After more tough days on the markets last week and early this week, client anxiety is reaching new heights ... driven by a combination of incredible volatility and what feels like an incessant stream of bad news, with a strong assist from frenetic television commentators and newspaper headlines talking about "market massacres", "routs" and "bloodbaths".

As you talk to clients this week, advisors need to be prepared to respond to five areas of concern:

1. "We're going into a deep recession"

Given the growing consensus on this subject, it's hard to argue that the economy is entering a rough patch.

BUT WE'VE BEEN HERE BEFORE.

Depending on how you measure them, we've gone through ten recessions since the Second World War and markets have emerged from each one to move to higher levels. And some of those recessions, such as the one in the early 80s, have been just as severe as anything currently forecast.

2. "Today's problems are overwhelming and insurmountable"

We most certainly are facing daunting challenges.

BUT WE'VE BEEN HERE BEFORE.

As one example, my October 14 post "What to say when you've said it all" refers to an article from December of 1990. In December of 1990, the markets were down 30% in six months and Citicorp had been cut in half, Canada and the U.S. were in recessions, real estate was off 25%, the U.S. was in a full blown banking crisis due to the savings and loan fiasco and Iraq had occupied Kuwait, with no clear indication of how the West would respond.

We're programmed to suppress painful memories of the past - as a consequence, on each occasion we hit a difficult period such as this one, it always feels much worse than what we've encountered before.

3. "With all the bad economic news still to come, this is not the time to be in stocks"

While the past is no guarantee of the future, it's the best guide we have. It's important for clients to understand that the markets already reflect all the bad news we know about - and that on past experience, recession induced bear markets such as this one see stock prices start moving up well before the economy does.

This was one of the points Warren Buffett made in his New York Times piece and is also outlined in the market commentaries from Michael Nairne and Sandy McIntyre that were posted to the Client Commentaries section last week.

As for the market gurus who seem to dominate the media these days, the only way to counter their influence is with concrete facts and evidence. One example is work done by CXO Advisory Group in Massachusetts. They tracked "measurable forecasts" by 50 prominent market forecasters - their batting average was 48%. And for your clients who follow Jim Cramer? Big Jim came in at 46%.

For clients who still look to media personalities for guidance on the market, you may want to refer to them to an article from this past Monday's New York Times, describing the perverse incentives to make outlandish forecasts - if the forecasters are right, they get to dine on that forecast for years; if they're wrong, they shrug their shoulders and no one remembers.

BUSINESS | October 27, 2008
Forecasters Race to Call the Bottom to the Market
By MICHAEL M. GRYNBAUM
Just as financial analysts competed for attention on the way up, the pundit class seems compelled to out-gloom the next guy.

4. "We could go into a depression"

Several advisors have told me some clients are starting to ask about the risk of going into a depression along the lines of the 30's. It's essential that advisors help educate clients about what today's central bankers and political leaders learned from the terrible mistakes on fiscal, monetary and trade policy that turned what many economists believe should have been a normal recession into the most prolonged period of economic difficulty of the 20^th century - and why the likelihood of this recurring is so remote as a result.

One useful perspective on how governments may work through today's situation appeared in Monday's post, from the current issue of Fortune Magazine:

Bernanke & Co. have plenty of options left - Oct. 13, 2008*

5. "I want to stick to safe investments"

At times like these when we're overwhelmed with pessimism and downbeat news, it's understandable that some clients (and some advisors!!!!) would find "safe" investment appealing.

Every decision clients make entails a mix of gain and pain. The difficulty these days is the timing of when the gain and pain occur. Stay on the sidelines and the gain in terms of peace of mind is immediate, the pain down the road. Participate in the markets, on the other hand and the pain of volatility and uncertainty is immediate and the gain down the road.

Given this reality, it's essential to keep clients focused on the fundamentals - and sometimes the old advice is the best advice.

Reminding clients of the return they need to achieve their long term goals, of the superior performance of well chosen stocks over time and of how attractively valued stocks appear compared to historical levels may be ground we've covered before - but just because we've had these conversations in the past doesn't mean we don't need to have them again.

The key to addressing tough questions is being prepared for them. When clients don't respond to your advice, dig deeper for the reason - and be ready to address the concerns that emerge.