Stay the Course

08/13/2008 12:00 am EST


David Fried

Editor, The Buyback Letter

David Fried, editor, David Fried’s Buyback Letter, shines a more positive light on recent market volatility.

The S&P reached a high of 1190 on 7/20/1998 and a low of 1201 for the week of 7/14-7/19/2008. That means for 10 years, the stock market went absolutely nowhere! In 1998 no one predicted that and likewise, today very few people are predicting it will go anywhere but down. The crowd is likely to be just as wrong today as it was 10 years ago.

Investor sentiment is as low as it has been since the terrorist attacks of 9/11. The negatives of the financial sector and energy prices are widely known. Typically this type of pessimism happens when the economy is past the mid point of the problems.

In the meantime, we have been watching quietly as positive economic news gets virtually no attention:

  • BusinessWeek (June 23) reported that "Nonfinancial companies have maintained rock-solid finances.
  • On June 29, the National Association of Realtors said that existing home sales edged up last month, the second increase in the past 10 months.
  • July 14, Barron’s reported existing homes inventories fell from an 11.2-month to a 10.8-month supply while those of new single-family homes are down 21% from their 2006 peak. And while prices fell 15.3% year over year, they actually rose in eight major markets from March to April. New housing starts fell to 975,000 in April from a peak of 2.27 million in January 2006. When this has happened before, housing has rebounded, catching experts by surprise.

We could go on, but you get the picture. The point is that the financial media is reporting all the negatives but not a fraction of the positives.

As the election nears, the public will realize that no matter who is elected we will begin to dial up initiatives that will make us energy independent and repair old infrastructure.
As this permeates the media we should witness a rebirth of optimism or, at the least, tempering of the presumptions we have at present.

Ten years ago the popular thinking was that the markets would continue to deliver wonderful returns indefinitely. The opposite happened and the markets have been flat (even though we managed to make money). Today the feeling is just the opposite. My guess is the result will again be contrary to general thinking.

This is not the first time many of you have hit choppy water as investors. You have seen market meltdowns including Long Term Capital, The Russian Ruble Crisis, The Asian Contagion, the fears for Y2K, the Tech Wreck, the recession of 2002-2003, and now the current credit crisis. Our advice: stay the course.

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