What recovery?

10-22-2012

Hi Eli,

Thanks for reading! I appreciate you going over it on the blog. Thought it was a nice take.

Best,

Alex

Alexandra Scaggs | Reporter

Dow Jones Newswires, contributing to THE WALL STREET JOURNAL

1211 Avenue of the Americas

I caught Alexanra Scaggs' article on the Wall Street Journal today with the headline "Daw Falls by Triple Digits" and I wanted to comment on an important point Alexandra made. 
                  
Although much of the information Alexandra provided was about the facts, the market and companies returns, I very much appreciated the fact that Alexandra was perceptive in recognizing and pointing out an important point that most Americans seem to forget or choose to ignore.  
Earnings news. A trio of disappointing earnings reports from Dow components dragged down the average, contributing about a quarter of its decline.

In her article Sandra pointed to our history books and wrote that the Dow Jones "stumble" today falls on the 25th anniversary of Black Monday, when the Dow lost more than 20% in a single day. Americans as a whole are not to keen on history and choose to ignore the fact that unless we make certain corrections in our fiscal house, what happened than can repeat itself.  

Most of us wish for good things to happen. Wishes are not plans!
My suggestion is: have your Fiscal House "Stress Tested" to make sure nothing falls through the cracks and that you have a solid foundation with at least some safe, secure assets that are not market correlated and have guarantees. This is especially true for those in retirement and those who aspire to retire soon. 
The good news is that it is not too late. There are things you can do to secure your nest egg before the end of the year and the Fiscal Cliff. We've been sharing those ideas with the families we service.

Have things looked at and make plans based on your risk tolerance to make sure you know what can happen to your holdings and how it may effect your retirement plans if the worst happens!
I am fond of saying: We don't need to make plans for the best.
The best generally takes care of itself (although we must be prepared for the best too). We need to make sure that if the worst happens, it doesn't put us or our loved ones in a "financial jail".

Alexandra quotes Paul Zemsky, chief investment officer of multi-asset investments for ING Investment Management saying: "Earnings didn't look great. I think it's just a reminder of how slow the economic recovery is outside of the U.S. When you see a day when most of the companies reporting are global in nature, it's not going to be a good day for stocks," 

I would also like to point out that even as the U.S. and Global economies have endured an extended period of low Gross Domestic Product (GDP) growth, many of our world-leading corporations have been able to generate high levels of consistent earnings growth. They demonstrated dynamic, highly skillful management, together with excellent financial and brand expansion and successfully navigated some very challenging times.

Many times I find myself not being bullish on the U.S. economy as I may be bullish on select U.S. corporations however, evidence is building that the upcoming earnings season may not be as positive as previous quarters. 

It seems to me that corporations may be losing faith in their ability to keep earnings growth going and have reduced their estimates in the run up to earnings season.
An example of this was when Alcoa kicked off it's third quarter earnings season with an expectations beat earnings per share. On the surface, it sounds like another great result. Unfortunately, the estimate has been reduced over the last six months and further reduced for the coming quarter. 
They probably feel that now is not the time for overpromising!
Conclusion: Don’t feel bullish about companies declaring earnings that beat expectations this quarter as the earning bar may have already been lowered!

Alexandra also writes in her column that "existing home sales for September provided little solace for investors. Sales fell 1.7% from August, slightly more than expected. But since August's existing-home sales figure was adjusted up, the seasonally adjusted annual rate of 4.75 million was in line with economist expectations". 
Once again, the "good news" is masking the facts. 
The facts point out that we are not out of the woods yet.

Another fly in the ointment mentioned by Alexandra is that European markets closed broadly lower, snapping a four-session win streak. Spain hasn't been pressured by it's European Union partners to ask for a bailout yet, and although Spain's economy is only roughly the size of Western Washington's, Spain is only the Canary in the mine.. Europe is the greater concern. We have been expecting a bailout of Spain for some time. We just don't know if it will be the far East or Germany that will be the one to bankroll it.

My feeling is that we have many problems facing us and that those worries will continue for some time to come. 
This coupled with near-term uncertainty over issues such as the presidential election and continued European debt wrangling, will have companies make further spending cuts to stabilize their earnings and I don't know when we can turn the corner and expect robust earnings growth.
Unfortunately I expect near future worsening economic outlook.
Put on your seat belt and navigate cautiously!


Proverbs says "A prudent person foresees danger and takes precautions." What have you done to make sure your hard earned retirement savings protected against the upcoming Fiscal Cliff in January?  
 
This commentary is not intended as investment advice or an investment recommendation. It is solely my opinion at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Always consult an advisor when choosing to invest.