April 2008

Corporate earnings for the first quarter have been mixed and projections for coming quarters are being ratcheted downward. Still, balance sheets of many S&P 500 corporations are flush with cash and/or operate under manageable debt. These companies are in good position to weather an economic slowdown, unless too prolonged. The depth and duration of this economic pullback will depend on the future strength of the jobs market, which has been weakening of late, and to the extent to which other countries are similarly impacted from the credit crisis – the contagion factor. This being said, selected stocks will continue to perform well in spite of an economic downturn, albeit at slower rates of growth than during more prosperous times. In commenting on the current credit crisis, international investor George Soros offers his perspective… "The current financial crisis was precipitated by a bubble in the U.S. housing market. In some ways it resembles other crises that have occurred since the end of the second-world war at intervals ranging from four to ten years. However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.