Mark Levy’s Economic Update Tuesday – May 7, 2013

On the Legacy Wealth Planning website, we link every week the latest LPL Financial Weekly Economic Commentary along with the Weekly Market Commentary. The writers are John Canally, LPL Economist and Jeffrey Klientop, LPL Chief Market Strategist, respectively. This week’s work by John Canally is a great piece that I recommend you read.  It is short, precise and very informing of the role of the Federal Reserve, the Federal Deficit / Debt, Fiscal Policy and the Trade Deficit.  I know it sounds a little boring, but I assure you that a quick read will have you understanding why we have the systems in place that we have and how changes in the future will affect us. Go to: lwpreno.com to view John’s commentary. The stock market continues to make new highs. Today, the Dow 30 Industrial Average is trading at 15,035, up 66 points for the day.  In my last two newsletters, I have been eschewing not to be overly aggressive here and wait for a pull back for new purchases. The challenge to that thinking is it just continues to go up. There is no doubt that the equity markets are what we refer to as “overbought” and the odds are increasing for a rest at some point now or in the near future. There also is evidence that some economic data has been coming in “soft” of late. While much of the data is mixed, in general, employment, manufacturing, retail sales and corporate earnings have decelerated. Historically, the spring time period is when this “softness” occurs. Usually, the equity markets follow, but not so far. Clearly, there is a lot of money that has missed this incredible equity rally and with little alternatives to getting a decent return; money continues to flow into the market. After an expected rest, we think this bull market for equities will continue. The assumed next catalyst for growth will be from business and consumers. Unfortunately, this has yet to happen in any significant way. U.S. businesses over the past 20 years have typically kept between $150 and $250 billion in cash, or currency and checkable deposits, on hand. Currently, that total is double that average and continues to soar. Consumers have also been reluctant to borrow and the result in core consumer spending is tracking the meager pace of income growth. If the force of the Federal Reserve is to be believed, low interest rates will eventually nudge business and the consumer, to borrow. Reckless borrowing is what brought us to the financial collapse in 2007, but credit, or the ability to borrow, has earned the honor of being recognized as the underlying force for growth of the last 250 years.  Industrialization is often cited as the source of growth, but what makes industrialization possible? The expansion of credit to business and individuals, who employed it productively, is the answer. We hope an expansion of borrowing will occur soon, but with the wisdom of our recent financial pain, occur with sanity and balance.  Have a great Spring! – Mark   The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  “Stock investing involves risk including loss of principal.  The Dow Jones Industrial Average is an unmanaged index and cannot be invested into directly.  Past performance is no guarantee of future results.”  References:   LPL Financial Weekly Economic and Weekly Market Commentary dated May 6, 2013.