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.


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