What Summer Doldrums?

The magnitude of the third-quarter gains for the major market indices is one for the record books! The rally that started in the spring gained momentum during the summer. We kissed those summer doldrums goodbye. As those of you who attended our Fireside Chats last week know, I have been bullish since early May, and have traded your accounts accordingly.

Many factors contributed to the continued bullish tone for the markets. The most important is evidence that the massive and synchronized global policy efforts achieved their goal of putting a floor under the U.S. and Global economies. As I mentioned in last week's Chats, these types of actions are way more important than a few earnings reports. For those of you not in attendance at the recent Fireside Chats, here are the four keys to a stock market recovery: Low interest rates, Low inflation, Bullish government fiscal policy and Relative Pricing. An example of relative pricing is reflected in March 2009, when the market was "priced" for Armageddon. In September, 2009, it is "priced" for a bad recession. All four of these are now in place for a positive stock market.

Leading Economic Indicators, including housing and the Conference Board's LEI, began to bottom out late in the first quarter and early second quarter. A rebound in Industrial Production and the impact of "Cash for Clunkers" are signaling a return to growth for third-quarter GDP. In my opinion as your asset manager, the "Great Recession" appears to be headed into the history books after we have two successive quarters of positive GDP growth.

The Dow Jones Industrial Average (DJIA) gained 1265 points (or close to 15%) for the three months ending September 30th. That marks the biggest gain for a quarter since the fourth quarter of 1998 and the best third-quarter performance since the third quarter of 1939. The S&P 500 gained 137 points-or close to 15% -- and had its best quarter since 1998.

Interestingly, some of the hardest hit sectors have been among the biggest gainers since the March lows. Financials was the best-performing sector last quarter with a gain of 25% followed by over 20% gains for both Industrials and Materials. Those of you in our World Centric program have seen your investment in the XLF ETF grow by 15% in a very short period of time. All of the major averages are up more than 50% from their March lows, and in positive territory on a year-to-date basis. We are pleased with the performance of all five of our managed programs. We'll be glad to have a one-on-one meeting to review your particular portfolio should you desire that.

So now what?

So what's next for the economy and the markets? As I said in our MAY Fireside Chats, at the end of the day, our economy is still in a deleveraging cycle that could take considerable time to play out. It could easily take well into the second quarter of 2010 to fully do so. My biggest observation point: Can this stock market recovery turn into a self-sustaining economic recovery once the artificial life support has been removed? That is salient question.

From a market strategy perspective, we believe low-quality stocks may have seen their best days. One of the unique characteristics of the historic stock market rally since mid-March has been that low-quality stocks have significantly outperformed high-quality stocks. In our most aggressive programs (World Centric and the RAP), you will likely continue to see active rotation of stocks and ETFs as we finish out 2009.

January Fireside "Summit"

Many thanks to all of you who attended our Autumn Fireside Chats. This coming January 2010 (wow, it's already 2010??), we are expanding the format to be what we're calling a Fireside Summit. We will see you in Naperville, Geneva, St. Charles, and Batavia as well as Arizona, Florida, and Ohio. This event will be an enhanced presentation with an annual 2009 wrap-up, a 2010 projection, excellent food, and multiple speakers. This will be an opportunity for you to ask any questions you have about the 2009-2010 markets and economy. It will definitely be a "bring-a-friend" event and we ask that you do. Thank you to all of our clients who make this event so successful.

(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. Since this is not your father's retirement in 2009 and beyond, we have named 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.

If you know someone who would like to receive our emails, please have them call our office or they can 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,