Economic Perspective December 3, 2009

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As we begin Quarterly Reports for clients who have the November 30 reporting date we are very curious about why the news media is not calling more attention to some interesting information.  For twelve months through November 2009, the return for the S&P 500 Index was +25.39%.  At the end of October we were very pleased to find it was +9.81%.  Each of the last nine months, since February 28, has seen stock market gains.  Knowing that many people sold whole portfolios in November 2008 and February 2009 is heartbreaking for us. 

If this recovery is like most in history, the dramatic part is probably giving way to more mundane changes.  These have become less dramatic recently.  We will not be surprised if we see a few months with negative returns.  Nevertheless, we are becoming fairly optimistic about the recovery of securities accounts, and wish we had opportunities to help more people through those really tough months. 

Clients with November, December and January Quarterly Report dates, and complete Net Worth Statements, will have historical graphs of their total assets and liabilities.  Where reliable data is available, we are very interested in comparing the current statements with 1999 (near the top of the DOT.COM Bubble) 2001 (very soon after 9/11) and 2003 (when the recovery from that period was beginning to take shape.  We believe there is a great deal to learn, for our clients and ourselves, in taking a frank look at the behavior of their most comprehensive measure of financial strength through this very tough decade.  There is much more to financial progress than just the results of a securities portfolio and There is more to money than money.®

Another curious assumption that seems to be a part of the news media recently is that this recovery is going to be very long and slow.  We notice only fleeting commentaries that it might not be as difficult as predicted, followed by something about unemployment still being high.  Unemployment almost always recovers more slowly than other indicators of improvement.  If 2009 really has positive returns close to those for the twelve months ended with November, this bear market will be much shorter than 2000, 2001 and 2002.  Those three years had returns of -9%, -12% and -22% respectively.  That was a long, grueling period.  It produced many months ending with a negative five-year return for the S&P 500 Index.  The last of those was not until September 2005. 

Today, it looks as though the annual returns for the S&P 500 Index in the recent bear market will be 2007 at +5%, 2008 at -37% and 2009 with something better than +20%.  Since October 2005, only May, June and July of 2009 had negative five-year returns for the S&P.  They were -1.90%, -2.24% and -0.14% respectively.  There are not nearly as many negative five-year returns in the recent bear market as there were from the recession at the beginning of this decade. 

Of course, the six months between August 2008 and February 2009 were extremely painful, prompting many people to sell stocks at some of the worst times in thirty or more years.  We understand very clearly that there is always the possibility another very serious trauma can strike the economy at any time.  We experienced 2001, when a recovering economy was hit by the 9/11 Terrorist Attack.  Yet, we should not live our daily lives believing we are certain something like that will happen again.  We think the public should have a longer and broader perspective than is generally available from the popular news media.  This is the way we have tried to reassure our clients through each bear market since the founding of Resource Advisory Services. 

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