March 19, 2009
Dear Valued Investor:
It seems that Mother Nature has a cruel sense of humor. She always seems to throw a string of beautifulspring days out of nowhere at the end of a long winter just to get us tempted to think that the frost and cold areall long gone. Warm weather may be just around the corner, but don’t pack up the mittens just yet – MotherNature usually has a few more cold days up her sleeve.
Similar to the weather, the market is showing signs of warming up: good news is getting more frequent andsome of the bad news is less awful, which is creating a backdrop that sets the stage for recovery. With theconditions turning more positive, highlighted by the double-digit rally in stocks over the last week, could wehave seen the worst? Can we fi nally put the snow shovels away and look forward to the green sprouts ofnew growth?
While we might have seen the worst, the market still has challenges to overcome. One reason is that the majormarket and economic indicators that are the signals of improvement have not all aligned to signal a recovery.In fact, prior to last week, the stock market had continued to make new lows while other key components ofthe investment environment had shown improvement. For example, the debt market – where the recessionbegan – began to stabilize. Also, leading economic data and measures of economically sensitive commodityprices had refl ected some recent improvement. However, for most of the year, stocks did not follow suit.
Last week saw the opposite happen as the stock market bounce was not mirrored in further improvementin the other indicators. This casts a shadow on the last week’s strong gains by equities and suggests it wasprimarily the stock market catching up following a year-to-date decline that was too much, too fast. While itis a positive that stocks are now off their worst levels, until the key indicators begin to move together towardrecovery we are unlikely to get a sustainable market advance. This means that the temporary warm streak instocks could give way to another arctic blast unless we start to witness broad improvement across both themarket and economic indicators.
A sign of spring that the markets may react favorably to is evidence that recent policy actions to mitigate therecession are taking effect. We may see investor confi dence begin to blossom if the uncertainty surroundingthe plans in Washington to mitigate the recession begin to fade along with evidence that economic datais stabilizing.
As always, we encourage you to contact your fi nancial advisor if you have any questions. We urge patienceand calm. While the recent direction of the market seems to vary like temperatures in early spring, we continue to stress the importance of a commitment to your long-term investment strategy. We remainencouraged with this market’s bottoming process, which is beginning to show signs of a shift towardsa long-term economic recovery and a thawing of the markets, not just a few sunny days. But in themeantime, keep the mittens and snow shovel handy.
Chief Investment Offi cer