Climbing a Wall of Worry...

There is an old phrase that says, "There is nothing new except what's been forgotten."  It has been said that "bull markets climb a wall of worry (warts) as they make their way to new highs."  And here we are at new highs for 2009. U.S. stocks are behaving like Japanese equities in the 1990s, meaning the Standard & Poor's 500 Index may return 30-40 percent over the next year.  I realize that last sentence may cause some of you to gulp; it does me, too.  There is still a lot of ground to recover from the 2008-2009 bear market.  The reality is that all of our data tells us that we are now in a bull market until proven otherwise.  There are still very serious problems with the U.S. and world economies.  This is why we trade with "stops."  Unlike advisors who have a "buy and hope" (used to be called "buy and hold") philosophy, our portfolio management is active.  After moving towards a bullish posture in late April, we added more equities exposure in June.  We have been fully invested in the markets since the mid-July pullback. 

It is my observation that a lot of our time working with the market is spent waiting for something to happen.  We are currently "waiting" on the economy to follow the market's leads. One of the comments I frequently hear from clients and prospects is, "Why aren't we waiting for a pullback to get back into the markets?"  My response is that a pullback does not always happen -- at least the way we might expect it.  Sometimes the market just pauses.  A positive side effect of the choppy price action we are seeing is that it has provided a pause that allowed short-term overbought conditions to be relieved.

The Other Side

To be balanced in my assessment, and because there was no follow through (breakout) on last week's rally, I find myself a little less enthusiastic about a major breakout very soon that will not be preceded by a pullback.  I see a move back to 950 in the S&P 500 as about a 40 - 60% possibility (60% of it not happening).  If a pullback occurs, our stops are in place.

Worries over high unemployment pushed U.S. consumer confidence to a four-month low in August, while spending rose modestly in July, suggesting the economy's recovery from recession could be lethargic.  So far, this lethargy has been true.  Looking at last Friday's data, the Reuters/University of Michigan Surveys of Consumers said its index of confidence for August fell to 65.7.  This is the lowest reading since last April.  However, sentiment improved from earlier this month. All of this "sentiment" data is tied to employment.  When job security increases, so does consumer sentiment.  It's as simple as that.

The big driver of the economy is still on the sidelines. That is, the housing sector is worried about the job market. Until that shows some significant improvement, households are going to be pretty restrained.  When households start spending instead of saving, the economy will recover.  Much more on this topic will be explored in the upcoming SEP Fireside Chats.

(This is) NOT Your Father's Retirement

This autumn, we will be publishing a book that will contain, among other topics, interviews with current retirees.  The interviews investigate the retirees' perspectives on both the financial and emotional "after affects" of their new lives.  This will not be your father's retirement in 2009 and beyond.  Hence, the name of our book: Not Your Father's Retirement.  You can download a free book preview of the work on our home page at www.cb3.com.  We highly encourage you to do so.  It's free.

CB3 Open House & Wine Tasting

Alice is coordinating a wonderful event for you all on Friday, September 11th.  Come taste wines, meet and greet our team, and then walk down to Geneva's Festival of the Vine celebration just two blocks from our offices.

Autumn Fireside Chats

It's time again for the Fireside Chats.  We will see you in Naperville, Geneva, and St. Charles for our Autumn updates.  Additionally, I have the privilege of taking our message to audiences in Ohio later this month. Then, in early 2010, we will have Fireside Chats in Florida, Arizona, and our home Chicagoland locations.  Thank you to all of our clients who make these events so successful.

If you are not receiving those e-mails, please call our office to be added to our distribution list.  Or, e-mail Lory at lharris [at] weg1 [dot] com.   I assure you Chris, I, and our team are watching your accounts daily, as we evaluate how to best serve each of our client's investment objectives.  Please feel free to call or write (cbrown [at] weg1 [dot] com) with either questions or concerns.  We will be here with you all the way.

Until next time,