Quarterly Letter Archive Current Quarterly Letters
2009
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.
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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.
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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 litt le 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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