Current Market Comment

The State of the Union

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The recent speech of President Obama on the State of the Union was full of his old pre election enthusiasm. However, with Congress in gridlock, it seems that neither a needed short term stimulus package is possible nor are we engaging in any long term solutions except more regulation. We continue to see problems with commercial real estate and consumer and government debt and an economic recovery in the shape of an L not a U or V. Consumers have topped out their credit cards and can no longer depend on rising home prices or continued employment. Corporations’ increased earnings have not come from sales, but from cost reductions, primarily by cutting employment, which could have a long term downstream negative effect. The Federal Government, State and Municipalities are taking on enormous public debt. As we see it, there will be no significant economic growth for several years while consumers and banks rebuild their balance sheet. Although we see a continued negative economic environment, this does not mean the stock market can’t continue up. Markets can be irrational. A 50% to 62% upside correction of the Dow decline from 14,198 to 6,470 has the upside potential of 10,334 to 11,261. The same figures for the S&P 500 are 1,121 to 1,266. However, we continue to feel that the market at this time has more downside risk than upside potential.

We expect continued volatile markets causing “Buy and Hold” philosophies to be replaced with “Buy Low, Sell High” or Sell High, Buy Low strategies. We believe proper selection and market timing are the better investment strategies. For many, more flexible ETFs (Exchange Traded Funds), long or short, have replaced mutual funds.

We expect continued volatile markets causing “Buy and Hold” philosophies to be replaced with “Buy Low, Sell High” strategies. We believe Proper selection and market timing are the better investment strategies. For many, more flexible ETFs (Exchange Traded Funds), long or short, have replaced mutual funds.