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Bears and Bulls are Right

September 30, 2011 – 4:52 pm

Data pours in week after week on the economy and though much of it is worthless in telling us where the economy is going it is still important to understand what is happening to give us background on the health of not only our economy but the world economy.

For the present the numbers are suggesting a slow growth environment in the U.S., a possible retraction in Europe and China slowing its growth to around 8 to 9%.

The stock market has reacted to this news over the summer with it falling for 5 months in a row.

Still none of this tells us what the market is going to do in the future let alone the rest of the year. The bulls will argue that the slowdown in the economy is already built into the prices of stocks, that stocks are cheap compared to earnings, balance sheets and historic norms. They would be right. Bears argue that the chances of another recession is rising, and in a recession earnings will fall thus stock prices may not be cheap. They would point to the ongoing European debt issue and our own unsettled political environment. They too would be right.

That is the eternal struggle. In these volatile times I like to look to the smartest investors. Warren Buffet this week said that he will be buying back shares of his company Berkshire Hathaway. He has stepped up his buying of companies this last quarter. He bought another insurance company this week and a couple weeks ago invested in Bank of America. He’s buying while everyone else is selling. His time line is years so he buys for the long term and takes advantage of the short term. His average return since the 1950s is over 20% year after year. Has he lost money in some years? Yes, but never in the long term.

What should you be doing this environment?

Good Trading
Steve Peasley

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