Recently Lowe fs wrote about our concerns that the market and economy euphoria was premature. As such, we were not surprised to see yesterday’s pullback.
Why were we so confident that this downturn was imminent?
We feel that the “sound bite” economists have focused on with high level data and positive news has really been a disservice to investors. A prime example of this relates to retail sales. The recent numbers look somewhat better, but if you examine the reports closely it is evident that once gasoline and food sales are removed other retail areas are arguably flat.
We have also previously talked about an “L shaped” recession, which is a steep downward trend followed by prolonged time at the bottom before a strong recovery. We believe we are now in the bottom (or horizontal) part of the recovery. There is no evidence that we will jump right into a recovery mode simply because the downward spiral has eased. Rather, we are in “it’s not getting any worse mode.”
An economic recovery depends on the consumer buying goods. But we see the following conflicts at this time:
- Rising mortgage rates
- Rising gasoline prices
- Rising healthcare costs (higher deductibles and co-pays)
With these rising rates, how will consumers have resources to spend on purchasing products? It is more likely that pressure will continue to build on consumer spending. In our opinion you cannot have a strong recovery without a strong consumer.
Lowe fs anticipates that economic recovery could start in the 4th quarter of 2009, but is more likely to occur in the first quarter of 2010.
We have believed that something would happen to shake this market out of the premature euphoria. (We can’t predict the specific “how” and “when”, but the higher the market goes without a correction the greater the chance any such correction might exceed 10 %.) In the short term ending up with a balance between the March lows and the May highs is not an unreasonable expectation.
The length of this type of pullback could be reduced by investors who have cash on hold putting this cash back into the market.
Money flowing into oil, gold and other commodities are an indication that people are truly worried about inflation. Historically, according to Morris Segall of SPG Trend Advisors, when fears of inflation are present investors often put money into “hard assets/commodities.”
Lowe fs continues to consult with SPG Trend Advisors as well as economist Anirban Basu on an ongoing basis. We do not anticipate any immediate changes from a strategic standpoint. Specifically, we have concluded that the market is too unpredictable and too volatile to consider any shorting or inverse strategies at this time.
Fair Fund Distributions
Some Lowe fs clients may be receiving a distribution from the Alliance Capital Fair Fund Distribution or Bear Stearns.
If you receive a check please do the following:
- Determine if the check is an IRA or taxable account. Typically, an IRA will say FBO or IRA account.
- If the check is an IRA do not cash it and do not endorse it. Please forward it directly to your Fidelity IRA account where they should treat it as a rollover. If you need help determining if your check is an IRA or a taxable account please call Lowe fs and we would be pleased to assist you. To send IRA checks to Fidelity the address is:
PO Box 770002
Cincinnati, OH 45277-0075
NOTE: Please put your account number on the check and include a memo instructing them to deposit the check as a rollover into your IRA. If you are not sure what your account number is please call Lowe fs and we will provide it for you.
- If the check is NOT an IRA please read the tax notice included in the mailing. We recommend you save this information and provide it to your tax preparer. Do not send the check to Fidelity. The best option is to deposit the check into your bank account.
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Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us. Generally accounts less than $150,000 are not actively managed.
- Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
- No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
- An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.
Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.
*Lowe fs is a registered investment advisor.