Crisis of Confidence

There is no question that the market correction of -17% makes the market, at the very least, oversold. There is no telling how long the market will remain in oversold territory or how much farther it may move in that direction, but we do know that historically speaking, when the market reaches these types of extremes there are most often attractive buying opportunities that follow. I am ready to pursue these with you when the time is right. That said, let’s discuss the US economic ‘big picture’:

The US is in the 8th consecutive quarter of rising GDP

US consumption is $500 billion higher than the 2008 peak

The recent economic soft-patch was primarily caused by the world’s 3rd largest
economy (Japan) going off line

80% of US companies reporting Q2 earnings exceeded projections

US Q2 earnings were up nearly 20%

We are a long way from being in the position of Greece or Italy

Even unemployment has declined slightly but will likely linger at higher than normal levels. Not to belabor the point, employment lags the recovery because of three key factors: generous US unemployment benefits, inadequate worker skill sets and corporate productivity gains thru technology. A client who sells to manufacturers has witnessed these gains first-hand – production lines have gained efficiencies by dropping to rejection rates of 1-2% from as much as 20% previously, a Gypsum board manufacturer increased production line speed from 250 feet/minute, to 575 ft/min and a carpet manufacturer whose lines were running @ 150 ft/min is now running them @ 1,100 - 1,200 with capabilities of 1,500 ft/min – significant productivity gains with fewer employees and without the associated over-head expenses.

Let’s also put the US debt issue in perspective; it’s not great but it’s not that bad either:

The US has $150 trillion in assets

debt totaling $14.5 trillion

and generates $15 trillion in income from these assets

In 2008 we had a financial crisis today we have a crisis of confidence. Remember the last time you narrowly avoided an accident while driving, how jittery you felt afterwards? The severity of the recent pull-back can largely be attributed to knee-jerk reactions fueled by jitters left over from the 2008 decline, I witnessed it first-hand with several long-time clients.

I strive to remain objective, but I see no evidence (currently) that the economy is folding however, we do need to get the US on a long-term sustainable fiscal course.


Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.

This IS different than 2008

Phones have been ringing; nearly everyone is concerned on some level about a repeat of the 2008 meltdown. However, the current environment is very different from the 2008 timeframe. Back then, the decline was liquidation driven as leveraged investors, forced to de-leverage, needed to raise cash fast. Because of the financial sector’s malaise, sellers could raise cash the quickest and get the best prices by selling the ‘better’ assets on their books, this inability to sell the ‘junk’, made the decline worse as it penalized holders of quality investments almost as much as holders of low-quality securities.

Today, there are no forced liquidations and 80% of US companies reporting second quarter earnings have exceeded earnings forecasts. In fact, S&P 500 earnings growth for the second quarter is now estimated at +20.4%. US corporations are in great shape. Despite this, unemployment is still high and will likely remain high for several reasons; unemployment benefits discourage would be applicants, worker skill sets are inadequate and corporations are making do with fewer employees.

In this extremely low yield environment there is no competition for the stock market. Investing in equities serves as a hedge against inflation and captures productivity growth. Dividend paying stocks provide the best of both worlds; appreciation potential and income potential. This pull back has created some compelling values as the S&P 500 is now 100% over sold.

As always, I am here to answer your questions & address your concerns.


Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence. This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.