August 2011 Peak View Newsletter
from Jim Onorato
What an unbelievable past few weeks it has been. After months of behaving like a dysfunctional family congress reached an acrimonious "compromise" to raise the debt ceiling. Did anyone really think they would not raise the debt ceiling and not mail out social security checks? A week later Standard & Poor’s lowered the United States’ credit rating. The downgrade was really more of a psychological blow and hopefully a wakeup call to Washington. Is there really a safer investment anywhere in the world than U.S Bonds? Apparently the market did not think so. U.S. Treasury securities rose following the announcement of the downgrade as investors sold riskier investments and fled to U.S Treasuries. Personally I have to take Standard & Poor’s downgrade of our debt with a grain of salt since this is the same rating agency that had rated many mortgage backed securities AAA a few years ago when in fact they were nothing but junk. The downgrade was not based on our country’s ability to repay its debt. Rather they questioned whether we had the political will to do what is necessary to get our house in order.
The market sell off over the past several weeks may have been partially attributable to the downgrade. The major catalyst for the selloff has been some recent weak economic data released over the past few weeks along with the increasing turmoil in the European economy. In addition, I believe much of the markets recent behavior is attributable to investors’ lack of confidence in our government and its leadership. I recently saw that 82% of Americans polled disapproved of congress. Hopefully our brethren in Washington also saw the results of that poll. Investors are wondering is this 2008 all over again. The memory of 2008 is so fresh in peoples’ minds that investors are selling first and asking questions later. As a result the markets over the past weeks are being driven by fear and panic.
I do not think this is anything like 2008 when financial institutions were collapsing and the country was experiencing massive job losses. Our economy continues to grow albeit very slowly. Earnings for the second quarter exceeded analysts’ expectations for 75% of the companies in the S&P 500. U.S. companies are beginning to announce share repurchases and corporate insiders have been buying stock heavily. Overall stocks are actually cheaper than they have been in a long time.
Although the challenges that we are facing today are different than 2008 there is something in common – fear is back. As in 2008 investors are making investment decisions purely based on fear. As difficult as it may be investors cannot let fear dictate their decisions. The only way that you can be successful as an investor is to have a game plan and stick to it. In addition, you must always be honest with yourself, and if you have been doing it on your own now may be the time to turn your portfolio over to a professional. I have always believed that our firm’s greatest value added is that we attempt to save our clients from themselves. Investors that stayed the course during the 2008–2009 market meltdown in many cases have made back most of their money. Investors that bailed out at the bottom and subsequently missed the massive rebound over the past two years will never fully recover their losses. Markets are going to do what they are going to do and sticking to a plan and staying the course along with some periodic rebalancing has been and will continue to be the best course of action.
Enjoy these last few weeks of summer — it seems to go by more quickly each year.
Best Regards,
James Onorato
President
August 15, 2011