Over the past 2 weeks, many investors have begun to fear that the recent global stock market volatility is a sign that we may be entering another bear market similar to what we witnessed between 2007 and early 2009. This was a period when stocks around the globe declined a staggering 55-65 percent depending upon which index one selects as a benchmark. Our research suggests that this is possible, yet highly unlikely for a number of reasons:

A.  We are at the beginning – not the end – of a global economic recovery. Bear markets are the result of overheated economic expansions that have typically overrun their course. Typical signs of such an environment would be overcapacity in many economic sectors and very high inventory levels – none of which exist today.

B. The Federal Reserve and other foreign finance ministries continue to keep interest rates at extremely accommodative, low levels.  This is a position that fuels future economic growth – not stalls it out.

C. In almost all economic sectors, corporate earnings are reviving strongly. This is a key factor in support of higher stock prices over the intermediate future.  Of course, during every recovery, there are some sectors whose earnings recovery is more challenged. For instance, the consumer and banking sectors are currently facing headwinds. However, all other sectors are recovering very nicely.

Economic recoveries are always tenuous and vulnerable to outside forces that could topple them over creating the "double dip" recession. We think this risk is low. However, we continue to actively manage risk through our Active Risk Management process: managing your allocation to equities, sectors and carefully placed stop loss orders.

We hope you find these thoughts helpful during what has turned out to be another volatile period.

Sincerely,

James E. Demmert

Managing Partner