Summer Client Investment Letter {Part III}

Part III of our summer letter to clients.

We still remain positive on the long-term prospects for the US economy.  We believe stock valuations will become more compelling as earnings catch up to valuations.  While stocks can at any time experience price declines, so far we’ve seen a correction by time instead of price.  The reason for our optimism is that the weight of evidence continues to suggest that the US economy is still in expansion mode.  Strength in the dollar, muted global demand and lower oil prices has put a crimp on growth.  This has hurt the industrial and energy sectors as well as businesses that rely on exports.  However, lower oil and a higher dollar have muted inflation and has been positive for consumers.  That should sustain domestic demand. 

Our longer-term view of the markets remains positive and is roughly the same as it has been for the past few years.  We believe that there is still compelling evidence that the US economy continues to expand. Employment is increasing on average by nearly 200,000 persons per month.  Americans are voting with their wallets. Car sales for example are still showing solid gains and there are no empty seats on airplanes.  We are still of the opinion which we have reiterated in the past that positive demographic trends, revolutionary developments in energy, continued advances in productivity as rooted in the efficiencies of the knowledge based economy and the continuing age of innovation that we have dubbed the “era of miniaturization” are all longer term positives for the economy.

{In tomorrow's conclusion we'll discuss why we think the kids are going to be OK and why that will be a future economic tailwind.}