Permanent Value

Recovery, Now What?

Bruce Doole
October 13th, 2009

WE’VE HAD SOME RECOVERY IN THE MARKETS,  NOW WHAT?….Last year at this time, we were writing about the extraordinary market conditions we were facing and that the hurricane force winds that were driving the economy down would eventually subside and we would have a recovery at the end of this year.  It turns out that the economic recovery started earlier than was expected, albeit slowly and as they usually do, the markets anticipated the recovery by a few months and started moving back up the second week of March.   Our patience in holding on to our investments has paid off and we have started to sell some of our investments that are back in profits.  As we have been reading, the Federal government and the Federal Reserve have taken significant measures to add liquidity to the markets (put more money into the banking system) and keep interest rates at an all-time low.   In addition, the Federal deficit has increased dramatically as has the issuance of new Federal debt.  This will have to lead to inflation which will mean higher interest rates in the next few years.  We are thus starting to prepare for this eventuality by investing in stable short term and inflation protected government bonds, natural resource funds, and international funds that are based on non-dollar denominated currencies.   We will also be looking at companies that make products that tend to keep pace or even stay ahead of inflation like consumer staples, drugs, medical devices, and energy – especially renewable energy.

THIS ECONOMY HAS AFFECTED OUR FINANCIAL HABITS…. According to the Wall St. Journal, Americans are currently saving at four times their normal rate (this may seem like a lot but two years ago we were at historically low levels).   It takes a crisis for most people to really change their behavior and our years of spending and incurring debt as individuals have transformed into a time of saving and paying off debt.   Countries like China and India have grown rapidly by fueling the spending habits of the American consumer but that trend has significantly slowed and they are focusing by necessity on consumers in their own countries.    These countries will shift from being savers to spenders as their middle class grows and demands a higher lifestyle.  Americans are moving in the opposite direction and shifting from a country of debtors to a country of savers.

HOW DOES THIS IMPACT US FINANCIALLY? .…So how do we accelerate this process of saving and achieving financial goals?  In order to achieve financial goals, we first have to focus on spending within our budget and then on creating a large enough surplus to realize these goals.  You may remember being asked to fill out an Investment Profile Survey, which gave us information about your risk tolerance and attitudes towards investing.  If you have not filled one out recently, please send us an email and we will get one to you.  We use this information to build a personalized portfolio that reflects your attitude toward expected return and tolerance for volatility.   Spending and saving patterns, as reflected in the budget give us the same overview on how to build a customized financial plan that will suit your current needs and grow as you grow.

At Permanent Value, we are focused not only on the goals you are most concerned with at the moment, but also looking ahead to the next step.   By integrating your investment strategy with you financial strategy and taking advantage of what works best in each economic cycle, we can work together to find the best solutions.