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Recap of a Letter Written Before the Election

The following comment was included in the newsletter we sent to our clients at the end of September. It was written during a period where many were unsure how the election would affect their portfolio.

“It’s actually been a pretty good year for most investors. So here we are about 45 days away from the election, and it appears to me, with the recent surge (both US and global), that the markets are picking up steam.

What explains this improvement, considering the dark clouds apparently forming? Could it be possible that the markets would actually strengthen after the election, regardless of who wins it, simply because one huge uncertainty will have been removed? We’re already at the point where, here in the US, corporate earnings, cash flows, cash positions, and dividend yields are all near record levels.

How did this happen when the investor class is full of dread (a looming fiscal cliff or taxmageddon are being discussed by the talking heads all the time)? Can the gulf of relative value between the US bond market and the US stock market, which has been growing almost unabated for 30 years, grow still wider? Or, could it be that John Templeton is right again, and that it is exactly in times like these that bull markets are born?

I don’t discount the volatility that comes with the cyclic nature of the economy, especially one impacted by globalization. The tough months / quarters / years happen for all sorts of reasons and will probably continue. But there are great companies out there that will continue to sell mass quantities of cola, diapers, and the hottest cell phone, and sell those around the world, even if Greece leaves the Euro, or Spain defaults, or if the wrong person wins the presidential election.”