Investment Guy

We work with a lot of small business owners. A popular topic of conversation lately has to do with the fact that the markets have recovered so fast over the last few months yet their business has not improved nearly as much. Business owners just don’t get it, and find it hard to believe in this market. There is a divide between Wall Street and Main Street, and it is growing.

On Wall Street, companies are much larger and have the ability to trim inventories and personnel more efficiently than many of these small businesses. Trimming these excesses squeezes every juicy penny out of every last dollar and it all drops to the bottom line. The market sell off was extreme, outlooks became dire, and earnings expectations from Wall Street were drastically reduced. It has become easy for companies to meet and even beat such a low earnings bar.

Main St is a very different picture. Unemployment is still high and budgets are still tight. People are learning what it is like to live within their means for the first time in a very long time. Most are adjusting- frivolity is out, and bag lunches are in. It is not an ideal world, but there is a sense of comfort and confidence now that talk of an actual depression is a fading memory.

In our opinion, market levels are hardly excessive, and the outlook continues to improve. We are still 25-30% off of the highs of 2007. I think we may be at a comfortable place for the market, with some continuing upside due to excess cash and high levels of money market balances. Profits could and should continue to surprise to upside and credit conditions are still below ‘normal’. Additionally, policy makers are continuing a supportive monetary environment.

This is the concern going forward; when this loose monetary policy starts to tighten and dollars are slowly vacuumed up from the economy…then what? Will the fed get it done before inflation runs where the wild things are or will it put a new stranglehold on the economy. Addition concern lies in the comfort with riskier investments that is sought by investors in a zero interest rate environment.

It is easy to forget how scared everyone was of any kind of risk back in the 1st Quarter of this year. Where do you think we are now?