Blog - October 2012 Market Letter


Jeff Cedarholm
President
Chief Investment Officer

Contact Us

“Well, Armageddon is not around the corner. I don’t believe in the imminent demise of the U.S. economy and its financial markets. But I’m afraid for them.”

Bill Gross, October 2012

A week or so ago, during one of my bi-weekly early morning trips to the gym, a client commented to me that the markets seem to be doing pretty well. I shot back, “you would be doing pretty well too if you were in the hospital and the doctors had just ordered a constant morphine drip, and had given you assurances that it would be there until you were all better!” The U.S. Federal Reserve and Ben Bernanke’s team have done just that; they have assured us that with QE3, they will be there to supply an unlimited amount of credit to our banking system and hence to us. The Fed has a dual mandate: 1) to keep interest rates appropriate and stable, and 2) to control unemployment. It is this last mandate that seems to worry Ben. This is what he still sees: bank deleveraging = household deleveraging = low consumer demand = high unemployment = threat of deflation. Therefore, QE Infinity!

The positive result of the Fed QE programs has been to stabilize the economy and the markets, taking the threat of financial Armageddon away. But the loose money, like water, flows along the lines of least resistance; in this case, into the stock and bond markets first and more slowly into the residential real estate market. Over the last quarter, stock markets around the world have outperformed their respective economies and in many cases, even their underlying companies. I am a believer in the “reversion to the mean” theory, but feel this reversion has yet to happen. Will it be economies coming up to meet their markets, markets coming down to meet their economies, or somewhere in between?

Writing these letters (or now blogs) used to be easier. Asset price correlations were more historically normal and not continuously manipulated by the central banks around the world. This manipulation has muted some risks and created others, making us seriously rethink our role as caretakers of your investment funds. Being mindful of all the risks we can see and understand, whether with investing or planning, has always been part of our process. Yet, the demand now is for a much, much sharper focus. As always, thank you for your confidence in the people of Longview.

Best regards,

Jeff Cedarholm


Disclaimer

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.

NAPFA LogoFinancial Planner Association LogoCertified Financial Planner LogoFee Only Logo2017 Huntsville Mobile Small Business Winner Logo