I think I can speak for us all by saying the third quarter of 2011 was as enjoyable as root canals, screaming babies on airplanes, or trying to take a nap listening to Jim Cramer. I don’t want to make light of the losses we all saw, but sometimes you just have to brush yourself off and move forward.
So what do we see moving forward? I had a client this week say that she “was tired of being held hostage by the market.” On that same day one of my favorite CEO’s, Mohamed El-Erian of PIMCO, said “the markets are like passengers in a car being driven by politicians who won’t tell them where they are going” and I might add these drivers might not know themselves.
In the space of a day, a client with little knowledge of markets and a noted financial expert expressed their exasperation. Markets had to digest a multitude of Maalox moments this past quarter including the S&P downgrade of our treasuries; continued weakening economic data; Europe’s delays in dealing with their sovereign debt issues and consumer confidence evaporation leading to these feelings of market kidnapping.
What we see in the near future will only be clear when Europe creates a plan and most importantly, implements it providing stability to Greece, Italy, Iceland, Portugal and Ireland. Markets are always skeptical when politicians are driving and having the 17 nation European Union’s politicians on one page is daunting. However, in order for stability to return to world markets, this must occur.
Assuming a European deal is reached, we will see markets move forward some, but more importantly see volatility reduced. It is this fear created by the seemingly daily huge swings that weighs heavily upon us. Corporate balance sheets have never been stronger and assuming future earnings are not adjusted downward too greatly, we should see a much more beneficial fourth quarter. Typically, the fourth quarter tends to be strong with Christmas season and institutional money managers trying to reach goals to enhance their compensation.
So, the next three months hinges on Europe’s ability to solve their debt issues. This will be important for us to see a good close to the year. As we move into 2012, we will have to deal with our own debt issues and listen to election rhetoric. However, we should see some of the volatility creating investor acid reflux reduced.