I’m writing to you today to update you on world and political events and their impact on the markets. I’m sure many of you have been watching the nightly news and are concerned about the unrest in the Middle East. With the overthrow of Egypt’s Government and the fighting in Libya and other places, everyone is wondering what’s next and where oil prices are going.
While difficult to watch, we view this situation as a positive in the long-run, if it results in greater democracy. But, democracy and change are messy and change creates uncertainty. Of course, markets hate uncertainty. The situation could however be a real negative if Organization of the Petroleum Exporting Countries (OPEC) output is disrupted. That’s the real concern behind the recent spike in the price of oil and at the pumps. In our opinion however, the situation in Egypt is of far less concern than the protest in the OPEC-producing countries. However, since Libya is only a 2% supplier to the global oil marketplace, and the Saudis have committed to cover any shortfalls the market experiences, we feel that the recent spikes are temporary. So yes, the spike in oil, the jump in gold prices, the pull back in stocks, and the flight to safe havens in US Treasury are likely overreactions that we think will dissipate as the situation resolves itself. We are watching carefully however because sustained oil and gas price hikes are probably the Achilles heel of the US consumer. They are still vulnerable because their biggest asset – home equity – continues to be under pressure.
As if these concerns weren’t enough, we have another issue brewing that may be of more significance — aggressive spending cuts also known as “austerity mentality”. The recently elected Republican majority in the House has declared they have “promised” and have been “mandated” to reduce federal spending by $100 billion in this current budget. They, in fact, have passed a bill to cut spending by more than $60 billion. Last week Goldman Sachs predicted that if enacted, those cuts would reduce Gross Domestic Product (GDP) by half for the upcoming year — and “Tea Party” members have said $60 billion is not enough. Because a measure to increase our debt ceiling to keep the US Government paying its bills is approaching, the House majority has more leverage on this issue than usual. Do we think they will shut down the government? No. Are we worried that spending cuts could leave the economy and consumers vulnerable? Yes, especially with such a weak housing market. We support fiscal sanity and responsibility. That shouldn’t surprise you coming from your financial advisor. But, while we feel we’re moving in the right direction, we’re concerned about hitting damaging speed bumps if we go too fast. Recently released fourth quarter GDP was reduced because of lower state and local spending. We’re also concerned about the pressures to politicize the issue given an election year fast approaching. In the end we believe our elected leaders will do what’s required because they’ll once again have no choice. However contentious and uncertain times are ahead.
On a cheerier note, we have a couple points of pride to share with you. For the third year in a row we have received the Five Star Best in Overall Client Satisfaction Wealth Manager Award.* In addition we were listed by the National Association of Board Certified Advisor Practices — a nonprofit organization based in Colorado — as one of Minnesota’s Top Wealth Managers.** Their special report was published in the February 18, 2011 edition of the Minneapolis Chicago Business Journal. Of course we’re proud of the independent recognition, but rest assured we’re not resting on our laurels. We strive hard every day to continue to earn your trust and confidence.
In closing, you can count on us to keep in touch about noteworthy events — and to make adjustments to help manage both risk and opportunity. Don’t be surprised by the positive events ahead of us. Warren Buffet says that America’s best days are ahead.
Thank you for allowing us to be of service to you. We are here to answer any questions or concerns.
Don Miller
*Based on client satisfaction.
**Based on 20 characteristics including years of experience, customer service model, risk and investment philosophy.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This entry was posted
on Thursday, March 3rd, 2011 at 3:09 pm and is filed under Market Commentary.
You can follow any responses to this entry through the RSS 2.0 feed.
Responses are currently closed, but you can trackback from your own site.
Oil, Unrest, Budget Deficits – Our Take
I’m writing to you today to update you on world and political events and their impact on the markets. I’m sure many of you have been watching the nightly news and are concerned about the unrest in the Middle East. With the overthrow of Egypt’s Government and the fighting in Libya and other places, everyone is wondering what’s next and where oil prices are going.
While difficult to watch, we view this situation as a positive in the long-run, if it results in greater democracy. But, democracy and change are messy and change creates uncertainty. Of course, markets hate uncertainty. The situation could however be a real negative if Organization of the Petroleum Exporting Countries (OPEC) output is disrupted. That’s the real concern behind the recent spike in the price of oil and at the pumps. In our opinion however, the situation in Egypt is of far less concern than the protest in the OPEC-producing countries. However, since Libya is only a 2% supplier to the global oil marketplace, and the Saudis have committed to cover any shortfalls the market experiences, we feel that the recent spikes are temporary. So yes, the spike in oil, the jump in gold prices, the pull back in stocks, and the flight to safe havens in US Treasury are likely overreactions that we think will dissipate as the situation resolves itself. We are watching carefully however because sustained oil and gas price hikes are probably the Achilles heel of the US consumer. They are still vulnerable because their biggest asset – home equity – continues to be under pressure.
As if these concerns weren’t enough, we have another issue brewing that may be of more significance — aggressive spending cuts also known as “austerity mentality”. The recently elected Republican majority in the House has declared they have “promised” and have been “mandated” to reduce federal spending by $100 billion in this current budget. They, in fact, have passed a bill to cut spending by more than $60 billion. Last week Goldman Sachs predicted that if enacted, those cuts would reduce Gross Domestic Product (GDP) by half for the upcoming year — and “Tea Party” members have said $60 billion is not enough. Because a measure to increase our debt ceiling to keep the US Government paying its bills is approaching, the House majority has more leverage on this issue than usual. Do we think they will shut down the government? No. Are we worried that spending cuts could leave the economy and consumers vulnerable? Yes, especially with such a weak housing market. We support fiscal sanity and responsibility. That shouldn’t surprise you coming from your financial advisor. But, while we feel we’re moving in the right direction, we’re concerned about hitting damaging speed bumps if we go too fast. Recently released fourth quarter GDP was reduced because of lower state and local spending. We’re also concerned about the pressures to politicize the issue given an election year fast approaching. In the end we believe our elected leaders will do what’s required because they’ll once again have no choice. However contentious and uncertain times are ahead.
So how are we positioning your portfolios? Very carefully — while understanding markets will probably climb the wall of worry as global economies continue to expand.
On a cheerier note, we have a couple points of pride to share with you. For the third year in a row we have received the Five Star Best in Overall Client Satisfaction Wealth Manager Award.* In addition we were listed by the National Association of Board Certified Advisor Practices — a nonprofit organization based in Colorado — as one of Minnesota’s Top Wealth Managers.** Their special report was published in the February 18, 2011 edition of the Minneapolis Chicago Business Journal. Of course we’re proud of the independent recognition, but rest assured we’re not resting on our laurels. We strive hard every day to continue to earn your trust and confidence.
In closing, you can count on us to keep in touch about noteworthy events — and to make adjustments to help manage both risk and opportunity. Don’t be surprised by the positive events ahead of us. Warren Buffet says that America’s best days are ahead.
Thank you for allowing us to be of service to you. We are here to answer any questions or concerns.
Don Miller
*Based on client satisfaction.
**Based on 20 characteristics including years of experience, customer service model, risk and investment philosophy.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This entry was posted on Thursday, March 3rd, 2011 at 3:09 pm and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.