With all of the uncertainty in the financial markets, we wanted to share our thoughts, and some perspective, on what we know, what we don’t know, and what we are doing during these trying and turbulent times.  


What We Do Know:

  1. The bankruptcy of Lehman Brothers, and the rescues of Merrill Lynch, AIG, Wachovia, and the mortgage giants Fannie Mae and Freddie Mac, has created a panic among lenders globally, freezing up the financial system. All these firms relied on borrowed money to survive, and the markets continue to punish other firms that require borrowed money, like GE, Ford, and General Motors.
  2. Actions taken by the Federal Government will improve conditions in the credit markets, but it will take time for the new programs to actually impact the markets and the economy. The length and breadth of the recession will depend upon the success of these new federal programs.
  3. Comparisons of the current crisis to the Great Depression are rather exaggerated. The government’s reaction after the 1929 stock market crash was to allow numerous banks to fail, and reduce spending to manage the federal deficit.  There was no FDIC deposit insurance to protect savers.  Current government actions are the opposite of those implemented in 1930.
  4. Because of the panic selling in the equity markets, there is a now a disconnect between a company’s stock price and the enterprise value of the underlying assets these companies own.
  5. As financial institutions race to reduce their levels of borrowed funds by selling assets at any price, the correlations between all asset classes have changed dramatically, and are now moving in the same negative direction. This has happened before, and usually does not last for a long period of time.
  6. Economic statistics, like the unemployment rate and retail sales, will continue to weaken into 2009. However, historically, the stock market begins to rally while the economy is still weakening, as it begins to get a clearer picture of when the economy will reach a low point.
  7. S. financial assets are cheap by most historic measures. We’re participating in several conference calls, in which veteran equity managers believe some great companies are being unfairly punished, and are waiting for the “bottom” to start buying again.
  8. However, over the next 90 days, there could be a headwind against rising stock prices due to hedge fund liquidations, mutual fund liquidations, and tax loss selling.
  9. Because hedge funds rely on increasingly expensive borrowed money, many are going to disappear just like the investment banks on Wall Street.


  1. As an insurance policy against unforeseen cash flow needs, everyone should have 2 years of readily available cash in a money market fund or in bank deposits.


What We Don’t Know:

  1. How much longer the panic selling of both stocks and bonds will continue. “Unprepared” investors with no financial plan will continue to panic until they have sold everything.
  2. How much the S. consumer will retrench. Assuming that the new government programs designed to rescue the credit markets are successful, the length and depth of the recession will depend on how much American consumers reduce both their level of debt and their appetite for spending.


What We Are Doing:

“Prepared” investors with a financial plan don’t have to panic because they don’t have to sell anything to meet their cash flow needs.  We repeat what we wrote last month, that having insurance can be comforting at this time, and the best insurance available for long term investors is a diversified portfolio and an overweight to money market funds.  (Your holdings of Fidelity’s money market funds are protected by the government’s program to guarantee their value).  We also repeat our long standing conviction, that anyone who invests in the stock market should have a time horizon of at least 3 years and more appropriately 10 years.


We are looking to take advantage of the panic selling, and are considering investments in high quality municipal bonds and high quality, multi national corporations with little or no debt.  We have included some charts showing how long it has taken the markets to recover from catastrophic events in the past.  These may help to put today’s events into perspective.


D3 Business Update for Clients:

As always, give us a call if you have any questions or concerns.  If you haven’t returned the client satisfaction survey we sent out last month, please do so.  Remember, we’re hosting our client appreciation dinner on Saturday, December 6th. Please save the date.  Lastly, we have included our fourth quarter invoice.  As always, THANK YOU for your confidence in us!


Donald D. Duncan MBA CPA/PFS CFA™ CFP®              Nancy Lencioni & Becky Connery

Peter Marchese MBA CFA™                                                Adam Glassberg

Michael Meyers MBA CFP®