Weekly Commentary 07-23-12 PAA by HC121005093035

VIEWS: 0 PAGES: 3

									                                                 The Monarch Report
                                                    July 23, 2012
The Markets
The man with his finger on the pulse says the U.S. economy faces two main risks. We have no
control over one of those risks and the other, well, we do have some control, but whether our
politicians will appropriately exercise that control is a big question.

Federal Reserve Chairman Ben Bernanke faced Congress last week and he delivered a rather
subdued outlook in his semi-annual monetary policy report. He said our economy faces two major
headwinds:

     1. The Euro-area fiscal and banking crisis and its potential spillover effects on our economy.
     2. The unsustainable path of the U.S. fiscal situation (e.g., the “fiscal cliff”).
     Source: Federal Reserve

The U.S. has little control over the euro-area situation so we’re at the mercy of European leaders
to make bold and tough decisions to get their houses in order. The second item, though, is clearly
within our control.

The so-called fiscal cliff, in which a series of tax hikes and spending cuts will take effect in 2013
if Congress takes no further action, could throw the economy back into a recession. The
Congressional Budget Office estimates if no policy changes are made, then our 2013 federal
budget deficit will decline by about $600 billion. On the surface, that sounds great. However, such
a huge shock to our system in a short period of time could be problematic.

So, will Congress agree to adjust the legislation for the benefit of the economy? We’ll see.

For his part, Bernanke said the Federal Reserve “is prepared to take further action as appropriate
to promote a stronger economic recovery and sustained improvement in labor market conditions in
a context of price stability.” It’s good to know that the Fed is ready to help if needed.

              Data as of 7/20/12                             1-Week          Y-T-D         1-Year       3-Year       5-Year         10-Year
  Standard & Poor's 500 (Domestic Stocks)                     0.4%           8.4%           2.8%        12.7%         -2.3%          5.2%
  DJ Global ex US (Foreign Stocks)                              0.6            0.5          -16.9         3.3          -7.8            5.6
  10-year Treasury Note (Yield Only)                            1.5           N/A             2.9         3.6           5.0            4.6
  Gold (per ounce)                                             -1.2            0.1           -0.6        18.3          18.3           17.2
  DJ-UBS Commodity Index                                        4.2            3.9          -11.1         6.3          -3.4            3.8
  DJ Equity All REIT TR Index                                  -1.1           16.0            9.5        31.4           2.7           12.1
  Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend)
  and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the
  three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the
  historical time periods.
  Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
  Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not
  applicable.
IT’S BEEN ALMOST A YEAR since August 5, 2011, the day the U.S. lost its coveted AAA
credit rating from Standard and Poor’s. So, how have the financial markets responded in the year
since? Quite well, actually.

It may not feel like it, but the broad U.S. stock market, as measured by the S&P 500 index, rose
13.6 percent between August 5, 2011 and last Friday, according to data from Yahoo! Finance.
Despite all the angst from the credit downgrade, the threat of a double-dip recession and the
turmoil in Europe, the stock market has hung in there.

The returns in the bond market are perhaps even more startling. The 10-year Treasury yielded 2.56
percent on August 5, 2011 and by last Friday, the yield had dropped to 1.46 percent, according to
Yahoo! Finance. Normally, you might expect interest rates to rise after a credit downgrade since
the ratings agency is essentially saying your bonds are riskier than previously thought.

The U.S., though, is perhaps a “special” case. The day after the credit downgrade, none other than
Warren Buffett went on Bloomberg television and said he thought the U.S. should be a “quadruple
A” rating. And, to this day, the U.S. dollar remains the world’s leading reserve currency as more
than 60 percent of the world’s foreign currency reserves are held in U.S. dollars, according to
BusinessWeek.

We shouldn’t get overconfident, though. While the U.S. has tremendous assets, it might only take
a few bad decisions from our leaders to undo what took decades to build.

Weekly Focus – Think About It…
“There is nothing wrong with America that the faith, love of freedom, intelligence, and energy of
her citizens cannot cure.”
                                    --Dwight D. Eisenhower, 34th president of the United States

Best regards,

Your Monarch Team

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would
like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask
for their permission to be added.

Securities offered through LPL Financial, Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the
named broker/dealer.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance
of the global equity securities that have readily available prices.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the
U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark
for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market
Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity
futures market. The Index is composed of futures contracts on 19 physical commodities and was launched
on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the
Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific
periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to
predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* To unsubscribe from The Monarch Report, please reply to this e-mail with “Unsubscribe” in the subject
line, or write us at karen.rogers@lpl.com

Sources:
http://federalreserve.gov/newsevents/testimony/bernanke20120717a.htm
http://cbo.gov/publication/43262
http://finance.yahoo.com/q/hp?s=%5EGSPC&a=07&b=1&c=2011&d=07&e=17&f=2011&g=d
http://finance.yahoo.com/q/hp?a=07&b=1&c=2011&d=07&e=17&f=2011&g=d&s=%5Etnx&ql=1
http://www.bloomberg.com/news/2011-08-06/buffett-says-s-p-s-downgrade-mistaken-still-doesn-t-see-
another-recession.html
http://www.businessweek.com/ap/2012-07-11/euros-global-use-down-slightly-during-crisis
http://www.quotationspage.com/quote/32154.html

								
To top