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TREES INVESTMENT COUNSEL VIEWPOINT (Q4 2009)
RIP the worst calendar, inflation-adjusted, decade for stocks in
history, 2000-2009. We wrote about Geronimo and magic bullets
in April of 2007. We should have ducked! Since then,
stocks are off, bonds up, and accounts about flat. Ugh.
Our crystal ball says the decade from 2010-2019 will be better.
However, the odds are we remain in a secular bear market that will
end during this period. Cash reserves yield virtually nothing
and bonds are bouncing off 50-year lows. Alternatives are slim
pickings. While the mattress may have proved a decent
investment in the past ten years, history suggests this strategy
will fall short in the long run.
We are playing DEFENSE. Homeruns are scarce when the wind is
blowing in and the temperature cold. Clearly there is still a
sense of shock from two recessions and the turbulent stock market of
the last decade. But we are playing because we think we will
be able to achieve rates of return that justify the risks.
With more volatility in the markets we may have to be a little more
active. Volatility creates opportunity; funds are flowing out
of large cap domestic equities, and (amazingly) money continues to
go into low yielding Treasuries. As a result, we continue to
take advantage of value in large, high quality companies, domestic
and international.
One big unknown is government policy. It is meaningful.
Fiscal deficits, while sometimes good short term, are harmful later
on, and monetary policy can't get any easier. Tax rates
matter. Some economists have estimated that the tax increases
in the proposed House health bill will LOWER revenues as people
spend their time and wits avoiding taxes rather than producing
income. Our slowest period of economic growth in the nineties
came during the three years we had tax increases, by both
Republicans and Democrats.
In the long run it pays to be optimistic. We appreciate your
faith in our management and thank you for your continued trust.
Think back for a moment on the level of panic that encompassed the
markets this time last year. Just shoot us if we yell Geronimo
again.
January 22, 2010 |
