Monday, June 7, 2010

Pep Talk

I received this message from a client on Friday afternoon:

"Noticed that the stock market did not do so well today. I think I need a pep talk!! (something positive)...."

So here goes. When we first started this blog last March, we published a slide presentation entitled "Where Do We Go from Here". One thing we did in that presentation was to compare the current market downturn with the downturns from the 1930's and the early 1970's. At the time, the current market looked more like the 1930's than the 1970's.

As you can see from the updated chart below (click on it to see it bigger), things have changed dramatically since the end of February 2009, when the red line hit it's bottom. Now we can say that the current market (red line) looks much more like the 1970's (blue line), than the 1930's (green line). Remember, it was not clear 14 months ago how things would play out. What we did say was that we thought the outcome would be more like the 1970's than the 1930's. So far, so good.

The recovery will not take place in a straight line. There will be periods of angst and nervousness as we move forward, but I honestly believe that forward is the way we will go. The chart below shows what happened in the 1930's and 1970's over a longer period of time. In both cases, the economy and the markets did recover and eventually moved strongly positive.

The economic recovery faces many challenges, including the debt problems in Europe, the slow jobs growth, and ramifications from the oil spill. However, the world has faced greater challenges in the past, and progress has continued on its forward march. I believe the road ahead will continue with this forward progress, but the road will be bumpy, and sometimes the ride will not be very comfortable. Just remember, we are all in it together, and we will hopefully benefit by staying calm and patient.