Mark Levy’s Economic Update – August 11, 2011 Wow, what a couple of weeks! The original challenge was due to the problem of the debt limit and our government’s addiction to deficit spending. At the 11th hour, a new debt limit ceiling was passed and very soon after Standard and Poor’s, for the first time, lowered the rating on some of our United States Government debt obligations to AA+ from AAA. From a government bond stand point this has been a non event as money has flowed into U.S. Debt, not out of it as some expected. Interest rates have gone down, not up. The stock markets however, have been a different story and at the moment, we stand at an approximate 15% correction from the Dow Industrial Average recent high of 12,810 that occurred in early May 2011. Why is our fear suddenly so high? Well, it is obvious to me that we still have the concerns of the sub prime mess very close to our hearts. So, any time there is some concern in the economy, we tend to quickly think we will return to an economic level of disaster. Is there any good news? Yes! Jobless claims this morning fell to a four month low. Corporate earnings continue to remain strong and these same corporations are sitting in general, on mountains of cash. The Federal Reserve yesterday said it will keep interest rates low for the next two years in a commitment to stimulate this sluggish growth cycle. There is over $8 trillion sitting in money market and cash accounts in the U.S. earning next to zero, and Donald Trump this morning announced he bought stocks because cash pays nothing! What happens to the stock market if some of the $8 trillion in money market and cash accounts decides to go into equities? LPL Financial tends to believe we will not go into another recession and this sluggishness in the economy will improve. That is why we have tended to hold on to our positions, rather than sell. A year ago, the market corrected 17% on double dip recession fears (much like today) and then an impressive rally ensued from August to April. Volatility is here for a while and it isn’t much fun. There are no guarantees, of course, but I feel the economy – and stock prices will be getting better, not worse. Remember our friend John Templeton whose words of wisdom to investors were: “Be Fearful When Others are Greedy, and Be Greedy When Others are Fearful”. Call us if have any questions or need us in any way. -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 and LPL Financial Weekly Market Commentary.