Market Update

Because of all the recent headlines, I wanted to share some mid-quarter observations which may be stirring up unwanted emotions. First of all, the US and global economic outlook has deteriorated since my last letter, and I believe there’s a lot of bad news built into stock markets. This isn’t the first time investors have experienced bad times and won’t be the last, but it seems as though since summer it has been overwhelming. There are many reasons why I’m not throwing in the towel so let me name a few: stocks are attractively priced, corporate balance sheets are strong  and many companies are paying healthy dividends which means they should weather this storm, so I remain optimistic that things will get better and hopefully soon.

Let’s start off with the foremost and ongoing problem affecting markets around the world and that is Europe. Established in 1993, the European Union (Eurozone) is made up of Member States that consolidated over a dozen national currencies into one single currency, the Euro, and these countries were supposed to be united and follow the same game plan, which most of them didn’t. In addition to Greece defaulting, we now have to worry about Italy and Spain following close behind. How much longer will fiscally sound countries like Germany and France be able to rescue others who won’t make the changes so desperately needed is unknown, but their citizen’s temper is running high and they are getting tired of bailing out countries that aren’t willing to help themselves. I am reading Boomerang by Michael Lewis which is a short and timely book for anyone interested in getting a different perspective from a good storyteller.

As for our country, we witnessed on Monday the inability of Congress and its “supercommittee” to come up with a deficit-reduction plan so once again, they just can’t or won’t do the job they were elected to do. It was bad enough when Congress let time run out in August without any type of a reduction or process and S&P downgraded our credit rating from AAA to AA+, now we have to worry that it might happen again.  So with the failure of the supercommittee to reach an agreement, there will be $1.2 trillion in automatic cuts that go into effect in 2013. In NYS alone, it is projected to cost $5 billion in federal funding over the next decade. Picture this scenario in any household; if one spends more money than they earned, there are two choices, either cut spending or get a second job. The same goes for our country, we are spending more money than we are taking in and we are broke. Congress needs to cut spending and/or increase revenue. Like Greece, the US people may need to accept changes in what we’ve been accustomed to for so long because we can’t go on operating with a deficit like we’ve been doing. America needs leadership now more than ever to help bridge the great divide that we have and get people back to work so the economy gets rolling again. We are all in this together.

Speaking about the economy, the US is adding jobs each month, ever be it so slowly, which is critical for the economy to recover. The consumer who makes up 2/3^rd of the Gross Domestic Product (GDP) won’t start spending until they feel more confident. Today we had a revision which showed the economy grew in the third quarter by only 2% rather than the previously reported 2.5%.  Economists are hopeful that even though we slowed in the third quarter, we will make up for it in the fourth and let’s hope they are right.

Enjoy your family and friends this holiday season and stay healthy !!!