The Best Values Coincide With The Greatest Panic

The public at large seems to have recently discovered what professional investors have known for some time, namely that as a result of the credit crisis and resulting deleveraging process, the global economy is now in a serious recession, with falling asset prices, rising unemployment, declining consumer and investment spending and a drop in world trade.  As a result, stock prices everywhere are in a free fall, as both panic selling and forced liquidation have encountered a buyers’ strike on the part of those investors still flush with cash reserves.  Stock prices are well into the overshoot phase of the bear market, as irrational fears of a deflationary spiral are in control of investors’ emotions.

WHAT WE ARE DOING AT THIS CRITICAL TIME

Investor sentiment is at its lowest level since the 1930s.  Many high quality domestic equities are now in deeply oversold and undervalued territory due to the recent panic in the credit markets and the palpable fear among mutual fund and hedge fund investors who are demanding their money back, forcing liquidation of shares at bargain basement prices.  Many of the companies under extreme selling pressure have very visible long term profit growth prospects stemming from their exposure to rapidly growing foreign markets as well as serving clear cut needs at home.  We are mindful that the economy is mired in a recession that has not yet bottomed, and even when a recovery begins it will be sluggish at best because of the persistent headwinds facing household consumers.  These include depressed residential equity values precluding cash out refis, depressed stock prices, a crushing burden of mortgage, credit card and auto loan debt, and slow wage growth all forcing a rise in the household savings rate and restraining GDP growth for the foreseeable future to less than its potential.