August was the fourth consecutive down month for the stock market. It looks like September has a number of events that could significantly impact the market. We believe the next few weeks in the market could be volatile because of these events.
September 7 – Germany’s high court is expected to rule on whether the 440 billion Euro European rescue fund created by the European Central Bank breaches the European Union’s treaty which states that no member nation shall bail out another member nation and on whether the rescue fund undermines German fiscal sovereignty. This ruling will have a major impact on stock markets around the world.

September 11 – Marks the 10th anniversary of the terrorist attacks on our nation. Evidence gathered from the raid on Bin Laden’s compound earlier this year indicates that Bin Laden was very interested in attacking America on this day. If there is an attack, it would certainly jostle the markets.

September 29 – Assuming the European rescue fund is upheld by Germany’s high court, Germany’s lower parliamentary branch – the Bundestag – will vote on expanding the European rescue fund as well as expanding its own powers. There is significant political opposition with respect to this vote growing both in Chancellor Merkel’s own party and within the people of Germany. If Merkel has to rely on opposing party members to get the bill passed, it will weaken her leadership. Germany is currently the glue holding the European Union together – any weakness by its government will bring more uncertainty to the European Union and, likely, the world financial markets.

The outcome of these events, of course, is out of our control. However, having some “powder dry” to take advantage of any market dislocation is appropriate. Those of you who were with us in 1998 saw us raise our international equity exposure significantly, up to more than 40% exposure, after the Asian markets collapsed. Our worst performing international fund was up 55% in 1999 while our best international fund was up over 100%. We believe patience will be rewarded in the months ahead.

We hope you and your family have an enjoyable Labor Day weekend!

Sincerely,

Your THOR Team