Mark Levy’s Economic Update – Late July, 2011 With the heightened fears today of debt limit questions and deficit concerns, it seemed a good idea to send out a special economic update letter. After yesterday’s 200 point decline in the Dow, today’s market is up 62 points (at the time of this writing) with a slightly better than expected jobs claims report. This morning the government reported first time applications for unemployment benefits fell below 400,000. This is the best number reported in four months – the first number in the same amount of time below 400,000. This is considered a sign that employers are laying off fewer workers. An additional positive note this morning is the news that the number of people that signed contracts to buy homes rose 2.4 percent in June to a reading of 90.9. A reading of 100 is considered healthy by economists. Regarding the debt/deficit stalemate, House Republicans are preparing to vote today on a plan to avoid a default. Even if it passes, this legislation faces opposition from the Senate and the White House. Time is certainly running out for the government to act. I’m sure you are as frustrated as I am that we find ourselves in this tension and wonder how it might affect our investments. There is no guarantee of course, but I think a default is unlikely. The legislators know that a down grade of our debt (Treasuries) will raise interest rates and slow down economic growth. Should the improbable occur, we have been defensive in our Treasury bond holdings. Either we don’t own them or we have very short maturities in an attempt to mute price declines as interest rates rise. I believe the equity markets have been telling us so far that we will still probably raise the debt limit. Yesterdays decline was sobering, but the markets have been amazingly resilient. This is partly due to the corporate earnings data that for the most part, has been strong and is part of the reason for my longer term positive outlook. In my 26 years of doing this job, I have seen many events like this one. To name a few; the savings and loan crisis, Y2k fears, the bursting of the internet tech bubble, the war in Iraq, Hurricane Katrina, sub prime credit crisis, etc., etc. I have seen that most of the time, selling stocks and raising cash to avoid catastrophe is a mistake because it becomes incredibly difficult to know when to get back in. Many of those investors 2-3 years ago that sold have missed this 100 percent up move from the bottom. If investors wait till the news is “good” to buy equities, the markets will be much higher and they will be very late to the game. As always, you are free to contact me with any questions or concerns and if you have friends or family that would like this letter, please refer them to our website where it is available for viewing. – 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. *Yahoo finance news page dated 7/28/2011.