Commentary for February 20, 2009

Good Morning!

Stocks remain under pressure as investors throw up their hands in response to the damaging rhetoric that is coming out of Washington, Wall Street, and Main Street. Both the bearish as well as bullish camps have valid arguments as to where stocks (and therefore stock funds, stock based ETF’s) are headed. For example, “are we headed into a more serious recession or perhaps toward a depression?” “Why has President Obama only accentuated the negative?” “With the major indices off fifty percent from their all-time highs set during October 2007, haven’t we adequately priced in this recession?” And so on. And so on. We will try to encapsulate our concern with one or two questions that most likely will fall in the favor of the bulls. They are as follows - (1) Is this a permanent transfer of wealth from the private sector to the public sector? (2) Have we accelerated the slippery slope toward socialism and therefore a transfer of economic responsibility from the individual to the government? We sincerely believe that the answer to question one is that during hard economic times the public sector should stimulate the economy. However, once the private sector picks up steam that transfer of funding should be given back to the private sector. Number two, time will tell. This requires patience and a belief that the private sector, the individual is the true creator of wealth. If this slope toward socialism continues the United States will cede its position as the dominant global economic power to another nation or other nations.

Given the above, what does this mean for our portfolios? On the equity side, we remain steadfast in our belief that the potential reward of investing in equities far outweighs the current long-term risk. Perhaps we have another ten or fifteen percent to the downside. However, we believe we have four to five times more potential on the upside. Regarding fixed income, we will stay high quality as well as short-term and look for higher interest rates once the economy begins to recover.

Both of us are here to field any calls that you may have and ready to answer your concerns. Please feel free to contact us.

Dennis Fagan
Chris Fagan
(518) 279-1044

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