After a very rough start to the year, it seems like a good time to quote Warren Buffet. The Sage of Omaha said back in 2001, “You only find out who is swimming naked when the tide goes out”. Well, the tide is out and it’s not a pretty sight. With the unbelievable fall of Bear Stearns, the curtain came fully open to reveal how dysfunctional the credit markets had become over the last few years. It will take some time to sort out the how’s and why’s. More than likely this will tarnish Greenspan’s legacy and continue to challenge Bernanke’s reign.
It appears that cheap credit was like crack cocaine for American consumers, and so called savvy investment bankers alike. America’s financial institutions are trying to re-trench and assess the risk exposures they have created for themselves thru the complex financial derivatives they feasted on without caution.
As I mentioned in an earlier communication to you, a tightening of credit is what could lead to a continued downward trend. However; there are several economic indicators that suggest the worst of it may be over with regard to the stock market. The weak dollar benefits American companies doing business abroad, valuations and balance sheets appear strong outside the financial sector, and the Fed’s unprecedented aggressiveness has had good results.
Locally, we are not seeing what the rest of the country is experiencing. There is no question our local economy is buoyed to the Barnett Shale. All of us in North Texas are benefiting from the proliferation of gas wells that has occurred, and the timing could not have been better.
Remember, with corrections in the market come buying opportunities. I believe Large Cap Growth Stocks are somewhat of a buy opportunity, and that some Real Estate Investment Trusts will look very appealing towards the end of the year. In our managed portfolios, we are continuing to use International Bonds where appropriate, along with Commodity Futures.
That being said, the real strength of your portfolio lies in its diversification. We diversify to spread risk exposure over several asset classes, and to reduce volatility. Over the long term, this should lead to a smoother growth rate and better performance.
If you have concerns, or if you would like to discuss the current market conditions or your portfolio specifically, please let me know and I would love to visit. Thank you for being a fantastic client, and thank you for allowing me to be your advisor!
Rob Schulz, CFP®
Registered Representative, Securities and advisory products offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member NASD/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. FTFS and Cambridge are not affiliated.
By Rob Schulz