Paul Dietrich's Global Investing Trends Report

Are We Heading Into A Recession?

Posted October 10, 2007 · 0 Comments

Dear Paul,

 

This week the stock market and the Dow broke through to new record highs.  But my clients are stilled worried about an imminent recession.  What should I tell them?

 

First, I do not believe there will be a recession either this year or next year.  The overall U.S. economy and the global economy are doing too well, at the moment, and since the stock market has always tracked the overall economy in the long run, I believe that the next bear market is distant enough in the future that it is still a good time for stock market investors to be “in the market”!  

 

Make no mistake about it, eventually we will have a recession but that will only happen when the OVERALL economy starts to deteriorate.  Even though the housing markets and high energy prices are a drag on the economy and are causing some slowing in profits and economic growth, the OVERALL economy is doing quite well right now.

 

This week the current bull market celebrates its fifth anniversary in style with record highs by the DJIA and S&P500. According to STANDARD & POORS RESSEARCH, bull markets that live past five years have gained 13.9% on average in their sixth year.

 

INVESTORS WILL NOT WANT TO MISS OUT ON THAT KIND OF POTENTIAL GAIN NEXT YEAR.

 

BUT LIKE THE BOY SCOUTS:  ALWAYS BE PREPARED TO IMPLEMENT A DEFENSIVE STRATEGY

 

Historically, the U.S. has had a bear market or recession every 5 to 8 years since 1945.  The average bear market/ recession has lasted about two years, except the last one in 2000, 2001 and 2002 lasted almost three years.  The average drop in the S&P 500 INDEX, which is a broad measure of the stock market, has been about 36%, but in the last 2000 to 2002 bear market/recession, the S&P 500 INDEX declined almost 48%.

 

When the next bear market/recession comes, investors need an investment manager who will decisively move their investments out of the stock market and into a DEFENSIVE INVESTMENT STRATEGY, just like we do at FOXHALL CAPITAL.

 

When the next bear market/recession comes, investors need an investment manager who will decisively move their investments out of the stock market and into a DEFENSIVE INVESTMENT STRATEGY, just like we do at FOXHALL CAPITAL.

 

FOXHALL DEFENSIVE INVESTMENT STRATEGY:  FOXHALL has created and uses a proprietary, quantitative, global investment model that is designed to identify major stock market corrections, bear markets and recessions at an early stage.  When certain “triggers” are hit, FOXHALL decisively moves client investments to bonds, money market funds or other defensive investments in order to protect our client’s investment principal.

  

RIDING THE MARKET IN THE DIRECTION IT IS ALREADY GOING

 

My wife is a great horseback rider.  Unfortunately, I am not so good.  When I sometimes fall off a horse, my wife will counsel me (in that particular tone that wives reserve for their husbands!) by saying, “Paul, it is always easier to ride a horse in the direction THAT THE HORSE IS ALREADY GOING.” I have sometimes ignored that advice to my peril.

 

At  FOXHALL CAPITAL, we execute the discipline that is expressed in her advice and “ride the global markets” IN THE DIRECTION THAT THEY ARE ALREADY GOING!

 

For now, the markets are going up, so sit back and enjoy the ride!

 

Until next week…

 

-Paul Dietrich

dietrich@foxhallcapital.com

800-416-2053

Disclosure:  The opinions and portfolio information provided in the Foxhall Global Outlook are subject to change at any time, and are not to be construed as advice for any individual nor as an offer or solicitation of an offer for purchase or sale of any security.  Client accounts may differ from model allocations due to many reasons.  All investment strategies offer the potential for loss as well as gain.  Individuals should consult with their financial professional to determine an investment strategy appropriate for their objectives, risk level, and time horizon prior to investing.  Past performance is not a guarantee of similar future performance.

 


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About Paul Dietrich
Paul Dietrich is the Chairman, CEO and Co-Chief Investment Officer of Foxhall Capital Management, Inc. (Foxhall).  Foxhall currently manages investments for individuals, mutual funds and private institutions throughout the United States. Paul Dietrich is also a portfolio manager to a publicly traded mutual fund, the Foxhall Global Trends Fund.
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