A Month in Review: August 2010
By Allen Yee
In our ongoing effort to keep our clients and community connected and informed, we have continued to make changes to the way we stream information to you. If you have reached this article electronically (you most likely did), you will have noticed our fancy e-Newsletter. This is a more efficient way to provide you with even more information than our printed Financial Pulse Newsletter. This information is also much easier to share with friends and family. Simply forward the email containing the e-Newsletter and you can connect others to our wealth of financial knowledge.
Included in every Monthly e-Newsletter, will be our article A Month in Review. This will summarize important dates on the Guidant Planning calendar, as well as the month’s economic events.
On August 3rd we held our Quarterly Client Workshop where we provide our clients with information about the current climate of our economy and investment markets. The primary resources used for this workshop were derived from J.P. Morgan’s “Guide to the Markets” by Dr. David Kelly and HS Dent Forecast by Harry Dent.
In summary, these two experts’ differing beliefs can be described by the old sentiment of whether the glass is half empty, or half full.
Dr. Kelly’s current thinking is the economy is slow (slower than anticipated), but will avert a double-dip recession. He believes a recession is a bust following a boom and since all the cyclical indicators are extremely low and slowly rising it’s unlikely we will see a bust at this point. Further, the operation earnings have been healthy for Q1 and Q2 for this year, and assuming the economy flat-lines on these numbers the economy will have positive growth. His position is currently neutral with a slight bullish bias.
If Dr. Kelly’s glass can be described as half full, one might be inclined to say Harry Dent’s is half empty. Dent has a very negative current outlook that suggests August should be a key month of the potential beginning of a deeper correction. His thoughts are formulated on his works in the 4-Year Cycle and demographics. His rationale is based on dwindling spending and consumption that will cause severe reactions in the economy and stock market. Dent foresees major hurdles in the recovery process – high unemployment, lack of business growth, falling housing and deflation. He is pessimistic about consumers bouncing back, and with personal consumption making up over 70% of GDP, he contends the near future may look grim. Further, businesses are continuing to hold cash and trim expenses where they can rather than engaging in expansion. The next few months will be critical for seeing how much of a correction we get. The next 4-6 months could be the darkest as we move toward another economic leg down.
After reading and synthesizing work by Kelly, Dent, Prechter, Roubini, Mauldin and Ned Davis, I have decided to recommend a defensive posture in managing portfolios. I believe there is more to lose from being caught in an aggressive stance during a downturn in this current stock market, than missing out on what little and unlikely upside we could see. I am constantly reevaluating this posture but believe the short to intermediate top in the market was put in place during April of this year. However, should the stock market rise precipitously over the coming weeks we may change our stance. For now the best course of direction is to protect and conserve.
On August 14th we celebrated our 2nd Annual Shredding Party. This year we served breakfast and we were treated with great weather. We had over 80 people visit and shredded over 20 waste containers of confidential information. The purpose of this event is to encourage mindful disposal of confidential documents. Many clients destroyed tax returns, bank and investment statements, legal documents and CDs and DVDs safely. We also provided a resource kit to provide greater knowledge and tips on how to reduce the chances of identity theft or fraud. If you would like more information please contact Brandon S.
August Tidbits
Consumer confidence continues to lag. The recovery is taking it’s time – too much time for many Americans. According to the University of Michigan Consumer Sentiment Survey the index dropped to 67.8 (Final July figure) from 76 (Final June figure). That was the lowest reading since November 2009. (source: thestreet.com – http://www.freep.com/article/20100818/BUSINESS0101/100818044/)
A total of 527,906 homes were seized by lenders from delinquent homeowners in the first 6 month of 2010, an average of 2,917 per day. (source: RealtyTrac)
Unemployment remains at 9.5%. The US economy added 71,000 jobs in July but lost 202,000 others (143,000 of those positions were short-term Census Bureau hires). The private sector added 630,000 jobs during the first seven months of 2010; that 90,000 per month is far short of the 150,000 per month that would be commensurate with population growth. The bright spot: economist had presumed that jobless rate would edge up to 9.6% in July. The highest unemployment rate in the US since 1947 was 10.8% in November and December 1982. The lowest employment since 1947 was 2.5% in May and June 1953. (source: Department of Labor)
The population of the United States reached 310 million on 8/15/10, less than 4 years after a population of 300 million was achieved on 10/17/2006. That increase of 10 million new citizens since 2006 is equal to a net gain of 1 new American every 12 seconds. Over the course of 1 year, we add 2.6 million citizens, a total equal to the population of Nevada. (source: Census Bureau)
Through the first 7 months of this year 2010, 108 federally insured banks have failed at a total cost of $18.9 billion to the FDIC’s Deposit Insurance Fund. 140 federally insured banks failed in 2009 at a total cost of $30 billion to the deposit insurance fund. Florida (with 20 bank failures) leads all states in 2010 after finishing 4th in the country in 2009. (source: Federal Deposit Insurance Corporation)
General Motors has announced it will reenter the stock market. On August 18th, it filed an IPO registration with the Securities and Exchange Commission. One of the largest IPOs in history may come as soon as October, including common and preferred shares. This signals the end of “Government Motors” the Treasury Department will now have the opportunity to reduce its 61% stake in the company. (source: freep.com – http://www.freep.com/article/20100818/BUSINESS0101/100818044/)
