ATLANTA, GA – October 3, 2008 – Although the $700 billion bail-out legislation signed into law earlier this afternoon by President Bush should help set an orderly process for disposing mortgage assets, it is at best a first step to allow for stability and recovery of the nation’s financial markets says Atlanta-based CornerCap Investment Counsel’s chief investment officer, J. Cannon Carr, Jr.
Writing for the firm’s quarterly newsletter, Carr says that even with the government’s plan, credit markets are likely to remain tight until home prices and debt levels fall to rational levels.
That will take time, Carr says. Only the market can stabilize home prices. Moreover, with extreme risk aversion among lenders, Carr still anticipates a difficult year ahead for the economy.
Despite the uncertain market, this is not a time for broad selling, Carr notes. In fact, there are real opportunities available for the patient and disciplined investor.
The full text of Carr’s commentary is available online and may be downloaded at no cost from www.cornercap.com/library/Newsletters/n2008fall.pdf .
Carr points out that the nation has experienced 10 recessions since 1945. In all but the most recent recession (2001) stocks slid as the economy slowed, but began their assent before the recession ended.
Recognizing that it is impossible to call a market bottom, we believe the probabilities are in our favor and now is the time to take advantage of some increasingly attractive opportunities to make selective buys, Carr said.
His firm began increasing its exposure to consumer stocks earlier in the year, and now sees opportunities in Industrials and Basic Materials stocks, which are among the hardest hit on recession fears.
While there are still potential land mines out there, a healthy balance sheet and flexible cost structure are keys to helping determine which stocks can weather the storm, Carr said.
According to Carr the nation’s financial system cracked due to two issues: too much debt and falling housing prices. Once the housing process stabilizes, the financial system can more accurately price transactions, and more importantly, evaluate asset risk and debt obligations, Carr said.
What started as apparently isolated problems in subprime mortgages over a year ago has mounted to a crescendo of scary news about the health of the U.S. financial system and the global economy Carr writes.
Even if the government successfully plugs the holes in the nation’s financial dam, the pressure causing the fissures must still drop before the dam can truly hold, Carr says.
CornerCap is an independent investment counseling and management firm focused on providing quality investment decisions and the highest level of client service. The firm has been serving clients since 1989, providing investment management services to private clients, institutions, foundations, and endowments. CornerCap serves clients around the globe from its offices in Atlanta, Ga. and Charlotte, N.C. For more information call 404-870-0700 or visit www.cornercap.com .