message to clients on 8/5/11

Good morning.  The US stock markets fell more than 4% yesterday and have now reached the point of "correction", which is 10% down from recent highs.  A "bear market" is 20% down from recent highs.

Since 1962, there have been 25 corrections and nine of them have turned into bear markets.  That's not much different than a coin flip for those who are wondering if we should ride this out or seek shelter.

So, I am providing two items for you to read and consider.  One is attached, and the other is linked here:  http://latimesblogs.latimes.com/money_co/2011/08/stock-market-correction-bear-market-wall-street-birinyi.html

The linked article offers some perspective on market history, while the attached guest-blog by PIMCO's Mohamed El-Erian offers probably the best overview I've seen on the conditions that are fueling this market volatility.

MY ADVICE:  if you think the USA will go back into recession and a bear market will come with it, we should exit or put protections on our equity (stocks) positions; if you think this correction has more to do with the market being overbought, perhaps artificially-inflated by "quantitative easing" programs from the government, then it is okay to keep the equities allocation.

NOTE:  thanks to the nature of the Flex portfolios, most of my clients are holding much more net cash than would be normal; while we are "fully invested", the funds we're using are not, so the professional portfolio managers working for us have more "dry powder" than usual, either for safety if things keep going badly or for opportunities if the correction ends and markets stabilize or move up again.

As always, please let me know if you have any questions.  If you want to make a portfolio move, please call me or e-mail me.  If you do not hear from me within a few minutes, please don't hesitate to call Schwab's Signature Services Alliance team at (800) 515-2157.

Thank you.

--Gary


Garo Linck Partoyan
Financial Advisor
Potomac Wealth Strategies, LLC
(703) 746-8195
Garo.Partoyan@PotomacWealthStrategies.com
www.PotomacWealthStrategies.com