 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
January 3, 2002 To Our Clients and Friends: Congratulations to you for ignoring all the dire economic news out there. You are surviving the worst bear market in 28 years. This is exactly what a bear market feels like. Markets go down for no particular reason, pessimism abounds, bad news fills the headlines, the 'doom and gloomsters' are prominently featured in the media, and any recovery seems far off. By staying the course and remaining invested, you are doing exactly what successful investors have done, and what the majority of Americans have not. Remember that over the past 70 years or so, the stock market has grown roughly 60 fold. It would follow that household wealth kept pace, also growing 60 fold, right? WRONG! People panic and sell at the worst possible time. To make matters worse, they then stay out of the markets for years, missing the recovery and waiting until the markets are relatively high again (translation: it feels safe) before jumping back in.
The news of the past three months has been bleak. We have been besieged with news of terrorism, anthrax, recession (it is now official), lost jobs, and more. Through the doom and gloom, the stock market has climbed back up the proverbial "wall of worry" as the Dow Jones has risen over 20% since its low on September 21st. In November the National Bureau of Economic Research confirmed that the U.S. economy slipped into recession in March of this year. So the recession is already eight months old, suggesting the odds are with investors who have an aggressive bias. In most cycles, the stock market and other equity-type assets (e.g. REITs and high-yield bonds) begin delivering strong absolute returns months before the onset of recovery. In the last 50 years the longest recession lasted 16 months. So unless this is a record setting recession the economy will be recovering by mid-year 2002. The strong move in stocks since September 21, and high-yield bonds since early October probably indicate that the bear market is over. We hope that we are right that the bear market is over. In any case, don't be tempted to give up and hibernate for the winter. The economic climate might not be as chilly as you think. Recession As noted above, it's "official," we're in recession. What the rest of us knew for months, finally became 'official' on November 26th. What does this mean for investors? Not much. By the time recessions are 'officially' recognized (two straight quarters of falling GDP), they are usually half way over (the average recession lasts 9 to 12 months - see attachment). Remember that the stock market is a leading economic indicator that recovers well ahead of yesterday's headlines. But for the record, let's take a quick look at the economy and what triggered the 'official' recession. Third quarter GDP was revised downwards to -1.1% versus the previously estimated rise of 0.4%. This is the largest contraction since the second quarter of 1991, and triggered by a sharp decline in consumer spending. The good news? Business inventories fell $60.1 billion during the quarter (great news as the faster companies work through their excess inventories, the faster they can ramp up future production), interest rates remain at extremely low levels stimulating housing purchases, inflation remains at bay, and Congress is in the midst of haggling over a stimulus package. All in all, not too bad. What to expect? As we noted in prior newsletters, over the short-run, the markets will react to news on the war front (as we saw so very clearly in November). And while it feels great that the markets are, at least for now, ignoring bad corporate and economic news, this can lead to high expectations, which we would rather avoid in a bear market. Remember recoveries are a three-step forward, two-step back process. This is why recoveries (and recessions for that matter) happen in retrospect. There is never one particular day when a recession is officially 'over' and the markets only rise from that day forward. That said, we suspect that by January, the markets could once again react to negative corporate and economic news. Don't let the steps back rattle you, gains will be made over the next few years.
So for those who have called us and asked if this was a good time to invest additional cash - congratulations! You've GOT IT! Invest when things seem/feel their worst and you will reap the benefits of the recovery and of future growth. And for those still rattled by this bear market, take heart. Well into its 619th day, the 2nd worst bear market since World War II is growing long in the tooth and will pass. Without fanfare, and with no advance warning, one day you will wake up to the official end of the 2000/2001 bear market and will be relieved that you held on. As usual, please feel free to call us. We are here to answer your questions and respond to your concerns. If you have any financial issues, please let us help. Our services include retirement planning, estate planning, education planning, and more. We hope you
had a happy and healthy Holiday Season! Very truly yours, ZRC Financial
Services, LLC By:
Post-World War II Recessionary Cycles Dates and lengths
of previous post-World War II recessions, according to the National
Bureau of Economic Research
As
a matter of policy, we offer our current ADV-Part II to our clients
each year. This part of Form ADV gives information about the Investment
Advisor and it's business for the use of clients. The information
has not been approved by any governmental authority. You received
a copy at the time we signed our last retainer agreement. Upon written
request we will send our most recent ADV-II to our clients. |
About Us | Investment
Philosophy | Client
Services |
| Business Relationships | Investment Outlook | Articles of Interest | Web Resources | Why ZRC | Account Access | Contact Us |
|
