Kanawha Capital Management

Autumn has arrived, and many creatures have been making dutiful preparations to survive the winter months. But not all are so inclined, particularly our political leaders. Indeed, along with crisper air temperatures and more vibrant colors, it would just not feel like fall without the annual Washington squabbles to fund the federal government and increase its borrowing authority.

Financial markets have been choppy this year, as investors wrestle with many of the same issues they faced a year ago. Once again, the specter of a double dip here in the US has collided with renewed fears of a European financial crisis. It is a testament to the severity of the last recession that, two years after its official end, the recovery remains grudging and uneven. This is hardly surprising. History tells us that downturns prompted by financial crises linger much longer than garden-variety recessions. Why? Primarily because the crisis severely interrupts and alters the flow of credit.

In early March, the bull market marked its second anniversary. Stocks have rebounded from their lows of 2009, but not without some big gyrations along the way. Last spring, the rebound was briefly yet violently interrupted by fears of an economic reversal. This year we have also experienced some volatility, although the catalysts are different. The pullback in 2010 stemmed from concerns about job growth and the European debt crisis. Those fears have largely been supplanted by others. Today, the speed bump relates to the unrest in North Africa and the Middle East and the surge in oil prices.