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February 28, 2007 Dear Client: Extreme market declines like the one we experienced yesterday are anxiety-making. Our instinct is to attribute cause, hoping to be able to protect ourselves from future harm. The press sells explanations by the boatload: an assasination attempt on Dick Cheney, the vulnerability of the "sub-prime mortgage" industry, and my favorite: "a market that has gone up too long"*. What is the real news here? That Pakistan is unstable, people in the Middle East do not like Dick Cheney and suicide bombers have become a daily occurence? That markets have had tremendous returns over the past three years? That China's growth rate can not be sustained indefinitely by the government-controlled yuan? That 25% annual gains in home prices warrant correction? The two pieces of information yesterday that were truly news were the assasination attempt and the failure of the market exchanges to maintain timely pricing and order processing. Neither of these affects the determinants of investment performance: interest rates, economic growth and the potential earnings of companies. Yesterday's market behavior is normal and inevitable. We don’t know what will happen today, tomorrow or next week. We do know that markets increase in the long run. Try not to pay attention to the daily gyrations. Feel free to contact us if you want to talk directly. Regards,
Audrey Grubman, CFP® *CBS MarketWatch 2/28/07
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