Today we share an excerpt from our recent Q3 letter to investors to provide some insight on our current bullish market perspective despite a turbulent and uncertain economic environment.  

The pessimists seized control of the equity markets during the 3^rd quarter assisted in large part by news of the ratings downgrade of US debt, the financial problems in Europe, and the prospect of a global economic slowdown in growth.  For the quarter, the S&P 500 Index dropped 15% while the average U.S. Stock Fund fell 19%.   Foreign investors also experienced a lack of investor confidence as the Morgan Stanley EAFE Index declined 20%.  Bonds were the “place to hide” as the Barclay’s Aggregate Bond Index climbed 3.8%.  

While the current “mess” falls on the third anniversary of the Lehman Brother bankruptcy and mortgage crisis, many conditions are better today than they were then.  In fact, many of the monetary conditions are more favorable now.  Not to be overlooked, corporations are flush with cash and liquid assets, and have much greater capacities to absorb an uncertain economy today. 

Although the extreme volatility has put even the most resolute bulls back on their haunches, we are not one of them.  A lot of negativity is currently baked in to the equity markets.  In our opinion, investors who sell now are likely to be left stranded on the sidelines when the market begins to recover.  Bull markets are often sparked by a single rally so powerful and so fast that many investors fail to react in time.  This happened to many of them when the market rebounded sharply in 2009 after plummeting the year before.