Europe, Ebola, Elections, Earnings, Energy, Economy, Middle East and East Asia. Let's look at each one:
Europe – Economy is slowing and struggling, The European Central Bank (Drahgi) wants to initiates some form of quantitative easing just like we did. The Germans are against it. We believe the Germans will eventually give in and easing will occur to stabilize the economy. Big Uncertainty.
Ebola - What more can we really say? It has created a scare and uncertainty because there are just too many unanswered questions. There is too much we just don't know about this dreaded and deadly disease. We believe it is a serious situation and needs to be followed closely. Our biggest concern is our troops going over to give humanitarian aid. How do we bring them back home? How do we quarantine them? Germany already has denied them entry from Africa. Where do we take them? How do we keep Ebola from crossing our Southern borders? Like I said, too many unanswered questions. Lots of uncertainty.
Elections - Mid-term elections seems to always bring out the "crazies". It looks like the Republicans may win the Senate which would bring Dodd-Frank under scrutiny and possibly major changes. Again Uncertainty.
Earnings - 69% of companies reporting their profits have beat expectations. Their forward looking comments have also been positive for sustaining those earnings. No uncertainty here this is a positive.
Energy - Everyone seems to be worried about oil prices dropping. WHY? I remember not too long ago all the talking heads on TV were panicking over "Rising" oil prices. Lower oil prices are unequivocally good for the economy. US manufacturers become more profitable. Europe is helped in a very big way, lower oil prices hurts Putin/Russia, Venezuela and Iran (all good things). I recently paid $2.75/gal. Oil prices would have to retreat to approximately $40.00/barrel according to Larry Kudlow and a few other oil economist to do any damage to the US. This is not a demand problem like most of the talking heads on CNBC are spitting out. Demand only dropped 2 tenths of 1 percent. It's supply that has increased. Most of this supply has been in Texas. Go Big Tex! Only the talking heads are creating uncertainty.
Middle East - ISIS or ISIL (whatever) is an evil force that has to be eliminated without prejudice this will cost the US money on a war that really never ended as we were told. More troubling is that it will cost more US lives but it must be defeated. Obvious uncertainty.
Economy - The economy is still on track and no recession in sight. Again, oil prices will help insure this. Unemployment is still declining, GDP is at least stable if not growing a smidgen. All is just very OK on this front. The St. Louis FED report on recession probability is 0.02%. So very little uncertainty.
East Asia - China is definitely slowing. But this is like coming in second at the Indie 500. China has a huge economy and any slowdown does have a negative effect worldwide and will create a reasonable amount of uncertainty.
Most of these concerns create a certain amount of short term uncertainty and the market will pull back to normal bull market correction levels. The markets hate uncertainty. This creates opportunity for us to pick up some great values in superior companies. We are long term investors and these are shorter term events. Be prepared to hear lots of talking heads on TV using words like, "Crisis" and Panic". I'm here to tell you DON'T. We may go a little lower and will probably have more volatility but eventually will rebound into the end of the year. We survived 2008 very well. This is not 2008 repeat. We will be alright. We are watching things closely and will make the appropriate adjustments as needed.
We manage Risks first
Then, we buy quality
And only then do we seek a reasonable return.
Fritz Mowery, President
Mowery Capital management, LLC
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