Solid, Long-Term Stategies

Dear friends,

This is the first issue of a quarterly newsletter for Peachtree Investment Partners, LLC™. I founded Peachtree Investment Partners, LLC™ on three main principals: I want to work with families who have investible assets of $250,000 or more, I want to invest predominately in dividend-paying stocks, and I want to give my clients full transparency through an open door communications policy.

I officially started around July 1, 2007, and the market, as measured by the Dow Jones Industrial Average, topped 14,000 on July 19. But from June 30, 2007 through February 14, 2008, the market fell 6.27% -- how's that for a Happy Valentine's Day! I think the extreme market volatility that we have seen in recent months -- and truly, in recent years -- just reinforces the message that a good investment strategy is built on solid, long-term basics rather than knee-jerk reaction to short-term news.

The problem, of course, is that news is all around us. We can get up-to-the-minute stock prices on our desktop computers, our Blackberries and even, increasingly, on our cell phones. When we walk through the airport, turn on the radio in our car or read the morning paper, we cannot escape stories about the economy and the market, and the prediction that we are going into -- or are already in -- a recession.

What has happened? The most significant problem is the collapse of the subprime mortgage market. Too many people got mortgages that stretched them beyond their ability to pay, especially once the low introductory rates expired. Foreclosures spiked, people were forced to sell, and homes flooded the market at the same time that mortgage lenders tightened up on credit standards, so the housing boom that had helped to propel the economy for years came to a screeching halt.

But the problems extend beyond the housing market. The big banks are feeling the pinch, and they are starting to tighten credit for companies in every industry, and for consumers as well. Consumers, who have been the engine driving the U.S. economy for years, are tapped out. They have no savings, their credit is drying up, and they have less equity as housing prices drop. So they are buying less, which means that companies are selling less, and the whole economy is slowing down.

This is the first time an economic slowdown has been caused by a contraction in credit. Usually we get an inventory build and then layoffs that lead to a slowdown. The $64,000 question is whether the banks and financial institutions can recapitalize and the Federal Reserve can be successful in injecting liquidity where it is needed.

There are other factors, of course. One interesting thing to note is that the Deutsche Bank's measure of implied volatility in the market has been on the increase ever since the "uptick rule" was dropped in early July. Previously, if investors shorted a stock, they had to wait until it was on an uptick to buy it again. That is no longer true, which means that the hedge funds are having a greater impact on market movement.

So are we in a recession? There are very specific measures used to identify a recession, and those measures have not yet been met. But regardless of what you call it, these are challenging economic times. However, I do see some signs of hope:

Unemployment remains low. As long as people have jobs, they are making money that they are putting back into the economy.

Most companies have cut expenses and improved productivity over the last several years, so they have good cash reserves and strong management.

Interest rates are low. It is true that banks and other lenders are tightening credit requirements, creating an adjustment period in which poor credit risks are weeded out. But for companies and individuals who are not poor credit risks, money is available and low-cost.

The Federal Reserve Bank is ready to do whatever it can to jump-start the economy. And the Republicans in Congress and in the White House are determined to make things better. They certainly don't want to head into a presidential election in November with the country in recession.

Even if we are in recession, we will come out of it. Recession is part of the natural economic cycle, and it serves to correct various excesses, so that the economy often comes out of a recession stronger than it entered it.

Still, this is scary stuff. I know, because I invest right alongside you. But we have to remember that the short-term movement of the market is not really important to us. What the market does in the next five minutes -- or the next two weeks -- does not really matter unless you need to liquidate your investments in the next five minutes, or the next two weeks.

So don't worry about the short-term market. Instead, follow the basic rules of investing that have helped investors weather previous tough times. Diversify your assets, so that you protect yourself as much as possible against problems in one part of the market. Match your asset allocation to your timeline, so that the money you need soon is in investments that are less susceptible to market volatility. Remember that investing during a volatile or down market is still about buying good growth companies at reasonable values and then letting the management of those companies do their thing Then, try not to check the markets too often.

I believe the market is working itself back to more normalized valuation, and the economy in general is correcting itself after the excesses of the subprime lending debacle. I think we are in the sixth or seventh inning of this financial fiasco. Let's just hope we don't go into extra innings.

Garry K Schaefer
Atlanta, Georgia
October 7, 2009

Peachtree Investment Quarterly may offer general financial, insurance, tax and business ideas. However, due to the ever-changing tax laws as well as the complexity of the financial industry, you should seek professional advice before implementing any of the ideas contained in this newsletter. Peachtree Investment Partners, LLC(TM), and Osmosis Digital Marketing, Inc. assume no liability whatsoever in connection with the use of this newsletter.