The financial markets continue to defy gravity! Most professional money managers that we are in contact with have been expecting some type of correction (downturn) for many months. From the day that Ben Bernanke saw "green shoots", the stock markets around the world have been in celebration mode.

September has historically been a losing month. For over 100 years, the month of September has sent chills down the spine of every investor. This time things were ok. Not only were they ok, the markets were actually not as volatile as usual.

The problem for Wall Street now is what next? Where is the continuing growth coming from? How do they make money now that they have slashed costs to the bone? Will Americans begin spending again? These are troubling questions for a world that has been completely dependent on the U.S. consumer for too many years. Export countries like China, Japan and Germany (there are many others) are in a dilemma as to where they can find new sources of revenue.

Despite economists and government officials claiming we are out of the recession, there are still problems. Unemployment is not getting better and the housing market is being threatened with another wave of foreclosures starting next year. The next few quarters will be critical in what the stock market may do. If earnings are decent and are the result of new markets and the revival of growth then we could see the markets do just fine. On the other hand, if the earnings of the past two quarters have been the result of a Texas chainsaw style cost cutting rampage then we are in for further weakness.

Our concern is the trend has been eerily similar to the four years following the stock market crash of 1929. This includes the recent rally which was almost identical to 1930. Back in 1930-1932 there were constant reports of an improving economy. The Fed is following some of the same actions and issuing the same public relations reports. The bottom line is we really do not know the future. We do know, however, that the markets have gotten way ahead of themselves if growth doesn't pick up. In other words, the price of stocks indicates the expectation that earnings will continue to pick up and in some cases, dramatically. This is normal. What Wall Street does is price the stocks based on a formula of future growth. If that expectation is met, then no problem. Otherwise we could see further drops. We will just have to wait and see. Earnings season kicks off Wednesday when Alcoa releases its third quarter results. The next week should tell us a lot of what we might expect through the rest of this year as we digest corporate earnings.

We got bruised a bit during the late spring and early summer. Since then we have been climbing the past two months and both August and September were positive for all strategies. All four of the portfolios have been performing at a different pace after being very close for all of 2008. Part of this is because some of the portfolios are more heavily weighted in bonds which have done well the last two months. Naturally, last year those portfolios did not do as well. Much like changing lanes on a freeway, strategies move in and out of first place and occasionally lead or lag more than other times.