Friday, July 18, 2008

Private Client Commentary

Dear Clients,

Just giving you a heads up that I'll be out of the office next week, 7/21 - 7/25, and this time I really mean it. I'll be on assignment in Alaska, researching the relationship between the Kenai River Salmon Run and movements in the U.S. Stock Market.

Apparently there's some correlation between the average number and size of the Chinook Salmon that move up river during the summer months and the performance of the stock market - but only during election years. Upon my return I expect to be able to accurately predict what the market will do between now and the end of the year. I'll be in touch soon with my recommendations. I can't wait!

Don't worry, of course I'm kidding (although I will be in Alaska next week), I haven't completely lost my mind just yet. But I have to tell you, as ridiculous as my little joke sounds, it's no more insane than what I've been listening to, much of the time, on the popular cable financial news network. Take the hosts of the show that airs at 6 o'clock every morning. There's an upper-middle aged gentleman who's been on the network as long as I can remember, I think his name is Doom. His co-host is Gloom an attractive young lady.

Doom and Gloom are very bright, articulate and mostly friendly individuals. But at times they, Doom especially, can be a little rough on their 'expert' guests. This past Monday morning for example, after one of their guests gave his prediction on where the market is headed from here (how he knows I'm not sure, could be a salmon researcher), Gloom asked him what sectors he currently favored. He courageously answered with "I like the financial sector right about now". And before he could state the obvious - that he liked financials because the whole sector's been taken out to the woodshed and that there are some good companies that look extremely cheap - Doom jumped in with something like; "you can't be serious, you people have been telling us this for the past three months and financials have been getting killed the whole time." The guest attempted to make his case only to be interrupted repeatedly with more of this "ya right" sentiment. It sounded as if Doom and Gloom knew something the expert guest didn't - that what's going on right now is what is going to go on for a long, long time - if not forever.

Now I have found this linear view of the market to be consistent among the average consumer, however I am often surprised when folks like Doom, who's been around the block a few times, take this posture. You'd think he'd know by now that the market moves cyclically, not linearly. Apparently it's easy, even for pros, to get caught up in the emotion of the current trend. But how ironic that during the following two trading days, financial stocks, almost across the board, posted phenomenal gains.

This morning Doom and Gloom seemed a little different, they were almost optimistic. If this continues for long, they'll likely get caught up in the new trend and we'll for sure have to change their nicknames.
I'm not predicting that the 480 point rally in the Dow we saw Wednesday and Thursday marks the beginning of the next bull market (it's way too soon to tell) - this upward spike in stock prices could very well be what they term a bear market rally, as many are suggesting. But I will say that it is ultimately a harbinger of things to come - could be now, could be later.

Just think of it like the ancient Native American rain dances: Did you know that during times of drought, the Native American rain dances actually worked 100% of the time? That's right, and the reason they never failed is because they never stopped dancing until it started raining. Or, like the line from Brian Tracy that I've quoted before; "if you want to be known as a great economist in America, always predict growth. If you always predict growth, you'll be right 70% of the time, and if you're wrong temporarily, you'll be right pretty soon."

Take care,

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