As different as this time may seem, you may gain comfort from the fact that there have been other times like these.
"Courage! We have been here before. Bear markets have lasted this long before. Well-managed mutual funds have gone down this much before. And shareholders in those funds and we the industry survived and prospered."
While this sounds like comforting advice in light of today's economic situation and market volatility, the above quote was from a perspective on the market offered by Jim Fullerton, the former chairman of The Capital Group, on November 7, 1974.
As different as this time may seem, you may gain comfort from the fact that there have been other times like these. Admittedly the mood is very negative. We hear people refer to this current recession being like the Great Depression of 1929 but in fact, today's events do not parallel what took place during that depression. James Swanson, MFS Chief Investment Strategist outlined this point in a recent bulletin to advisors:
Better monetary policy: The Fed has learned from the past mistakes and this crisis has gotten in front of the curve by aggressively lowering interest rates. In addition to cutting its key policy target to zero, the Fed has expanded its arsenal of monetary policy tools to include offers of aid to banks and other firms and the commencement of quantitative easing. That strategy includes the purchase of mortgage-backed bonds and commercial paper to help unfreeze the credit in those areas.
Lower mortgage rates: The central bank is making a concerted effort to lower mortgage rates for new home buyers and to further the downward move in rates for refinancers. This should free up consumer spending as well.
Government stimulus: A good part of this money will have an effect on the economy and help slow the downward spiral that we have been witnessing during the past few months. I expect it will add about one to one-and-a-half percentage points to the U. S. Gross national product.
Source: MFS, Chief Investment Strategist Corner, February 19, 2009
In our view, the actions of the U. S. Federal Reserve Board and the U. S. government have softened the blows that the economy has suffered and created a safety net to prevent this recession from becoming a depression. We believe the economy will be difficult for the next three to six months and we can expect more bad news. As hard as it may be, staying disciplined has held investors in good stead through past recessions and we believe that it will again.
"I can't predict the short-term movements of the stock market....What is likely, however, is that the market will move higher...well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over." Warren Buffett, October 2008
FINANCIAL INSIGHTS, INC. is a Registered Investment Advisor with the U.S. Secuities and Exchange Commission. The information contained in this report does not purport to be a complete description of securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Past performance does not guarantee future results.
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