Mark Levy’s Economic Update – September 1, 2011 As of today, the Dow Industrial Average has recovered half of the decline we saw in late July/early August. My two letters in August addressed the “why” of the decline and the need to “hold” as probabilities appeared to suggest this was a correction and not the beginning of a protracted decline. Hurricane Irene, thankfully, did not deliver the knockout blow she could have. Yes, there is flooding, damage and unfortunate injuries and deaths, but not to the degree that was feared. The economic impact should be lower as a result, but know that not all of the data is in and some major population centers have experienced serious disruptions and kept some businesses closed and affected consumers at home. The market rally in the last few days seems to be linked to Federal Reserve notes released after the meeting that concluded last Friday. These minutes indicate that Fed officials discussed additional bond purchases along with other policy tools that could be employed to give the economy a lift. The markets also seemed to like Bernanke’s speech which sounded relatively optimistic about the economy, especially in the long term. Worries about a European contagion continue to affect global markets, but we think it may be over done. The European Central Bank (ECB) was slow in purchasing enough Spanish and Italian debt in order to allay the fear of default. Recently, they have stepped up purchases – actually to the point where interest rates are quite reasonable – in the 5% range in both countries. There are still questions about banks and political structures, but to be frank, there is nothing new there and it is unlikely we will see another explosion of yields in the near future. (By the way, how many governments has Italy had since World War II? Guess! 20? 40? No, try over 60. In contrast we Americans have had only 44 in over 200 years!) In conclusion, there are lots of issues that still challenge domestic and global economies and I am confidant we will see more volatility at times. Europeans policy makers are considering a Eurobond solution – the hint of which could prove to be the source of a powerful turn around in sentiment. The perception of a monetary union that markets view as no stronger than its weakest link could shift to a realization of a massive economic zone that is stronger than the sum of its parts. Confidence is most important right now, as it was back in 2009 for the stock market. As Jeffrey Klientop, LPL Financials chief market strategist said, “The stock market climbs a wall of worry not when the risks go away, but when the confidence that they will be overcome returns”. – 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. 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. LPL Financial Daily and Weekly Comment.