Quarterly Letter Archive Current Quarterly Letters
2010
September 2010
Stocks Stage Third Quarter Rally
After the stock market dropped during the second quarter of this year, many anxious investors were concerned about the remainder of the year as disappointing economic news began piling up. As further proof that stock market rallies happen when they are least expected, stocks staged a steep rally during the third quarter. For those of you who keep track of such things, September experienced the best September stock performance since 1939, and was the third best month in the past ten years. This is particularly interesting given that August was a very poor month for stocks. Bonds continued their strength as interest rates stayed at historic lows.
June 2010
Stocks Retreat
After four straight quarters of stock market gains, the market sold off during the second quarter as economic data showing troubling signals from housing and jobs fueled fears that the economic recovery may be in jeopardy. An unexpected drop in consumer confidence also spooked the markets. Economic recoveries rarely happen in a straight line and slowdowns in growth during recoveries are not unusual. Whether this is a bump in the road to recovery or the end of the recovery itself remains to be seen.
March 2010
The Recovery Continues
The stock market continued its rally during the first quarter of the year as improving
economic conditions and better than expected corporate earnings fueled the advance.
The rally continues to be broad based with almost all market sectors doing well. The
S&P 500 experienced its best first quarter performance since 1998 and has now generated positive returns in the last four quarters. Before this, the S&P 500 had declined for six
consecutive quarters; the first time that had happened since 1969-1970. The bond market
appears to be running out of steam as higher yields are beginning to materialize, resulting
in lower bond prices.
2009
December 2009
2009 Year End Review
By any measure, 2009 was an amazing year for investors. The stock market, as measured
by the S&P 500, gained 26% for the year. This was the second best year of the decade
and the eleventh best year in the past fifty years. It is doubtful that many of you reading
this would have predicted these results back in March, when we were at the depths of a
very painful bear market. In fact, from the market lows in March, the stock market
gained over 67% through the end of the year in what has been one of the steepest post
bear market rallies in history.
[download pdf file]
September 2009
Should I Stay or Should I Go
Is now the time to buy stocks that are well off of their highs? Is now the time to take
profits out of stocks after a big rally? Many investors have been asking these questions
as the stock market has been experiencing a strong rally since early March. The bond
market has also rallied as credit quality has improved after the crash of last fall. While it
is nice to look at your statements and see higher balances, it means little unless the
economy continues to improve and we see improved corporate earnings in the future.
We will review the performance of the stock market and the economy and offer our best
forecast on what the future holds.
[download pdf file]
June 2009
Better Times
There has been much discussion over the past few months about the stock market and the
economy and whether or not they are recovering or whether there are still dangers
lurking. While both are still on shaky ground, it does appear that things are improving
for our economy, although at a slow pace. We will likely continue to shed jobs and see
the unemployment rate climb through the first stages of economic recovery. The stock
market has also recovered over the past four months, although it remains well off of its
highs.
[download pdf file]
March 2009
2009 - A Wild Beginning
If you like volatile stock markets, the first quarter of 2009 was for you. The three month
period we just finished saw a bear market and a bull market, all on its own. From its low
point on March 9th, the S&P 500 gained more than 20% over the next three weeks,
including the fourth best one day return in the last fifty years. March ended the month as
one of the best months for the stock market in the last twenty years after starting the
month as one of the worst.
[download pdf file]
2008
December 2008
2008 Year End Review
The unfortunate thing about the current financial crisis is that it did not have to happen. While our economy has always gone through cycles, a crisis like this one cannot happen without a lot of help from a lot of people. A tremendous lack of oversight allowed Wall Street firms to run wild and take enormous amounts of risk. These same firms cult ivated a self serving culture, seemingly creat ing products that served no purpose other than to make themselves vast amounts of money. Government regulat ion not only allowed the emergence of an unregulated shadow banking industry, but required financial firms to make mortgages to borrowers that had litt le abilit y to repay. People cared little about what they paid for a house because they had the mistaken belief that home prices would never go down. Leverage can be a good thing, but too much can be devastating. This is true for individuals, businesses, and the economy as a whole.
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September 2008
Bailouts, Crashes, and Panic
A lot happened during the third quarter of this year, and almost none of it was good. To recap the events of the past few weeks: A segment of our financial sector has been nat ionalized; we suffered the largest one day drop in the stock market since the crash of 1987; the credit market completely seized up; and invest ments that were rock solid a month ago have suddenly become very shaky. The rapid worsening of the financial crisis has thrown all of the capital markets into disarray and threatened to spill over into all segments of the economy. We will discuss the scope of the problem and what we think should be done about it, as well as what we think investors should do and not do in response to these extraordinary events.
[download pdf file]
June 2008
Bad Economy, Bad Markets
You need only look at two pieces of data to understand why the capital markets have struggled through the first half of this year; consumer confidence is at its lowest level since 1980; and only 17% of the American people are optimist ic about the direction in which we are headed as a nat ion. This pessimism, driven by a number of factors, directly causes the economy to slow down and stocks to fall.
[download pdf file]
March 2008
A Rough Beginning to 2008
Economic concerns and soaring energy prices combined to whipsaw the stock market
during the first quarter of 2008. While this is not the first quarterly pullback stocks have
experienced since the beginning of the latest bull market in late 2002, it is the most
severe. The bond market posted gains as interest rates dropped in response to the slowing
economy. There are many questions being asked about the capital markets and we will
do our best to answer the most common ones.
[download pdf file]
2007
December 2007
2007 Year End Review
Investors during 2007 saw a little bit of everything and experienced a wild ride during
much of the year. Stocks reached an all time high, dropped a thousand points, reached
another all time high, then sold off yet again at the end of the year. Bonds rose for the
year as questions about the U.S. economy mounted, although many individual issues
suffered as mortgage troubles worsened.
[download pdf file]
September 2007
A Busy Three Months
So much happened during the third quarter of this year that it's hard to know where to
begin. Stocks hit an all time high, lost a thousand points, and then gained it all back
again. The mortgage market was thrown into disarray as liquidity was cut off to the sub
prime sector of the market. The Fed cut interest rates by half a point to calm fears of an
economic recession. By all accounts, it was a very news worthy and volatile three
months for investors.
[download pdf file]
March 2007
Is The Bull Dead?
After four straight years of stock market gains, many investors have been asking if the
good times are nearing an end, at least temporarily. Questions about the housing market,
the health of the economy, and increased stock market volatility have added to investor
anxiety.
[download pdf file]
2006
December 2006
2006 Year End Review
2006 can be broken down into two distinct halves: the first half of the year was marked
by rising energy prices, inflation fears, and a stock market that gave up its gains at any
bad news; and the second half of the year that was marked by falling energy prices, a
rising bond market, and a stock market fueled by strong earnings and a general sense of
economic optimism. When all was said and done, 2006 was a good year for stock
investors. The bond market also had its best year since 2002 as interest rates peaked for
this cycle.
[download pdf file]
September 2006
Strong Markets
A lot has happened since our last letter to you in June and most of it has been good from
an investment standpoint. As the second quarter ended, inflation fears had caused the
equity markets to give up most of their gains for the year. The Federal Reserve remained
aggressive in raising interest rates, negatively affecting not only stocks but bonds as well.
Oil prices were at record highs and climbing, with many predicting one hundred dollars
for a barrel of oil.
[download pdf file]
March 2006
Risk and Return
Stocks began the year with a positive first quarter. Bonds struggled during the quarter as
the Federal Reserve continued on their path of raising interest rates. With the bond
market achieving low returns over the past couple of years, many investors have been
readdressing their risk tolerance and considering asset allocation changes in their
portfolios. In this letter we will address risk and when taking more or less risk is in order.
[download pdf file]
2005
December 2005
2005 Year End Review
Despite a major natural disaster and record high energy prices, the stock and bond
markets ended 2005 much as we expected them to. The stock market ended the year with
positive, if unspectacular gains, while for the second straight year bonds were flat as
rising interest rates lowered total returns. In short, this year was much like last year.
[download pdf file]
September 2007
Hurricanes Revisited
In our letter to you this time last year, we discussed the impact that the rash of hurricanes
we had just experienced would have on the energy supply, the economy, and the capital
markets. It is quite amazing how relevant that same letter is exactly one year later. The
two recent hurricanes that caused so much devastation in the Gulf Region have also
caused tremendous uncertainty in the energy markets as well as the economy as a whole.
At the risk of repeating much of what we said a year ago, we will discuss the impact of
recent events on the economy as well as the stock and bond markets.
[download pdf file]
March 2005
Oil Jitters...Again
The equity and fixed income markets both declined during the first quarter of the year as
crude oil prices rose 30%, sparking inflation fears and generally casting a shadow over
the capital markets. A falling U.S. dollar and higher bond yields also contributed to
overall investor nervousness.
[download pdf file]