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.