From the desk of Matt Brennan
First, the good news: You’re ok. Your portfolio is protected. We have a plan and risk management remains our number 1 priority.
In times of economic malaise, the market does not respond “favorably” to shocks to the system. The absurd delay on raising the debt ceiling and Standard & Poors downgrading US sovereign debt are two shocks that could not have been timed more poorly. The market selloff has intensified today following Friday evening’s announcement by S&P. The volume of trading has also picked up dramatically from what is typically a sluggish time of year.
For the past two years, global markets have rallied, ignoring the macroeconomic headwinds that we have been communicating to you in these newsletters. Government stimulus can only take us so far. We have used our newsletters to cover the precarious debt situation facing our country; the dramatically underfunded entitlement programs retirees are relying on; concerns regarding sovereign debt throughout Europe; faux growth turning to slowing growth in China; US growth not being robust enough to address rising unemployment; and the housing market continuing to see foreclosures, short-sales and declining values.
We have acknowledged that we got defensive too early, but we found it impossible to ignore these red flags. So each month we emailed “doom and gloom” while the market threw confetti in the air every time a company “beat the street” in terms of earnings.
So where does that leave us now? The good news is that over the past year we have been steadily increasing our bond exposure so as to preserve principal in the event of a dramatic pullback like the one we are witnessing now. We continually referred to these short-term, safe bond funds as “Dry Powder”, meaning: Having investments that would hold value when markets decline, and then using them to buy stocks more cheaply and opportunistically.
We do believe that we are currently witnessing a panic and that this has caused stocks to be oversold in the immediate term. We are using this opportunity to rebalance your portfolio. We are doing this in order to a) buy things more cheaply and b) make sure we continue to maintain the appropriate amount of “dry powder” in case we witness further decline.
We will be happy to discuss your unique portfolio further in our progress meetings or over the phone at any time. Our goal in communicating with you today is to reiterate that we have a plan and that we are continuing to make risk management our number 1 priority.
Until Next Month,
Your Advisors at Dominion Wealth