The National Bureau of Economic Research stated the recession ended in June. If so, this recent downturn lasted eighteen months and was the longest period of economic contraction since World War II. There are many who would disagree with NBER's conclusion, especially the 9.6 percent of the working population who are unemployed, and the near twice that who have given up looking for work, or simply goes unreported. We believe high unemployment will persist for sometime. This is, in part, due to the fact that job creation requires an employer willing to hire, and with current tax and fiscal policy (think increased goverment regulations, the looming expiration of the Bush tax cuts and the health care bill), it is not difficult to understand why small business, typically the main driver for job growth, remains on the sidelines.>
Despite this, we see value in the stock market. In fact, for the first time in a generation, we view common stocks as less risky than bonds. Revenues are improving, earnings are advancing and cash assets are building. Large growth companies, an area we believe provides the best current value are raising dividends, buying back shares, and participating in selective, generally intelligent, acquisitions.
While we are currently in the third longest period of stagnant returns in over one hundred years, according to Ned Davis Research, stocks have gainds significantly in every decade after a ten-year period in which they lost ground. Our crystal ball will not tell us the day this market turns around, and we may well see continued stagnation in the equity markets, but for now, we take comfort in the companies we invest in. With bonds priced where they have no place left to go, but down, we are quite pleased with an investment that pays us materially more than the ten-year Treasury, with far greater growth prospects.
