Did anyone remember to call Grandma?

In the middle of June I was having coffee with a dear friend who considers me his financial advisor. He was enjoying the fact that he convinced Grandma to sell all of his stock and his stock mutual funds and go entirely into cash and bond funds.

I asked him why did he do that? “Come on, man, go ahead…oil is over $70 a barrel, gold is over $600 an ounce, and real estate is crashing all around us. The Democrats are going to win it all, the House, the Senate … they’re going to raise taxes, bail out Iraq. There’s no way the stock market can survive all of this. To top it off, Ben Bernacke, our new Fed chairman is hitting us with higher interest rates. to hell in a tote bag…I couldn’t let my grandma go through all this so I got her in cash.Now Georges as my financial investment coach why don’t you give me the same advice.

Would you believe I told him that things aren’t as bad as they seem and that we’ve seen this movie before? Well, I did, but I don’t think he was listening, and I must admit that after our meeting I began to wonder if I was missing something.

Wow, June 2006, not a fun time, folks. Oil goes to $100, a gallon of gas is $3, gold goes to $1000 per ounce and interest rates are clearly going up to at least 10%. OurPresident is not very popular at home or abroad. Everybody out… let’s post bail and cash in! CNBC has all the naysayers and pundits on “I Told You So” every hour.

So what happened? Just like any other scary period, the stock market takes its licking and keeps going. The second calendar quarter corporate earnings report came out and it was pretty good. There are no big corporate explosions. Okay, not bad, so what? The third quarter guidance for corporate earnings seemed to be in good shape, no one was crying wolf…this stock market looks a little cheap…maybe putting a toe or two in the water.

Wait a minute…oil is down to $60 a barrel, a gallon of gasoline is now around $2 at the pump, down from $3 just 3 months ago…inflation seems under control, GDP growth is doing well… The Federal Reserve has met twice since June and with no rate hike, in fact there is now talk of lowering those rates. President Bush’s approval rating is back up in the mid-40s, the November election may not be a cake walk for either side. Consumer confidence and spending appear to be on the rise. Retailers more optimistic about expectations for the third and fourth quarters. What’s going on here? We were crashing and burning 3 months ago?

What happened is the same thing that has happened these last 100 years. The American economy is built to grow. It will take hits from interest rates or international events… it will get up and keep going. The stock market is strong with the Dow Jones in new record territory, and professional money managers are now shedding optimism about the fourth quarter and 2007. The stock market for the year is up nearly double digits and corporate earnings look healthy. .

I hope my friend remembered to call his grandmother and bring her back to the market.