US stocks gained 8.9% in September (best September result in 71 years) and 11.3% for the quarter (5th best quarter of the last 10 years.) As stocks rise, our clients are actually becoming more fearful. "How," they ask, "are stocks still rising when the economic news is so bad! Shouldn't we take our profits and go to cash?" "What about gold? Shouldn't we buy some gold? Everyone on TV is talking about gold!" To which we reply, "Steady on stocks, and gold looks like another bubble to us."
What do we see that our clients don't see? We take seriously the advice of 18th century British nobleman and banker Baron Philippe Rothschild to "buy when there's blood in the streets, even when the blood is your own!" We went fully invested with our clients' stock allocations in March 2009 when the world seemed days away from total economic collapse. We continued to move money into stocks during the April-June selloff of this year. Even now, we remain cautiously bullish, even though the market is only about 3.4% below our 2010 target of 8% gains. Contrast that to our anxiety about stocks back in late 1999, when US stocks made record levels daily, unemployment was about 3.5%, housing prices were rising steadily the US had a huge budget surplus, and the biggest concern of average Americans was whether President Clinton did or did not have "sexual relations with that woman."
However, the narrative that the average American sees on the 24 hour cable news services (who reads the paper anymore?) is relentlessly pessimistic. Fear generate high ratings, which sells a lot of ad-time!