dealing with it. Investor concerns about a change in leadership range from loss of the recently won tax breaks to disruption in the recently popular health care industry. The biggest predictable concerns leading up to the election are the strength of the economic growth, interest rates, growth of employment, inflation, the price of oil and so on. Unpredictable events such as terrorist threats or ongoing hostilities in the Middle East continue to add to investor anxiety. Yet, like the baseball game sighted above, the market has a lot going on behind the scenes.

Fundamentally, earnings continue to advance at a double-digit rate. Thus the price earnings ratio of the market continues to decline. Technically, selling pressure has continued to decline showing that those who want to sell have already done so. Psychologically, we have endured bad news ranging from problems in Iraq to the virtual doubling of energy costs. Yet the market fails to react. All of these conditions are symptomatic of a market that is correcting after having moved too far too fast. Given this set of circumstances we will continue holding those stocks showing promise while continuing the search for new names such as Advanced Medical Optics or Shuffle Master (both up over 20% in the short time we have held them). We will sell those securities that fail to perform as expected including stocks and certain exchange-traded funds.

As always we thank you for your continuing patronage and encourage you to call with any questions or comments.

 

 

CJ Brott

Karen Burns

 

 

   

 


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Client Newsletter 2nd Quarter 2004
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It Ain't Over 'Till It's Over
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