Quarterly Commentary

NAFA's Quarterly Commentary

4^th Quarter 2009

For the year, the Dow Jones Industrial Average rose 22.68% but the gain from the March 6 lows was an impressive 61.20%. (For those who are superstitious, please note that the March 6 low on the S&P 500 Index was 666.) Many investors are nervous that the market has risen too fast and is becoming overvalued. Our opinion is that the market is expecting a vigorous economic recovery and a strong rebound in corporate profits. We do not expect gains similar to the ascent from the March lows, but we could see an additional 10-20% rise in the broad market indices this year. (Read More)

3^rd Quarter 2009

Greetings from a much happier place. We have come a long ways in the last year. I just re-read our quarterly report from the third quarter of 2008 and it reminded me of how precarious the financial system’s survival was at the time. At the end of last September, the Dow Jones Industrials was still trading above 10,800, but at the time of writing the reports, Congress was voting on whether or not to approve the $700 billion TARP package. October of last year saw the mind-numbing drop in the stock market that exceeded 2,000 points on the Dow. Volatility in stock prices shocked us all. The flight to quality wiped out many leveraged investors. (Read More)

2^nd Quarter 2009

Most investors are breathing easier now, but are still concerned that the market rebound is just another bear market rally and we may still see new lows. We pointed out many of the risks to the market in our first quarter letter but we still believe that the worst of the stock market’s problems are behind us and we can expect stronger earnings to support higher prices. In our view, the sell-off last fall and early this year was due to the credit crisis. There was so much leverage in the financial system that its survival was in question when Lehman Brothers failed and a domino effect ensued. The rapid deleveraging of balance sheets, both personal and corporate, put tremendous pressure on asset prices as buyers were reluctant to step in front of the selling tsunami. Now that credit is available again, the deleveraging can be completed in an orderly process. (Read More)

1^st Quarter 2009

Last year ended with some optimism that 2009 would see an end to the financial system maelstrom that started with the subprime mortgage meltdown in mid-2007. That optimism was dashed in January and February as expectations that the new Treasury secretary would move quickly to announce plans for helping banks sell their “toxic” assets ran into a wall of uncertainty. When Treasury Secretary Geithner held his first news conference to announce that his staff was working on a plan and would reveal the details at a later date, the stock market was severely disappointed. (Read More)