Market Update - October 10, 2008



 The patient is very ill – let’s assume the patient (the economy) just visited the doctor (Ben Bernanke & H Paulson).  The doctor prescribes medicine (the Rescue bill) to make the patient better.  The doctor tells the patient he will get better as long as he takes the medicine.  The patient says “how long will it take”?  The doctor says “I am not sure because you are really sick.  I’ve seen illnesses like this before and I know you will get better, but it could take awhile”. 

As a patient, we always want an immediate recovery once we get the prescription.  Sometimes it takes longer than we want.  In fact, the doctor says we will have some good days and bad days during the recovery.

I know the patient (the economy and the markets) will recover.  I just can’t predict how long it will take.

There are three so-called prescriptions that have been written for the patient.

  1. The 700 billion dollar bailout/Rescue plan.  This plan will probably take weeks before the first check is written and months before it has much effect.
  2. The Fed will lend funds directly to companies in the form of commercial paper.  This could happen within a week, but take as long as six months to really work.
  3. The recent rate cut by the Fed and many other world Central Banks is important.  However rate cuts take as long as nine to eighteen months to work through the system. *

It is also likely that we are already in a recession that will probably last six to twelve months.  So what is next?  Here are a few summary items:

  • I do not believe we are on the verge of a depression
  • The markets will remain volatile and choppy for some time
  • We believe we have reached, or are close to the “capitulation” phase – This is when almost everyone has reached the point of panic and believes the stock market will continue to drop forever and never recover
  • Many advisors believe we are getting close to a significant rally
  • There will be more bank failures
  • The strong companies will get stronger, the weak will get weaker

Warren Buffett invested $5 billion into Goldman Sachs and $3 billion into General Electric Co. This validates the fact that there are tremendous stock values out there.

What should you do?

  1. Turn off the TV.  Yes, you should stay informed, but do not confuse that with a 24/7 onslaught on your mental health.
  2. Control your spending
  3. Remember that your asset allocation has about 40% of your portfolio in cash, money markets, bonds, and safe investments.  If need be, we can use all of the safer investments to generate your needed income for the next five years or so.  This will allow us to keep your stocks and equities invested until the crisis has passed.
  4. Reconsider if you are considering selling your investments.  It is your money and ultimately it is your decision.  But selling into a market like this almost always turns out to be a bad decision.

Humans are herd animals.  We like to move together and think the same way, even if it means moving off a cliff, or even if the thoughts are dysfunctional.  Do not be part of the herd.

We are here to be your anchor.  This is NOT over yet.  But we want you to make the right decision.  Please continue to let us know how we can help you.

Thank you for all the confidence you have shown in us.  We cannot possibly convey to you how seriously we take it and how much it means to us.



Edward J. Kohlhepp, CFP®, ChFC

Edward J Kohlhepp, Jr., CFP®, MBA


Life isn’t about how to survive the storm, but how to dance in the rain



*Note: some of the ideas in this letter were taken from a commentary by Ali Velshi, a senior business commentator for CNN



Market Update - October 16, 2008
Market Update - October 1, 2008

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788

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