In this latest installment of our quarterly report, my colleagues and I review the turbulent third quarter of 2011, offer our outlook for the economy and market, and discuss three of the securities we are currently buying: Novartis AG (NVS), Berkshire Hathaway (BRK.B), and BioMed Realty Trust Series A Preferred Shares (BMRPRA).
Click here to go to the full report on our website. Following are a few highlights:
- The S&P 500 index fell hard in the third quarter and flirted with official bear market territory. Foreign markets fared even worse. The primary catalysts for the drop were sovereign debt concerns in Europe, slowing economic growth worldwide, and political stalemates in the United States.
- The European Central Bank, IMF, US Federal Reserve, and others are all working hard on a solution to the EU’s sovereign debt problems and have made some significant progress recently. We think that an orderly Greek debt restructuring and stabilization of European banks is the best solution, and the sooner the better.
- US economic indicators were weak in August and September but have been improving recently. We expect the US economy to continue along the path of slow, steady growth.
- Overall, we think the global economy and markets are in much better shape now than in 2008, and we do not expect a return to the depths of the financial crisis that brought on the “Great Recession.” However, volatility is likely to remain high, testing the patience of investors.
- We continue to favor shares of high quality, well capitalized, multinational companies that pay dividends and trade at significant discounts to intrinsic value.
- We also prefer stocks over bonds. The 6% gap between the earnings yield of the S&P 500 (8%) and the yield on the 10-year Treasury note (2%) is one of the widest yield differentials in history, a bullish signal for stocks.
As always, feel free to contact us if you have any questions or comments. For more information, visit our website.
Jordan Smyth and the Edgemoor Investment Advisors Team
