Value Library

The following is an excerpt from the ABC Perspective - January 2010 - Pg. 1

Sowing the Seeds for Future Success

Global securities markets over the past 15 months could be described as nothing short of extraordinary. The ensuing financial and economic events that occurred between October 2008 and the end of December 2009 would have been inconceivable to an observer entering 2008. Bankruptcies, bank failures, corporate bailouts, collapse of the U.S. housing market, Ponzi schemes, implosion of international stock markets and plummeting interest rates culminated in the worst global economic recession and breakdown of consumer and business confidence since the onset of the 1929 economic depression.

Interestingly, the past 15 months were initially characterized by growing and excessive shock and panic, unusual media fear-mongering, plunging U.S. dollar, bankruptcies, et al. This traumatic period climaxed in a momentous mid-March 2009 stock market bottom which spawned one of the greatest worldwide stock market recoveries from April to year-end 2009.

Looking ahead we must put the financial nightmare of 2008-2009 to bed. We must leave the past behind us as we sow the seeds for economic recovery and future financial success. Admittedly, this is a difficult endeavor as the lessons, events and scars of the past year will be indelibly imprinted on the present generation for years to come. Nevertheless, there are many positive economic factors starting to appear.

We believe 2010 should provide for excellent stock market returns amidst continued market volatility. Going forward, although there is a continued need for business and consumer repair, we foresee improved economic prospects and corporate earnings. A sustained economic rebound, however, will take time and patience. Furthermore, a slow but steady restoration of confidence is paramount since the fallout from the excesses of the past decade must be eradicated. Despite the prevailing global skepticism, worldwide economies are setting up a platform for the next extended economic cycle.

Our growing optimism is a function of a number of factors including: improving worker productivity with little wage inflation; pent up demand for goods and services by both business and consumers; massive liquidity and continued monetary stimulation at record low interest rates; a low U.S. dollar providing for relatively low-priced American goods and services; etc. In a nutshell, we are, in our opinion, gradually building a solid base for an extended 2010-2012 economic recovery. But notwithstanding our fundamentally cheerful financial outlook, we believe that portfolio managers’ patience and resolve will be severely tested again. We expect, however, that the end result will be well worth the wait. 

Irwin A. Michael, CFA