In what does America have confidence right now? The stock market? Congress? The Judicial branch? The Executive branch? Corporate profits? The Federal Reserve System ?
Everyone of these has a massive impact on our economic system. For example, recall the stock market sell off in May. Our market was down just under 6% within 48 hours when Chairman Bernanke announced that things were looking up and they provided guidance on when they would begin to close down their asset purchase programs and let interest rates rise. He essentially undid his guidance. Never mind.
Instead, they are more cautious. Their NEW guidance arrived last week indicating they have lowered their growth forecast by about 12% for 2013 and anywhere in a range of 3%-11% in 2014. Providing guidance has consequences. The more important lesson of this is that while there is little question we are in an economic recovery is not without larger than average bumps in the road. All recoveries are characterized as “climbing a wall of worry”. This one, however, is exceptional.
The Fed has helped MAKE the present economy what it is by artificially lowering interest rates. This has helped us ease through our current credit depression. The Fed is feeling its way through it. There are varying opinions among Fed governors on how to proceed. What once seemed to be a collective , unified body now openly discusses future uncertainty. Our country has only been through a couple of these in its history, and they did not turn out well. The Fed really wants this to turn out well. It is using all of the tools at its disposal. They have had success. This one has been far easier, but at a price. The price has been credit uncertainty for our overall system. The Fed offered up its good name in exchange for money it didn't have to purchase government bonds. It likely paid prices higher than would have been paid in the open market. As a result, its balance sheet has now expanded by about $3.5 trillion. This is not a small sum for the Fed. Eventually, they will need to begin selling these assets to recoup their money and pay down their very real debt. Rational market players are apprehensive about to whom these will be sold and at what price. When prices decline, yields go up. Hence, interest rates rise. This can be counterproductive to a recovery. It can impact lives. There is much at stake here.
As a society, we need to act as if we understand this. I fear much of the country does not. Part of the population wants to spend and run up debt like it always has. Part of the country wants to live within a budget that will cause hardship. All of the country wants the problem to go away so it can get on with life.
You and I must make smart choices. We have four primary choices when we invest: stocks, bonds, cash, alternative investments. Next week will go through what makes sense for now and why.
Please feel free to contact us at 952-230-1340.
Chris
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Government bonds and Treasury bonds and bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Stock investing involves risk including loss of principal.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The LPL Financial registered representatives associated with
this page may only discuss and/or transact business with residents of the following states: MN, TX, IA, WI, VA, NM, CO, AZ.
Government bonds and Treasury bonds and bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
Stock investing involves risk including loss of principal.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The LPL Financial registered representatives associated with
this page may only discuss and/or transact business with residents of the following states: MN, TX, IA, WI, VA, NM, CO, AZ.
