Did Anyone Remember to Call Grandma
Back in mid June I was having coffee with a dear friend who regards me as his financial coach. He was relishing the fact that he convinced his grandmother to sell all her stocks and equity mutual funds and move thoroughly into cash and bond funds.
I asked him why did he do that? ” Oh come on man, get with it..oil is flying past $70 per barrel, gold is soaring past $600 an ounce and real estate is crashing all around us. The Democrats are gonna win everything, the House, the Senate…they are going to raise taxes, bail out of Iraq. There is no way the stock market can survive all this. To top it all off, Ben Bernacke, our new Fed Chairman is sticking it to us with higher interest rates. We are going to hell in a hand bag…I couldn’t let my grandma suffer all this, so I got her into cash. Now, Georges as my financial investment coach, why aren’t you giving me this same advice?”
Would you believe I told him things are not as bad as they appear, and that we have seen this movie before? Well, I did, but I don’t think he was listening, and I have to let in, after our meeting I began to question if I was missing something.
Wow, June 2006, not a fun time folks. Oil going to $100, a gallon of gasoline $3, gold going to $1000 per ounce and interest rates clearly going up to at the minimum 10%. OurPresident is not very popular either at home or oversea. Everybody out…let’s bail and go into cash!! CNBC has all the naysayers and the “I told you so” experts on every hour.
So what happened? Just like every other scary period, the stock market takes its licking and keeps on ticking. The calendar 2nd quarter corporate earnings report came out and they were pretty good. No major corporate blow ups. Okay, not bad, then what? Third quarter guidance for corporate earnings seemed in good shape, no one crying wolf…this stock market seems a bit cheap..maybe put a toe or two back in tha water.
Wait a minute…oil down to $60 a barrel, a gallon of gas now about $2 at the pump, versus $3 just 3 months ago…inflation seems tamed, GDP growth doing just fine…Fed has met twice since June and no raising of rates, in fact talk now of lowering those interest rates. President Bush approval rating back up to the mid 40’s%, maybe the November election is not a slam dunk for either party. Consumer confidence and spending seems to be ticking up. Retailers more optimistic about 3rd and 4th quarter expectations. What is going on here? We were crashing and burning 3 months ago ?
What happened is the same thing that has happened these past 100 years. The US economy is built to grow. It will take hits from interest rates or international events…pick itself back up and keep on marching forward. The stock market is strong with the Dow Jones in new record territory, and specialized money managers now spewing optimistically about the 4th quarter and 2007. The stock market for the year is up near double digits and corporate earnings seem healthy.
I hope my friend remembered to call his grandma and get her back in the market.