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Portfolio strategy update In all seriousness David Gottstein
Editor’s note: The following column was written in late July. David Gottstein is with Dynamic Research Group in Anchorage. We live in very serious times. Not since the end of World War II has there been as serious a threat to our freedoms and way of life in America.
We have had to better secure our borders, our airports, our ports — and our state of minds. We are not threatened with losing democracy, but rather the carefree attitude that we bestowed upon ourselves in the period since the second world war.
What is doubly troubling, is that we are having to put ourselves on a war footing during a period when we are experiencing economic decline. We will prevail, not totally, but in large part, against the terrorist elements but at significant cost.
In the first instance, we must engage the enemy, because they truly have, and will continue, to engage us. In a battle that is vastly different than those we have fought in the past, it is likely to be a long struggle against Muslim extremist elements.
To meet this challenge we will need to build up our military capabilities significantly, and sustain them.
War with Iraq is almost a certainty. A necessary preemptive move against their ultimate use of weapons of mass destruction against ourselves and our allies is only months away.
The leaders of almost all the major Arab countries, including Saudi Arabia, Egypt, Jordan, Syria and Iran, don’t want the United States to be successful in expanding democracy in the Middle East beyond Israel.
They want the stability of a no action approach. The status quo maintains their own dictatorships and dynasties.
It has even been recently reported that Saudi Arabia is itself opposed to a Palestinian state, as it would likely be forced to be somewhat democratic, and they don’t want their own population to be encouraged by it.
Until the Arab countries adopt truly democratic reforms, modernize their education and greatly expand the rights of women, we will be challenged by fanatical elements within and outside their governments, and we ourselves will need to be on a war footing against terrorism.
The costs ahead We describe this backdrop in order to sensitize readers as to the very significant costs in human and financial capital that will have to be exposed and committed in the years, and perhaps decades ahead, in this battle.
Of course our economy has tremendous potential, but it is not currently healthy.
There is the growing likelihood of a double-dip recession.
Deficit spending will rise as we meet the challenges ahead of us. It will add fuel to our economic engine for a period of time, but will not add to general prosperity.
The excesses that lead to the stock market bubble, continue to be felt in a negative fashion in the economy and the stock market, as they unwind.
Brace yourself We are not going to experience a bull market in the stock market again for some time. We may have rallies, but not sustainable appreciation growth for at least a couple of years.
If we are lucky, we will trade between a range of 7,000 and 10,000 on the DOW. It is best to buy individual stocks when they, and the stock market as a whole, are cheap.
That is what we will be doing. We lowered our cash position when the market tanked a few weeks ago, but are raising it to 20 percent because of valuations and the risks versus rewards present in the market. Long term, investors might still be rewarded with a 10-plus historical average return rate over the next market cycle.
However expect a lot of volatility to get there. More risk averse investors may wish to raise even more cash right now. There will be opportunities to make money, but very selectively.
Good luck this month.
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