Economic Update

July 2011  

The equity markets are up for a 3^rd day in a row as the Greek Parliament passed a $40 billion dollar austerity package. A second vote on implementing the package is set for tomorrow and ongoing protests in Athens could change the political calculus. But the expectation now is Greece will receive a $17 billion dollar tranche of its EU-IMF bailout package and avoid a short term default. The ongoing concern of course is whether or not Greece will be able to pay its debts beyond next month and will the austerity package cripple an already struggling economy? Global bank capital guidelines, according to the Basel committee on Banking Supervision, are less onerous than once feared.  The committee deemed additional capital requirements for banks “too big to fail” hold additional equity capital below what some in the markets had expected only a few weeks ago. Additionally, last night’s news that Bank of America had settled a private investor claim associated with a supposedly fraudulently packaged mortgage backed securities deal for $8.5 billion is considered to be, “good news”.  Last week we thought the financial sector “over sold” and in our asset allocated accounts we bought the I Shares Dow Jones U.S. Financial Index (symbol – IYG). Japan’s Industrial production, which fell by a record 15% in March, posted only a modest rebound in April (+ 1.6%), leading to concerns that the recovery from the earthquake was not proceeding as quickly as hoped in the world’s third largest economy. In late May, signs began to emerge that suggested that the cleanup phase was ending and that the recovery and rebuild phase was proceeding. This morning’s news that Japan’s industrial production increased by 5.7% in May (the strongest gain in 60 years) was further confirmation that Japan’s recovery and rebuild had accelerated. We are still leery of certain bond holdings due to ultimate concerns of rising interest rates and believe cash in lieu of certain long bond positions is a smart allocation for the present. After this correction in the equity markets runs its full course we expect the bull market to continue. In this morning’s news, according to Don Hays Advisory, many corporations, for the first time, are considering putting their massive cash assets to work in growing their business. This would be a huge help in aligning the dominoes that need to fall to fuel economic growth. We hope you have a great 4^th of July – please call or email us if you have any questions. –         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 Market update dated 6/29/2011.