• Market Overview

2009 4th Quarter Overview

2009 4th QuarterThe Dawn of a New Decade

I vividly remember the end of the twentieth century. 1999. Do you remember? It hardly seems like ten years now. That was a most extraordinary time to be an investor. I have a framed copy of the cover of the Wall Street Journal from the last day of the millennium at my home. The optimism and rampant bullishness was amazing. Everywhere you went people were talking about the stock market.

Back then, driven principally by a boom in technology, stocks staged what people regard today as a once in a generation boom. The NASDAQ went from 2200 at the beginning of 1999 to over 5000 in 15 months. This incredible surge accelerated in the first three months of 2000 and the NASDAQ gained 73%. In barely a year, the NASDAQ and other selected market indices gained over 100%. It was an unprecedented advance. People thought that it would last forever.

The derailment started soon enough. By mid March 2000, the NASDAQ reversed and went into a steep tailspin. The markets continued their decent into a nasty bear market in 2001 and 2002. This stretch was accompanied by Enron and 9/11.

Looking back, the stock market has never been the same as it was at the turn of the century. By comparison to the 1990s, the past ten years proved to be a bust. Only those that were fortunate to adroitly trade the market made decent returns during the ought years. The S&P 500 Index started the decade at 1463 and ended 2009 at 1117. This represents a 23% decline over a ten year period. It was a miserable progression for an asset class that is supposed to represent the value of business enterprises in this country.

2010 starts a new decade with promise. Historic probability points to impressive gains for stocks in the months and years ahead. (see Market Overview 7-18-09) Today’s confidence level for the stock market still pales in comparison to the ebullience that reigned in early 2000. We are quickly reminded that optimism itself has never been a good predictor of a short term outcome. In early 2000, consensus opinion held that stocks would march irrepressibly higher. We certainly don’t have that same consensus opinion today. Simply put, since stock returns were so bad over the past ten years, we can conclude that returns over the next few years will be markedly better.
“New normal” equals investment opportunity

Mysteriously, rising from the ashes of the economic destruction, an investment revival has already begun to gain traction. This revival and the road ahead appear much clearer following the stock market’s reaction to the government stimulus programs that were seeded last year. Stocks have now gained for three consecutive quarters. Volatility has been mild during this entire period. This implies that there is substantial investor interest in equities on any pullback in prices.

The fuel for the skeptics comes in the shape of the overall economy. Job losses continue. Many are quick to point out that company earnings gains are from cost cutting rather than revenue growth. Stock valuations relative to current earnings are also high.

The investment public continues to be cautious. The Associated Press ran an article at the beginning of this year entitled “Main Street Investors Opt out of Wall Street.”1. Equity mutual funds actually had $14 billion of net outflows in 2009. Money flowing out of the stock market occurred in spite of the fact that stocks rose in 2009. This contrasts sharply with past rallies when investors stampeded into equity funds. We are left to wonder how stock prices did so well last year if so many people were getting out of the market.

These concerns are all part of the “new normal.” The “new normal” is a weak and precarious economy which hinges on government spending and low interest rates. In this climate, stock prices can maintain their upward trajectory in the months ahead. Logic holds that as long as this “new normal” holds, money in safe, low yielding instruments will find a home in stocks. It is this flow of money out of safe, low yielding vehicles into stocks that presents the probability of higher returns.
Peregrine Returns and Strategy

Growth in stock prices slowed during the fourth quarter from the third quarter of 2009. The S&P 500 gained 5.80% and finished 2009 up 27.67%. The average equity mutual fund also gained 5.03% for the quarter and gained 34.14% for the year.

Our clients know that 2009 has been a struggle to be “Ahead of the Curve” with respect to keeping pace with the stock market’s recovery. The Peregrine Equity Composite gained 4.18% for the fourth quarter and gained 12.19% for the year. The Peregrine Balanced Composite was up .97% for the quarter and gained 3.07% for the year.

Many of our balanced accounts were hurt by a heavy weighting in US Treasury Bonds. These securities promise a steady, safe, income level but their value falls if long term interest rates rise. This happened dramatically in 2009 but should level of in 2010.

Our client returns lagged the major stock market indexes for 2009 due to our cautious position earlier in the 2009. Since June, we have been investing more heavily in stocks for our clients reflecting our growing confidence in the recovery of the market.

Everyone wants to hold winning investments over the long term. Due to the nature of stocks to fluctuate, we also adopt a trading approach for our clients since market timing can still trump the return of a winning stock. Our strategy will attempt to earn consistent short term trading profits. During market lulls and corrections, our client accounts can be enhanced by capturing consistent profits through short term trading.

Dan Botti
Portfolio Manager
1/17/10

Past performance is no guarantee of future results. Investment management involves the possibility of losses. Significant general stock market moves up and down can influence the performance of client portfolios. Composite returns are based on client portfolios of over $100,000. Not all clients are included in the composites. All returns include the reinvestment of dividends. All returns are net of fees. Composite returns are derived from aggregated, time-weighted returns for clients of Peregrine Asset Advisers. Individual client returns can deviate from the composite returns. While Peregrine uses the S&P 500 as a benchmark, Peregrine does not attempt to mimic the structure of this index. Individual client portfolios vary. The number of securities held also varies per client.

Do you have questions or would you like to know more, contact Dan Botti.

Overview Archive

 
*Past Performance is no guarantee of future results. Investment management involves the possibility of losses. Significant general stock market moves up and down can influence the performance of client portfolios. Composite returns are based on client portfolios of over $100,000. Not all clients are included in the composites. All returns include the reinvestment of dividends. All returns are net of fees. Composite returns are derived from aggregated, time weighted returns for clients of Peregrine Asset Advisers. Individual client returns can deviate from the composite returns. While Peregrine uses the S&P 500 as a benchmark, Peregrine does not attempt to mimic the structure of this index. Individual client portfolios vary. The number of stock positions also varies per client.