Q2 2011 Newsletter

First things first – It seems the politicians in Washington want to see who will flinch first in the debate over increasing the debt ceiling.  While it is frustrating to see them play this “five minutes until midnight” game, the likelihood of them passing something, either a short-term or a more broad-based plan, is fairly high.  The ramifications of not passing anything could be substantial and most lawmakers know this.  In the end, while I believe this will be resolved, the longer-term impact of borrowing to meet entitlement programs is something that will eventually need to be addressed.

The second quarter was a see-saw ride in the economy and the market.  We saw a slowdown in the global economy caused by three main factors:  1. The Japanese earthquake and tsunami which caused substantial disruptions.  2. The military action in Libya which led to higher oil prices because of a loss oil production.  3.  Unsustainable production growth in 2010 and early 2011.

While these factors were impactful, they should also be only temporary.  In Japan, we are already seeing remarkable signs of recovery (i.e., Japanese Industrial Production rising 5.7% last month).  Also, production growth will start to pick up again as we work through the surplus.  In addition, oil prices have begun to stabilize from a month ago and we expect the savings to carry through to income growth for now.

We also saw Greece come around for another economic handout.  It appears the European taxpayer will once again get to foot the bill.  I highly doubt that the current measures taken will be the cure for what ails them.  Without the ability to devalue a Greek currency, Greece cannot get out of its troubles by austerity measures alone.  We will probably be revisiting this again in the future, along with Italy as well, and the next time around could be very distressing for the European community.

While there are headwinds to this economy we believe they are not strong enough to keep the global economy from expanding.  Corporate profit levels rising at a pace not seen in 40 years and the temporary nature of the economic issues stated above contribute to this belief.  Economic numbers should start to improve again in the second half of the year causing a rebound in economic expansion into 2012, although our enthusiasm is currently dampened in the U.S. some by the weak labor market.

We would like to see the jobs numbers pick back up and better economic numbers for a more robust expansion.  The other issues that could impact the growth would be fallout from the government debt wrangling and a potential rebound in oil prices given faster economic growth in developing and emerging market countries.

If you would like to talk in further detail about something please give us a call.  We appreciate your trust.

Best Regards,
Marc Henn CFP ®, President