Friday, July 11, 2008

Private Client Commentary - the weather gas prices home prices

Dear Clients,

Every now and then I feel like I should comment on something other than the current bear market (telling you why it's necessary, or why you're always okay if you think long term, yada yada yada). Which means today I must be at a loss in terms of how to tell you the same story with a different twist. We're still in a bear market, although a number of "experts" think we're seeing signs of 'capitulation', which is the big sell off on high trading volume that often characterizes the end of a bear market. As I write this, the market is trading lower on negative news from Fannie Mae and Freddie Mack, while oil is up on military rumblings coming out of Iraq - sending the Dow down triple digits despite surprisingly good earnings news from GE. Of course we won't know if this is the great capitulation until after the fact. Keep in mind that all the "experts", even the most pessimistic, are offering up their predictions on when and where this bear market will end and the next bull market begins. Implying that the bear market will indeed end, and the next bull market will indeed begin. Not that you ever had a doubt.

But let's talk about something else. How about the weather? Man can you believe it was 113 yesterday? Absolutely miserable! Can't go golfing, can't ride your bike, can't go anywhere. The only thing worth doing this weekend is hang out by the pool with the kids, or stay inside with the spouse. Or, if no kids and no spouse, stay in and relax, watch a movie or read a book. Huh, when you stop and think about it, those things sound pretty good. You've been meaning to spend more time with the kids (or the spouse) anyway. Maybe it's a good thing it's so hot outside.

How about the high gas prices? Jeez, it costs a hundred bucks just to fill up your tank once a week. So maybe you try not to drive quite as much, which maybe means you're at home with the family a bit more - not all bad. Or, maybe because gas is so expensive, the auto companies will invent more fuel efficient cars. Maybe, because there's so much financial incentive these days, we'll begin seriously utilizing some of those alternative sources of energy. Huh, that might help clean up the air and lessen our dependency on oil coming from certain volatile places in the world. Maybe we'll look back in a few years and say those crazy oil prices turned out to be a good thing for us and the planet.

How about home prices? Can you believe it - a couple of years ago your house was worth $150k more than it is today. But, compared to those poor folks you hear about in the news, you're happy you didn't over-buy and use an adjustable rate mortgage. And what about the mortgage companies and investment banks that got so incredibly aggressive with those loans - they're stocks have tanked, sending ripples through the rest of the market - no doubt a big contributor to the current bear market. But when you stop and think about it, the real estate boom had to end sometime - and the bigger the bubble, the bigger the pop. The headlines today talk about the worst real estate market in decades, while it seems like just the other day when the headlines were all about the best real estate market in history. And ultimately, more affordable housing can't be all bad, while it lasts.

Please forgive me; but I just can't resist tying all this back to the stock market. As I've been preaching for nine months, much like the weather, energy and home prices - the market is cyclical. And the bear phase cleans up the messes the market gets itself into every few years. I guess affordable stock prices can't be all that bad, while they last. And every once in a while, a certain phase in the cycle inspires a revolutionary trend (perhaps it's in energy this time around) that ultimately makes our world a better place to live.

Take care,

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