Market Commentary from WH Cornerstone Investments
We write today on the news of Lehman Brothers
who filed for bankruptcy, and Merrill Lynch's
fire sale to Bank of America. We will not
know for quite awhile what the impact will
be. This is not the beginning or the end of
this mess. Optimistically, it's a cathartic
"beginning of the end". We are in tough
times. They will continue in the short run.
We expect the housing recession (and related
industries) to continue into 2009. Oil and
geopolitical risks will continue to be wild
cards. We are looking at one the worst
decade for returns. The S&P 500 started the
decade at 1469, today we are at 1251.
Regarding the future, we are eternal
optimists. We believe in American ingenuity,
free markets and our capital system. Long
term, it's the best place to invest.
Regardless of your political views, America
will have a new historical figure in the
White House in the near future. Be
optimistic! It should get Wall Street
excited as well. A paraphrased quote from
Standard and Poor's, "Euphoria surrounding
elections will spill over to Wall Street".
Standard and Poor's reports: since WWII,
September is historically one of the worst
months for the stock market. There is one
exception. Presidential election years have
positive returns. Let's hope this trend
There's more good news. The economy. We
haven't experienced the technical definition
of recession (two quarters of declining GDP)
that the media has been promising for months.
In fact, GDP was revised significantly
upward for last quarter. Core inflation is
very tame. Both the Personal Consumption
Expenditure (PCE) and Consumer Price Index
(CPI) are tame at 2.4 and 2.5% respectively.
We are not ignoring headline inflation
(which includes fuel), but we are watching
oil prices drop precipitously. Because of
this and the stance to stay quiet during
presidential elections, it is doubtful the
Federal Reserve will raise interest rates
this year. The rate cuts that began close to
a year ago are just starting to work their
way through the system.
So, what's going on? These current
markets are a result of a protracted bottom.
This correction, which began in the 4th
quarter of last year, has gone on far longer
than WH Cornerstone expected. We have seen
three distinct benchmark bottoms this year.
They are as follows:
Today, we have the Lehman / Merrill news and
the S&P opened at 1251.
- On January 22 the S&P 500 closed at 1310
as a result of the Society Generale trading
- On March 10 the S&P 500 closed at 1273 as
a result of the Bear Stearns bailout by
- On July 15 S&P 500 closed at 1214 as a
result of oil at $148 a barrel as a result of
the Fannie Mae/ Freddie Mac problems arise
So, what should you do in these times?
Here's what WH Cornerstone is recommending:
- Shut off CNBC! If you are
the long term, don't let the hype get the
best of you. Fear and greed run Wall Street.
We're feeling the fear from the greed.
- Take stock in your goals and
Make sure your asset allocation is
commensurate with goals. Rebalance for the
- Watch cash flow. Save more, if you
can. Scrutinize all expenditures. Make sure
cash is safe. Double-check that your bank is
FDIC insured. Make sure all brokerage
accounts are SPIC insured. Schwab, Fidelity
and TD Ameritrade are all fully insured.
- Take losses. Take a good look at your
holdings, and consider harvesting some tax
losses. Sell the "ABC Growth Fund", put the
loss in the "tax bank", and buy the similar
"XYZ Growth Fund". If you are not
comfortable buying in this market, then
dollar cross average into the fund.
- Trim back on high quality investment
grade bonds and treasuries. Safe money has
been stock-piled into these asset classes.
Yields aren't stellar, and the issues may be
over-valued. Unfortunately, not too many
substitutes exist for this asset class. You
may consider a high quality, national muni
fund or state specific muni fund. Munis
perform very well when tax increases are on
- Convert IRAs to Roth IRAs.
Consult a tax
advisor before completing this one. With the
S&P 500 down 20%, it will cost a lot less to
convert than it would have last fall.
In closing, "Scientists have joined poets in
declaring that money really won't buy you
happiness. Happiness is not something to
acquire and saved up; it's something you
pursue." Money Magazine, September 2008.
Please advise us promptly if there are ever
any changes in your financial situation or
investment objectives. Feel free to give us
a call if you want to discuss anything further.
Sincerely, Paula and Bill Harris, CFP