Summer 2012 Newsletter
Half way through the year and investors remain fearful and frustrated. They are fearful due to the issues with the Euro, the recent Supreme Court decision on health care, and the upcoming election. They are frustrated because adjustments made to portfolios to reduce risk exposure also have limited returns. This quarter I would like to review our basic current economic and market assumptions and our perceived risks.
US Gross Domestic Product will likely be around 2% for 2012. This is very anemic. Europe is in a deepening recession, while Asian and Latin American economies are still growing, but slowing down. We are unlikely to be in a global recession this year.
Stocks valuations are cheap historically. US stocks seem to have decoupled from foreign stocks. This has led to our WealthProtect System triggering for us to exit developed and emerging foreign markets, as well as natural resource stocks, but staying in domestic and real estate stocks. The US Treasury market is quite overvalued. Better yields are available in other parts of the credit market.
There are a number of risks to our economic assumptions. If gas prices were to surge suddenly to $5 per gallon or more due to an Israeli-Iranian conflict, this would likely lead to consumers curtailing their expenditures quickly, which then would likely lead to a recession. European debt issues spiraling out of control continues to be front and center. Less talked about is what if China, which has its own housing bubble (lots of unoccupied new high rises), begins to falter economically? What about the fiscal and tax “cliff” of January 1, 2013? Most analyses show a 3.5% to 4% hit to GDP. With only 2% growth, this seems to indicate recession next year. Of course, Congress and the President will likely make adjustments.
Please remember that 80% of what we worry about never happens. This is why I believe that having a strategically diversified portfolio, while making tactical adjustments based on our WealthProtect System, is more effective than either buy and hold investing or emotional investing.
Thank you for your continued trust. Call us any time.
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*The opinions in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. All performance referenced is historical and is no guarantee of future results. Stock investing involves risk including loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. No strategy assures success or protects against loss.