CI Outlook - Archives

First Quarter 2007

April 3, 2007

Six weeks have passed since the February market highs.  The sell off sparked by a panic in China and reinforced by sub-prime lending here in the US was reported in sensational fashion by the financial press.  What we are not hearing now is that markets in Asia have recovered and indeed are setting new highs.  Comments by Treasury and Fed officials that sub–prime problems are “likely contained” seem to be being ignored.  Taken at face value, investors seem to be experiencing a need to fret over the news.  On the surface it seems that this is not a time to invest.  Looking below the surface, we observe that the market is doing its job and climbing this “wall of worry”.  While we are reluctant to sound an all clear, and call for a straight up market, we think the bottom in prices has been seen.  As earnings season progresses we think there is a very good chance that the February highs will be exceeded.  This will probably not signal the start of a straight up move.  As March showed this will be a volatile year.  We believe concerns about geo-politics, the strength of the economy and the rate of earnings growth will dominate investor psyches and dampen investor confidence throughout the balance of 2007.  However we believe that overall the year will be a positive one.

The core reason why we are down playing the news in the popular press and believe the markets are stronger than widely thought has to do with consumer confidence.  We believe that credit concerns are important but the real force behind consumer spending is employment.  As long as employment rates are high we believe consumer confidence and therefore consumer spending will remain high.  This consumer demand, combined with industrial demand from abroad for domestically produced goods, should provide US business with strong sales for the foreseeable future.  Therefore, as long as US consumers remain confident we think corporate earnings will grow and provide the basis for higher markets over time. 

As always we will remain on alert for any event that would cause us to change our outlook.  In the meantime we will work to preserve the gains already made this year and take advantage of new opportunities as they arise.  Please call us with any questions, or to schedule an appointment to discuss your investments with us.  Thank you for your continuing patronage.

CJ Brott                                 Karen Burns


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