January 2013

Keep Your Eye on the Ball

Great hitters in baseball have an ability to block out everything except the ball coming out of the pitcher's hand. They don't hear the crowd, they don't see the fielders, they don't focus on anything but the ball. That's why they are successful.

Investors in this current environment also should focus on what is important, because there is a lot of chatter that can distract you from what's really going on. If you watch the news, you are sure that our economy is constantly hovering on the brink of disaster. We are going over the fiscal cliff! We are going to default! We are headed for another recession!

Investors, and the markets they fuel, are mesmerized by the news. Consider how the markets were jittery in the weeks leading up to the fiscal cliff negotiations, and how they surged after a deal was reached.

It's important to remember that one of the main goals of the news media, especially TV news, is to create viewership in order to sell advertising. And nothing creates viewership better than making people worry so that they feel they have to keep a constant eye on what is going on.

I certainly do not mean to understate the real challenges we face as a nation, and as a world, in getting our financial house in order. Europe's economy remains shaky. In the United States, we are still suffering elevated unemployment, companies are still scrambling to grow earnings, and Washington is still gridlocked.

But it is important to keep your eye on the ball, to look at what is actually happening in the world. If you do that, the picture grows considerably brighter.

China, which is the world's second-largest economy, is showing signs of rebounding: Fourth-quarter indicators were improved after weak second and third quarters. A stronger China is very positive for the global economy.

There also are positive signs coming from the battered Eurozone. The prime minister of Greece said recently that he expects his country to begin to show signs of recovery in 2013. Germany's ZEW index of investor economic sentiment has surged to its highest level since May 2010, and the U.K.'s FTSE index is at its highest point since May 2008.

In the United States, the world's largest economy, signs continue to show that the economic recovery is accelerating. The markets have been on a bull run since March 2009, although obviously part of the increases came after a period of dizzying drops. Most of the major U.S. markets set five-year highs in 2012.

And most analysts predict continued positive results in 2013, as the economy continues to recover and inflation remains low. For example, most companies continue to post earnings that beat expectations. In addition, S&P 500 companies retired 8 billion shares through buybacks in the 18 months ending in October 2012, which could give an additional boost to earnings per share.

Retail sales increased more than expected in December, and global auto sales are gaining momentum. Perhaps most importantly, housing starts continued to be strong, spurred by a continued drop in inventory and greater credit availability. According to Bank of America/Merrill Lynch, "The gain in housing also underpins the broader economic recovery and helps to offset some of the pain from fiscal tightening, setting the stage for a real recovery over time."

When interviewed by The Wall Street Journal about the future of the economy, departing Treasury Secretary Timothy Geithner said, "I think people are too dark about the economy now, in part because of the shadow of pessimism, skepticism about our political system today. But -- and for the moment it's very hard to do -- if you look past the political dysfunction, the economy looks encouragingly resilient. We've got much more diversity of strengths, from energy to high-tech to manufacturing, than is true for any major economy."

At Peachtree Investment Partners, we understand the uncertainties facing investors -- in these or any other times. As a result, we follow a consistent philosophy of investing mainly in large, established U.S. companies that have established a pattern of growth. We also prefer stocks that pay dividends, because we think that dividends can help to ease some market volatility and contribute significantly to overall returns. We believe this approach offers the best long-term opportunity for investing success, and it helps us to avoid knee-jerk reactions to what the talking heads are saying.

So turn off your TV, or at least tune out much of the chatter. Just keep your eye on the ball.

Garry K. Schaefer
Atlanta, Georgia
January 23, 2013

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