Maintain a long-term perspective
Posted on 10. Aug, 2011 by Larry Katz
The last several weeks have been trying times for investors.
Since July 22nd, the S&P 500 has fallen sharply including large drops on August 8th and 10th. The main catalysts for this sharp decline include a U.S. debt deal that did not address the underlying fundamental issues in a satisfactory way, some weak U.S. economic numbers which may presage a double‐dip recession, the realization that there is little flexibility with regard to either fiscal or monetary stimulus, the S&P downgrade of U.S. debt, and the continuing debt problems in Europe.
There is a long list of troubles, and things may get worse before they get better. There are also many positives, including the following:
A 28% decline in the price of oil from its recent high, which has reduced inflationary pressure and helped consumers.
The four‐week average of initial unemployment claims declined to the lowest level since April.
Continuing low interest rates, on both the short and long end.
Greatly improved corporate profitability and cash flow, with increasing capital spending.
Healthy corporate balance sheets and improving consumer balance sheets.
A depreciating dollar which could enhance exports.