While the stock market is behaving fearfully, we want to devote this issue to the thesis that the human capacity for innovation is an inexhaustible source of power that routinely topples seemingly intractable challenges. Our genius for betterment has flourished in the social arrangement known as democratic, free-market capitalism. Its promise of rewards for our efforts tends to subdue our baser instincts of fear and envy, and to stimulate the powerful creativity with which we are endowed.

While the stock market is behaving fearfully, we want to devote this issue to the thesis that the human capacity for innovation is an inexhaustible source of power that routinely topples seemingly intractable challenges. Our genius for betterment has flourished in the social arrangement known as democratic, free-market capitalism. Its promise of rewards for our efforts tends to subdue our baser instincts of fear and envy, and to stimulate the powerful creativity with which we are endowed.

PATIENCE is the most difficult of investment virtues to develop; hence it is the least practiced. Perhaps because patience is rare, it is also highly rewarding for those who persevere! At this writing, the Dow Jones Industrial Average is down a rather remarkable 488pts, a decline of -4.4% in 1 day. The index is testing the lows of this year, and is -17% from the highs of early May. The sudden decline is causing no small amount of angst among traders and especially among investors without a rational plan.

You can’t turn on a news channel or open a newspaper without being bombarded by scare mongering about the political posturing and economic prognostications concerning Congress’ self-imposed Federal Debt ceiling. Clients have been asking whether the situation is serious and how their portfolios are protected against the risks and uncertainties. So we thought you might appreciate an update from our Investment Team.

What is it about gold?

In the past 10 years, the price of one ounce of pure gold has risen from less than $300 to $1,500, far outpacing the return on stocks and bonds. And yet, to paraphrase the comedian Rodney Dangerfield, “It don’t get no respect” in most gatherings of professional investors. Why is that? Why is the yellow metal treasured in some quarters and disdained in others?

What is it about gold? In the past 10 years, the price of one ounce of pure gold has risen from less than $300 to $1,500, far outpacing the return on stocks and bonds. And yet, to paraphrase the comedian Rodney Dangerfield, “It don’t get no respect” in most gatherings of professional investors. Why is that? Why is the yellow metal treasured in some quarters and disdained in others?

Our young neighbor, Sam, was feeling a bit weary of his obligation to take his shelter puppy for a walk and feed him every day. One morning he announced that he was putting the little darling up for sale. “What do you suppose Barkie is worth”, his Dad asked. The 8-year old offered his sober judgment, “About $1,000.”

In this much‐loved passage from the Book of Ecclesiastes, King Solomon encourages patience in the conduct of our earthly affairs. He specifically recommends an unhurried attitude toward the accumulation of wealth.

The King’s 2400 year‐old reflections offer timeless wisdom and practical insights for our work of managing investments for families in this hurried and hectic 21st century. I am thinking especially of Solomon’s idea that there are rhythms in the affairs of men that cannot be hurried and ought not be ignored… that seasons come and go in turn, and that each is appropriate for different purposes. In this issue of the Blue Sheets we’ll reflect on the natural rhythms of the credit cycle. We’ll try to understand how this cycle influences our economic behavior and its implications for investment decisions. I can almost hear a whisper from across the centuries, “There is a time for borrowing… and a time to refrain from borrowing”.

J. Michael Martin, President and Chief Investment Officer of Financial Advantage discusses what he expects the market to look like in the next 10 years.

Our mission at Financial Advantage is to promote the prosperity and, thereby, the economic freedom of our clients and their families by thoughtfully investing their savings; to pursue opportunity wherever we find it, while diversifying the risks that attend even the most promising enterprises. As the door swings open to a fresh new decade of opportunity, and as we survey the exciting array of businesses in which private capital might be invested, we are conscious of three large-scale risks that have the potential to overwhelm ordinary investment considerations.