Optimism

This article was in last week's Wall Street Journal. The author, Ross DeVol, lays out a case for economic optimism. I'm not sure if he is right, but it's nice to hear an argument that the economy will improve going forward, as opposed to all of the doom and gloom that has dominated the media.

Here is a video with Mr. DeVol from CNBC:

And here's a link to the actual research report. Let's hope the optimists are right.

Double Dip?

There is a lot of concern right now that we may be heading for a "double dip" recession, and the new home sales figures released today will only fuel that fear. I really don't know how the recovery will play out and whether we will, indeed, have a secondary recession. As I have said before, "no one knows".

What I do know is that the worst case scenarios thrown around during the depths of the credit crisis in late 2008 have not materialized. I also know that corporate America is sitting on an unprecedented pile of cash. It is ultimately corporate profits that drive stock prices, not the daily barrage of economic statistics.

The next few months will prove to be very telling on where we are headed, and the election season promises to be very ugly. I expect global stocks markets to continue their extreme volatility throughout the fall, so unfortunately, we need to hold on tight and keep our eyes to the long-term.

I'll finish this post with a song from country singer Merle Hazard, who often sings about economic topics. It's important that we all keep our sense of humor.

More Rational Optimist

This is a 16 Minute video from the author of my new favorite book, the Rational Optimist. It's well worth the time to watch the whole thing.

The Rational Optimist

I just finished reading this book, I highly recommend it to everyone.

We're off to the Cape for a few days. I'll comment more on the book when I return. In the meantime, check out this video:

Happy 4th of July (waiting for some good news)

It has not been a very happy last few months. It seems all we have heard is bad news , from the oil spill in the gulf to the declining stock market and uninspiring economic data. I have nothing new to say about the markets other than what I have said previously.

I do believe the economy will improve, although it's anyone's guess at what trajectory. In the meantime, it may be a tough summer in the financial markets as a lot of cash continues to wait on the sidelines. However, that cash will eventually be put to work, rewarding the patience of long term investors

I hope everyone has a wonderful 4th of July weekend, a time to celebrate with friends and family the freedoms we enjoy in this country. I 'll finish with a short quote that sums up my feelings about Independence Day:

"You have to love a nation that celebrates its independence every July 4, not with a parade of guns, tanks, and soldiers who file by the White House in a show of strength and muscle, but with family picnics where kids throw Frisbees, the potato salad gets iffy, and the flies die from happiness. You may think you have overeaten, but it is patriotism." ~Erma Bombeck

Addendum

From today's Wall Street Journal, Euro-Zone Industrial Output Surges. Pretty relevant to my last post.

Sell International Stocks?

At a client meeting earlier this week, I was asked if we should stop investing in international stocks, particularly European stocks, in light of the recent financial turmoil in Europe. I think this is a legitimate question that many of our client might also be asking themselves. In response, here is a short video from the Wall Street Journal from earlier this week:

I think that the most important take away from this video is that the global economy is linked in a complex web of connections. When we invest internationally, what we are trying to do is to own shares of companies which not located in the US. The belief is that most of these companies will be profitable over the long run, despite the short-term budget problems facing some European governments.

Here's a short list of such companies, which are owned by many international equity mutual funds:

HSBC

Nestle

Novartis

Honda

TD Bank

National Bank of Australia

Siemens

Sony

Vivendi

Michelin

I make no claim about whether these are good or bad companies, but I do know that most of us have heard of them. I also believe that a truly diversified equity portfolio should include companies like these.

Now, I do have a few comments to make on the video itself. Firstly, there is a discussion about currency hedging in mutual funds. We generally prefer funds that do not engage in currency hedging. This is a pretty complex issue, which I would be happy to discuss in detail with anyone who is interested.

A second issue the video brings up is that, sometimes, what we may think of as domestic only equity mutual funds actually hold a lot of non-US stocks. This is something that also concerns us, so we monitor the holdings of the mutual funds we own so as to make sure that there isn't overlap between domestic equity funds and international funds.