We wanted to give you a short update regarding recent events:

Late last week, The White House announced plans for fiscal stimulus to aid the slowing economic expansion. Moreover, early this morning, the Federal Reserve aggressively lowered interest rates by ¾ of a point. This is great news for long term investors and will no doubt eventually stimulate economic growth and stabilize financial markets. Our research suggests that the Federal Reserve will likely lower rates by another ½ percent next week during its scheduled meeting.

These events are very encouraging for investors. However, it should be noted that these stimuli may take a bit of time to work into markets and the economy. Financial markets may continue to be volatile (both up and down) in the short term. Historically, stock markets recover prior to a recovery in the overall economy (good news for investors), as stocks discount the good news prior to its arrival. In the near term, stocks will likely rebound, but may drift lower again until the recent stimuli take hold.

Interestingly, a number of the sectors of today’s stock market, though off their highs, continue to be appealing. These sectors include consumer staples, energy, healthcare, and utilities (your biggest positions), all of which historically demonstrate profit growth in a recessionary environment.

We continue to actively manage the risk of your portfolio through asset allocation, sector management and stop loss orders. Keep in mind that stop loss orders are only employed on sectors that are vulnerable to a recession – this does not include consumer staples, healthcare, or utilities. Our risk management tools are designed to mitigate risk (which they have successfully accomplished) but are unable to negate risk.

We hope you are doing well and if you have any thoughts or questions feel free to contact us.

Sincerely,

James E. Demmert
Managing Partner