Monday, November 28, 2005
The Dow Jones has rallied almost 800 points since mid-October to stand at near 10,900 and many of our clients have asked why? Not that they don't appreciate the bounce, but they question if the news has really improved as much as the rise in prices now reflects. First, let me remind you that our most reliable model has been pegging the value of the Dow at near 11,800 for most of the year, so a part of this bounce is based on stocks having gotten very cheap, especially when you consider that earnings and dividends have grown at double digit rates. I don't believe that stocks will rise to 11,800 is a straight line, but I do believe there is a high probability that the path of stocks will intersect that level within the next year. The main reason stocks are doing better, though, is as a result of the economic data that have been released since the conclusion of the Gulf Coast storms. It resolves many of the questions that we cited in our October quarterly letter that need to be answered. 1. The US economy, contrary to the doom and gloomers, has not been materially affected by the storms , and certainly is not headed for recession. 2. Oil prices have softened dramatically to $57 p/bl, down from over $70 p/bl. 3. Inflation spiked in September, but was flat in October. With oil at the current level, November's reading is likely to be tame, as well. The market is now rubbing the worry beads over the Christmas selling season. I'm not as concerned about Christmas sales as most. My friends in the retail business have told me for years, that everyone always worries about the Christmas season because it is such a big deal to total retail sales in such a short period of time. But they say not to worry, Christmas always comes. It is a part of our culture. Terrorists, hurricanes, tornados, war, oil shocks, political battles -- all these forces show us just how precious and fragile our lives really are. Christmas and Hanukkah remind us that there is Someone bigger and wiser than us, Someone who has blessed us down through the ages in spite of our folly and the vicissitudes of nature. Giving gifts to someone we love is as natural as breathing. Do we stop breathing because of the forces we face? Certainly not. Indeed, we will give more purposefully, perhaps more generously, because we will see the faces of those we love, and we love to see them shine. And shining faces have been in short supply during the past many months. I also encourage you to give to faces you do not know or love. These faces may have borne the brunt of the storms or man's inhumanities to man. A gift from a stranger is almost too good to be true. You will likely never see the face of a stranger light up when they unwrap your gifts, but you know as well as I do that the shine will come -- it's a part of every culture, a part of being human. And you will become a blessing and blessed in the same moment. How can you beat that deal?