CI Outlook - Archives

October 2008

During this period of financial hysteria the big news has been the passing of a $700 billion rescue package by congress, and the recent coordinated rate cut by world central banks.  Some events, such as Warren Buffets investments in Goldman Sachs and GE, or Bill Ackmans purchases of Wachovia have received far less media attention.  Both Buffett and Ackman are savvy students of the market, and successful value investors.  Neither would make sizeable new investments thinking this is the start of a depression.  However both have said, and we agree, that the economy is weak and will remain so for the foreseeable future. 

The monetary moves made by the central banks, and the fiscal stimulation provided by the congressional rescue plan, will take time to work.  During that lag period the economy will continue to deteriorate. The rise in unemployment during this period will most likely exacerbate that weakness.   Although we had hoped to avoid a period of economic contraction it is obvious that is not possible.  We will go through a recession, but that recession should provide the impetus for a new bull market.

During the decline in this market we have held large percentages of cash and diversified into faster growing overseas markets.  Until a few months ago that strategy helped offset the decline in the domestic markets.  However, in the last few weeks, overseas markets have dropped far faster than the S&P 500.  Although the recent weakness in overseas markets has been very disappointing we believe in the longer term the correct strategy is to remain invested in Brazil and China.  We believe their economic growth will most likely outpace ours when economic recovery sets in.

As to the present situation, our plan of action remains defensive.  We had planned on selling certain securities on a rally in case the economy weakened.  However the economic situation deteriorated very rapidly. The resulting rapid market decline is unprecedented, but should be interrupted at some point by a sharp rally.  At that time we intend to reevaluate all holdings and make appropriate adjustments to your portfolio.  Thank you for your patronage.  As always please feel free to call with your questions or for an appointment to discuss your portfolio.


CJ Brott                      Karen Burns

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