Did anyone remember to call Grandma?

In mid-June I was having coffee with a dear friend who considers me his financial coach. He was enjoying the fact that he convinced his grandmother to sell all of his stocks and mutual funds and go all the way to 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 collapsing all around us. The Democrats are going to win it all, the House of Representatives, 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 suffer 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 that I told him that things are not as bad as they seem and that we have seen this movie before? Well, I did, but I don’t think he was listening, and I have to admit that after our meeting I began to wonder if I was missing something.

Wow, June 2006, not a fun time, folks. Oil is going for $100, a gallon of gasoline is $3, gold is going for $1,000 an ounce, and interest rates are clearly going up to at least 10%. OurPresident is not very popular either at home or abroad. Everybody out…let’s 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 lick and keeps going. The second calendar quarter corporate earnings report came out and it was pretty good. There are no big corporate blowups. Ok, not bad, so what? Q3 guidance for corporate earnings looked in good shape, no one was screaming wolf…this stock market looks a bit cheap…maybe put a toe or two in the water.

Wait…oil is down to $60 a barrel, a gallon of gasoline is now around $2 at the pump, up from $3 just 3 months ago…inflation seems under control, GDP growth is going well… The Federal Reserve has met twice since June and with no rate hike, in fact there is now talk of lowering those rates. With President Bush’s approval rating back up to the mid 40%, the November election may not be a piece of cake for either party. Consumer confidence and spending appear to be rising. Retailers more optimistic about the expectations of 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 pick itself up and keep going. The stock market is strong with the Dow Jones in new record territory, and professional money managers are now casting 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 her grandmother and bring her back to the market.