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Galarneau Group Newsletter 4th Quarter, 2015

  As we write this, we are in the last few days of January. Weather in our part of the country has been unusually calm and mild; while the markets have experienced the stormiest January in a very long time. In fact since late August of last year, we have experienced significant volatility; and few stocks have been immune to the selloff. We know this type of climate can be nerve wracking for our clients; it can feel like trudging through deep snow in a blinding storm, unable to see how much further one has to go to make it home, and wondering if this is even the right road.

  Oil prices have been driving our market selloffs and rallies for months; this is unusual. Historically the price of oil and the S&P have not mirrored one another. Cheaper oil and gas is a positive for consumer spending, and reduces costs for many businesses. But extremely low prices over a prolonged period could create major credit problems for companies in the energy sector and for the financial institutions who provide financing to them. China has been suffering a slowdown in its economy, on a scale which has created turmoil in its markets and currency. Many fear that it will suffer a hard landing, creating damage around the world which will be long felt. Others are beginning to feel that a rocky landing is by far the more likely scenario.

 These two major trouble spots are like two growing low pressure systems which have joined together to create a massive storm. And into the mix have come disappointing earnings, the Fed beginning to raise interest rates, and the prospect that this year's presidential conventions may be the most interesting many of us can remember, with two people leading poles in their respective parties to the great surprise of party leaders.

  If we can keep our focus and move cautiously but steadily forward, we will begin to see signs that the storm is abating. As with the weather, financial markets are always changing, responding to new developments, often in ways not predicted by the experts. Our strategy trains us to look for signs of change. Usually a bad storm doesn't end abruptly, giving way to blue skies and sunshine. More likely, continuing squalls and periodic gusts of wind make it difficult to recognize that the storm is passing. Who wants to go out and shovel the yard in the morning only to have another six inches of snow fall at noon? How do we know when the storm is really over?

 Our experience is that it's too risky to let our guard down completely at the first signs. But as we begin to see the market trying to hold onto a rally, as unexpected bright spots begin to show in earnings reports, it may be time to get out those shovels and begin to clear the walkways. We have been defensive for some time now, and are holding high levels of cash. This long and nasty storm has created a number of opportunities to invest in sectors of the market which either are cyclical and clearly rounding the far side of their cycle, or which hold strong promise for long term growth and are unusually inexpensive to buy right now.

  A handful of positive earnings reports could be one of those events which signal a shift in the weather. We are watching events unfold, looking for signs, and sharpening our tools. We have talked with many of you over the last few weeks, and encourage you to give us a call if you are feeling uncomfortable. These are difficult times to go through, even when we know they are bound to blow over eventually, and are necessary to create longer term opportunities. Meantime, we are rapidly approaching the midpoint of winter and the days are getting longer; how could brighter days not be ahead?

  On a less sunny note, the tax filing deadline is fast approaching. You should be receiving 1099s soon. Remember that if you want us to share information with your tax professional, we need your written permission, which can be done in advance with a standing instruction. Many of our clients have already done this. The letter of authorization remains in effect until you tell us to cancel it. Since instances in which your tax preparer needs a statement or tax document from us to complete your return tend to come suddenly and near the deadline, having a standing instruction on file can give you peace of mind.

  We look forward to talking with you soon, and wish you an increasingly warmer and brighter finish to the winter.



The Galarneau Group Team

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