The last few weeks have been among the darkest we have suffered through this prolonged bear market.  The environment grows more to this bear’s liking every day.  But, as long-term investors trying to survive this lengthy storm, we must stay focused on what is real and try to ignore the emotional winds that threaten our better judgment.  As far as we know to date, only a handful of self-centered individuals from Enron, ImClone, Anderson, WorldCom, and others created this morass.  Others such as analysts, economists, Senators and Representatives, and the media continue to press its ill effects on the market.  In fact, those who seek political gain from this mess may make this fall’s congressional race the most expensive in history as the market loses billions while investors’ lose confidence in their leadership.

As a thermometer, the stock market notifies us of serious problems in our world.  It provides an up-to-the-moment measure of the sum of all investors’ views of the financial world’s present condition as well as its near-term future prospects.  But, the market is no more to blame for our woes than the thermometer is to blame for the fever.  The market has told us for some time that our illnesses go deeper than a hangover after the ‘party’ of the late nineties.  Indeed, we have discovered serious diseases in our world and our capitalistic institutions that require attention.

The economy is getting better, albeit very slowly and with some mixed signals.  Investors now choose to concentrate individual company announcements waiting for proof at the company level that things are getting better.  They are not yet willing to simply trust the government compilations alone.  Corporations must begin to show improvement individually. 

A handful of clients called or emailed this week to discuss the prospects for the market and what actions they should take given its current weakness.  I was as candid as possible with them and will be the same in my remarks today. 

It’s getting increasingly difficult to find the silver lining among these ugly, gray clouds.  Stocks have fallen for ten of the past twelve weeks.  The stock-price drubbings have taken their toll on the collective confidence of investors as well as this writer.  Each day brings news of tragedy in Israel and Palestine, or of escalation in the Kashmir region, or setbacks in the war on terror.  If the global news abates, there’s plenty of homespun grief to compensate; from political and bureaucratic finger-pointing over potential advance warning of 9/11, and an ever-growing list of blue-chip corporations admitting accounting transgressions, to company rating downgrades, and securities analysts stumbling over each other to get the bad news out first. 

In answer to the pleas of the citizens of Atlanta trying to save their city from destruction by fire, General Tecumseh Sherman wrote his infamous response “war is hell.”  As May draws to a close, it is war that worries equity markets.  Continued improvement of the economy has been insufficient to lift stock prices.  The declining dollar, Israeli-Palestinian tensions, and looming war between nuclear powers, India and Pakistan continue to suppress equity values.  It seems like that old malaise is back.

Investors spent the week coming to terms with the increasing likelihood of a slow economic recovery, mixed corporate news, softer retail sales, renewed terrorist threats, and general apathy.  The S&P was up two days and down two, not counting today.  It was down 1.3% for the week.  Our models were down only slightly though, due to the changes made over the last few weeks. 

Benjamin Graham, called the father of fundamental investing, said, “in the short run the market is a voting machine; in the long run, it is a weighing machine.”  A problem investors face today is that the ‘short run’ seems to be more like the long run.  Just how much longer the wrenching ups and downs will go, no one can say, but it is clear that the longer it goes, more people leave in disgust. 

“It was the best of times, its was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us . . .”  Charles Dickens – A Tale of Two Cities

The best of times seems like a distant memory in so many ways, particularly as we focus on all the bad news out there and ignore the good that peeks through occasionally.  There’s plenty of ‘darkness’ adding to our confusion, but there are hints of light too.  On Tuesday, Cisco’s Chairman John Chambers spoke of improving business.  His comments and his company’s results sent the markets soaring, as short-sellers covered their bets against optimism and buyers bet that the pessimism might be waning.  If only for a day, optimism was openly discussed and celebrated and the negative took a brief respite. 

My wife recently constructed a beautiful labyrinth in our garden.  Labyrinths have been around for thousands of years and are found in almost all religious traditions as well as cultures including Native American, Greek, Celtic and Mayan.  Like Stonehenge and the pyramids, they are magical geometric forms that define sacred space.  When one walks a labyrinth, he meanders back and forth, turning 180 degrees each time he enters a new circuit.  Changes in direction induce shifts in states of awareness.