Mark Levy’s Economic Update – Friday, September 05, 2014

 The big global news this week is the decision yesterday by Europe’s Central Bank (ECB) to lower its main lending interest rate by 0.10 percentage point to 0.05%. It also cut a separate rate on bank deposits deeper into negative territory, to – 0.2% from -0.1%. In June, the ECB became the largest central bank to experiment with a negative rate on bank deposits, a measure aimed at encouraging banks to lend surplus to other financial institutions rather than paying to park them at the ECB. To summarize this event, Mario Draghi, the current head of the ECB is trying to stimulate Europe’s economy. Yesterday, equity markets were up and the Euro was down – an expected response to the rate lowering.

 Big local (Nevada) news is the announcement by Tesla Motors, Inc. to locate it’s soon to be built battery factory, costing up to $5 billion, just a few miles east of Reno, Nevada. Tesla Chief Executive Officer, Elon Musk, aims to reduce battery costs by 30% through the scale of the plant and by bringing in production partners who would provide the base anode, cathode and electrolyte material processing into the giant facility. The plant could be up to 10 million square feet in size, the company has said, bigger than any single factory in the U.S.

 Burt White, LPL Financial’ s Chief Investment Officer, doesn’t think the upcoming midterm elections here in the U.S. will have a major impact on our markets. He thinks it is likely that the Republicans will keep control of the House, where they currently hold a sizable majority. In the Senate, professional political forecasters in Washington put the odds that Republicans regain control at between 60% and 70%. Remember, I am careful not to input political bias into these letters – just stating facts. We have a democratic President so it looks like we will have divided government moving forward, one way or the other for the next two years. In March 2015, there is another debt ceiling deadline, but Burt doesn’t think the Republicans have the appetite for another budget standoff that could result in another government shutdown. According to Burt, the stock market has historically responded well to midterm elections (regardless of which party wins) – we’ll see if it is true this time.

 Lastly, I’d like to impart a short investment lesson. Sometimes, as investors, when we see our accounts decline due to a market correction, we view it as a bad thing. What we are forgetting is that some of our investments may generate dividends and/or capital gains that reinvest into additional shares. When our assets decline, this reinvestment is occurring into less expensive shares. This is called “Dollar Cost Averaging” and it is an important part of investor returns. Most investments have risk and do not go in a straight line up. Be aware that reinvestment when shares decline is good, not bad and remember that it isn’t timing the market; it is time in the market. We hope your Labor Day weekend was great – Mark

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Some of this research material has been prepared by LPL Financial. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Referenced material: LPL Financial Weekly Economic Commentary and LPL Financial Weekly Market Commentary, both dated September 2, 2014. Approved Tracking #: 1-305388.