CI Outlook - Archives

August 2008

Last month we wrote that the worst might be behind us.  July a very volatile month ended down about 2%.  Considering the negative news and high levels of investor anxiety this was a positive divergence from general expectations.  Although the market may again test the lows set on July 15th, we think the odds are growing that the worst that can be seen has been discounted by the markets.

For example last month we mentioned that many market watchers had sold their portfolios sighting reasons such as the impending collapse of housing prices, the coming bank losses associated with auto loans and credit card debt.  In fact, this weekend, Barron’s printed an interview with an NYU economist predicting the complete bankruptcy of the American financial system.  Many hedge fund managers and other large traders have been sighting his research for well over a year as the reason not only to sell but in fact sell short many stocks and bonds.  This level of negativity has spread too smaller investors as evidenced by record mutual fund redemptions since last March.  In short investors are braced for the worst possible outcome. 

We believe investors, helped along by the financial press, are “fighting the last war”.  While there has been and may continue to be further bad news in the credit markets, the stock and bond markets discount the future, not the past.  Because we believe the price of oil will continue to decline, and hope that employment will not worsen, in late July we purchased the S&P 500 double index fund.  This fund is designed to double the performance of the S&P.  If, as we expect, the price of oil continues to decline the markets should respond with sharply higher prices.  With large amounts of money on the sidelines and new market leadership in the early stages of developing we will be scouring the investment scene for additional investment candidates suitable for your portfolio.

As always we thank you for your business and invite you to call us with any questions or concerns you may have about your portfolio.


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