Lauren's Blog

Spend the holidays WITH yourself, not BY yourself…here are some tips for the newly divorced or separated:

1. Let go of the past.It's time to start the next chapter of your life -- and to do that, you need to shut the page on the last one.
2. Gifts from the heart, not from the mall.You may think you really want that new 50-inch flat screen TV, but the joy of having that will wear off in short order. The most wonderful gifts are totally free: spending time with friends and family, and enjoying your favourite hobby/sport/leisure activity.Give the gift of quality time with you to your children, family, and friends. Give them your full attention, and don't forget to tell them how blessed you feel to have them in your life.
3. Search for happiness within. If you're still waiting for others to make you happy, you need to cut that out right now! It only works for a very short time, and then you're left more miserable when it stops working (and it always does). If you’re not happy with who you are on the inside -- and if you're not comfortable spending time in your own company -- you won’t be happy in a long-term relationship with anyone else either. Create happiness and stability in your own life before looking to share your life with someone else.
4. Take a tip from the kids.Dr. Wayne Dyer is the author of No More Holiday Blues: Uplifting Advice for Recapturing the True Spirit of Christmas, Hanukkah, and the New Year, an inspirational little book that offers positive suggestions in a quick-read format. Dr. Dyer says that, as adults, "we've come to believe that the holiday season is really only for children ... thus only children can enjoy the holidays; adults must suffer through them." He contrasts child-like attitudes ("I can't believe it's over already, it seems like it just started") to negative adult attitudes ("Thank God it's over. If it lasted one more day I'd have a nervous breakdown"). Ring any bells? This year, try to recapture some of the joy you experienced as a child during the holidays.
5. Forgiveness will set you free.You need to find a way to forgive your ex -- and then forgive yourself -- for what went wrong in your marriage. That doesn't mean forgetting the lessons you learned, but it does mean letting go of the bitterness that's poisoning your life. Remember: hatred binds us as mercilessly to its object as does love. So forgive, and free yourself.

...on the Market

The sad fact is that markets do not like uncertainty but there is a lot of it in the world today. Continuing concerns include the European sovereign debt crisis, likewise the ongoing one in the federal government (and not a few state and municipal governments) and of course, in American households. Residual real estate challenges, partisan politics, and slowing growth in the Asian economies are also ongoing worries. The federal government, through its central bank, has effectively used monetary policy to maintain low interest rates and keep inflation in check. Lacking, however, is the political will and cooperation needed to effectively use fiscal policy and other much-needed government programs such as infrastructural bank reforms, and those that would support regulatory easing to fast-track projects.

... on the Jobs Conundrum

Fareed Zakaria, an interested observer, has noted in his reports that the key issue for America is jobs. I agree with his concerns. Low work force participation is driving income disparities in the U.S. and setting the stage for political turmoil. Americans are clearly frustrated that their own economic outlook is darkening; witness the recent Occupy Wall Street campaign that is spreading across the country. I encourage you to read his blog in which he calls for President Obama to declare a National Jobs Emergency that would enable a fast track to rebuilding the country’s infrastructure and putting Americans back to work.

...on the Third Quarter

The third quarter of 2011 was a frustrating one for investors and non-investors alike, indeed for almost all Americans. If certain things would happen, then the fourth quarter could potentiallybe demonstrably better. The problem is that there remains a great deal of uncertainty and there are far too many “if this, then that” scenarios. Nevertheless, let’s review the events of the past three months.

• The growing debt crisis in the Eurozone and the fear of contagion kept U.S. markets lower, probably even more so than a whole host of lackluster domestic economic indicators. Confidence waned on Wall Street and Main Street, and analysts who had begun to second guess the recovery began vocalizing their concern.
• The U.S. economy crawled forward with occasional flashes of vigor, which were, unfortunately, too few and far between. Take for example, consumer spending, which saw slight rises in July and August of 0.7% and 0.2%, respectively. To some extent, those increases reflected rises in food and energy costs, not necessarily true increases in spending. Americans, in general, held tight to their purse strings, too wary of the future
• The U.S. unemployment rate remained firmly anchored at 9.1% for the entire quarter, and consumer confidence, as measured by the Conference Board’s report, plunged.
• Frustration over the ongoing political posturing among Washington’s elected officials was a key driver of the markets’ volatility. After the long cantankerous debate regarding the nation’s debt ceiling, it was inevitable that Standard and Poor’s would downgrade America’s credit rating. And so they did, dropping it a notch from AAA to AA+; S&P also downgraded those federal agencies reliant on the U.S. government, i.e. Fannie Mae and Freddie Mac. While not unexpected, global equity markets took the downgrade badly.
• President Obama called for bipartisan unity as he introduced the $447 billion American Jobs Act late in the quarter, a program being likened by some to FDR’s New Deal, but the passage of the bill remains in limbo as Republicans are loathe to support a measure that would be funded by tax hikes.
• Under significant pressure to do something to stimulate the sluggish economy, the Federal Reserve did not haul out QE3 as some analysts had expected, but brought back 1961’s “Operation Twist” strategy of shifting $400 billion into longer-term Treasuries to foster growth. Equity markets didn’t look too kindly on Operation Twist, nor did analysts for that matter, who don’t believe that it will make any significant difference in the long run. 
• Asian economies, especially China, which is viewed as the driver of global growth, contended with a clear drop in export demand, a result primarily of the world-wide economic slowdown. The silver lining is that slowing global demand could slow down persistent inflation in India and China, seen as a priority by the respective governments.
• The real estate sector is far from healed, though there was some annualized improvement. Mortgages became cheaper with lower interest rates, but bank lending restrictions are still making it difficult for potential homebuyers, though there are fewer of those as a rule. Home sales are lower, as are home prices and building starts, because the majority of potential homebuyers are bargain hunting and looking for a deal among bank foreclosures.

So, how could things be better? First and foremost, the Eurozone’s policymakers need to have a decisive and truly unified response to the debt crisis there, and they must consider and arrange for an orderly default for Greece. A growing number of world-renowned economists believe that a default is in the cards for Greece, and at this point, the only true salvation for the Greek economy. Second, a strong corporate earnings season with some upside surprises would be nice. Third, markets need to get some clear data

Lauren

As a Californian, the changing seasons mean shorter days, cooler mornings, and even some rain. I know you Texans are grateful for the recent rain on your parched, burning state—Mother Nature has been kinder. With the long, hot summer behind us, we look forward to Thanksgiving and the holiday season.

Time passes too quickly, I am sure you’ll agree. As I hit the “send” button I today, I head to the airport and will fly to St. Louis to visit Adam and his family. My bridge lessons are keeping me busy with the added bonus of having new “bridge friends” to enjoy.

At this time of year, I urge you to take the time to review your financial plan. Are you on track? Has anything changed that should make you think about shifting your strategy? The year end is also time to put our financial house back in order and to reconsider how to live well, despite the continuing recession (and yes, this is a recession, regardless of what the pundits are calling it). Take a look at the perspectives below (both my own and others') on the state of the market, the jobs conundrum (and Occupy Wall Street), and the third quarter overall.All of these issues continue to affect not only the fiscal state of the world at large, but also the fiscal state of your own household.

Happily, no matter what the financial picture, we know that the key to living well is to get back to basics – take up new hobbies and treasure your friends and families. Enjoy the season and all it has to offer.

Lauren

You are probably asking: What happened this week? What is Klein Financial Advisors planning to do? And what, if anything do I need to do? The fight or flight animal in all of us wants to react. Remember that panic is not a strategy.

Unprecedented and unsettling. Standard & Poor’s issued a historic downgrade of U.S. debt on August 5, sensibly waiting until the market week had concluded to send a shock wave toward global investors. It reduced America’s long-term debt rating – which had been AAA since 1941 – to AA+.

S&P felt Congress did too little too late. The credit rating agency had threatened the downgrade if Congress passed any deficit reduction plan smaller than $4 trillion in scope. The Budget Control Act of 2011 “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” an S&P statement noted. It also retained its “negative” credit outlook on the U.S.

S&P is also skeptical that the federal government can collect more money from taxpayers. Its analysts do not think the Bush-era tax cuts will sunset at the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

The other ratings agencies – Fitch and Moody’s have not downgraded the United States. Fitch has said a downgrade remains a possibility. Moody’s “thought a downgrade would be premature given that they [Congress] have come up with a plan for deficit reduction. Analysts are monitoring to see if lawmakers are able to agree on $1.5 trillion in further cuts.

China’s comments. The world’s largest holder of U.S. debt issued a withering critique of Congress through Xinhua, its official news agency. The state commentary stressed that the U.S. has a “debt addiction” only curable via major cuts to defense spending and entitlement programs. It also said that the option of a “new, stable and secured global reserve currency” should be explored.

The Treasury’s claim.Friday evening, the Treasury argued that S&P’s analysis contained an accounting error that unnecessarily added $2 trillion to its projection of U.S. debt. S&P admitted the error but stuck with the downgrade.

So what happens now?The markets that were open over the weekend, including Israel, have been volatile and nervous. The Asian markets that opened this morning with declines. The initial global response aside, analysts are divided as to what the short-term impact might be for the American economy. Could it cripple the recovery, or just prove inconvenient to it?

Demand was big for Treasury notes even before the threatened downgrade and Treasuries still symbolize comparative safety to institutional investors, so an August selloff might be short-lived. If this turns out to be the case, the effect on interest rates might be less significant than feared.

Could the Fed launch QE3*?The possibility exists, particularly if foreign investors ditch dollar assets. The Fed’s Open Market Committee will make an announcement on August 9, and few analysts expect another wave of bond buying – but it is an option.

When might the U.S. recapture its AAA rating?It might take years for that to happen. S&P has cited political gridlock on Capitol Hill as a major reason for the downgrade, and it doesn’t see that going away in upcoming months. On top of that, the U.S. economy expanded just 1.3% in the first half of 2011 - about half the pace needed to dispel the lingering effects of recession.

Wall Street might sail through this.Does that sound far-fetched? Look at some historical examples. S&P downgraded Canada’s AAA credit rating in the spring of 1993, yet Canadian stocks gained 15% in 1994 and our northern neighbor had its AAA rating back by 1997. Moody’s Investors Service downgraded Japan in November 1998 and its stock market advanced more than 25% in the next 12 months. Italy, Canada, Ireland, Japan, Belgium and Spain have all suffered S&P downgrades from AAA, and most of these cuts had little sustained impact on government bond yields.

What’s our outlook?Whatever happens in Congress, in Europe and in the daily market activity, Klein Financial Advisors will act prudently with your long term financial security in mind. Still feeling jittery? This may be a good time to revisit your risk profile – your ability, need and willingness to accept risk – and consider updating your investment policy.

Don’t hesitate to call to discuss your personal financial security.

And yes…stay confident and stay the course….especially on days like this.

Lauren

There’s no point in sugarcoating it – the market has taken a pretty good beating over the past couple of weeks. The S&P 500 is off by over -10% since its most recent high on July 7th, and today was just plain ugly as the selling intensity picked up throughout the day and ended with a -4.78% loss.

It is July and the President and Congress are locked and loaded in a battle about raising the debt ceiling. As each party escalates the stakes, interesting times are ahead. But first, here is a wrap-up of a volatile quarter for the markets and the world. 

• U.S. stock markets struggled to climb over a wall of worry wrought over Eurozone debt, the wrap-up of the Federal Reserve's second installment of quantitative easing, high gas prices and numerous signs that the U.S. recovery was stalling. Yet, as June ended, some encouraging domestic indicators and much improved headlines from overseas helped to renew the collective appetite for risk.
  
  
• Unemployment actually increased in the quarter as the jobless rate climbed back to 9.1%. On the positive side, the pace of job creation is up; nearly double that of the 2010 average rate. In April, citing concern over the ballooning U.S. deficit, Standard & Poor’s cut the credit outlook for America from “stable” to “negative”. Both Moody’s and Fitch made similar threats last month, hoping to spur the U.S. government into action to address the debt ceiling crisis.
  
  
• By May inflation had risen to 3.6%; gasoline prices had risen 37% in one year.
  
  
• The federal debt ceiling was reached on May 16 and Treasury Secretary Geithner noted a hard deadline of August 2^nd to raise the debt cap. Congress continues to dither, playing politics first and putting compromise second. At stake is not just the U.S.’s reputation, but their AAA credit rating.
  
  
• The Federal Reserve’s second round of monetary policy stimulus known as Quantitative Easing (QE2) ended June 30^th and the impact of its demise wasn’t as hard a landing as was originally feared. Though the end of QE2 essentially meant the end of $600 billion thrown at the U.S. bond market, bond yields and stock prices rallied the very next day.  

Outlook and Commentary

REASONS FOR OPTIMISM

When was the last time the Dow took a six-week tumble?On June 10, the Dow dipped below 12,000 and posted its sixth straight weekly decline. You have to go back to October 2002 to find a Dow losing streak that long. If you’re hearing bearish groans in the distance, you’re not alone: the bears are making their voices heard as the Dow is down almost 7% from where it was at the end of April. Despite the recent stock market volatility, the long term outlook is positive. Here are some reasons to be optimistic:

Q2 earnings projections are quite good.Investment research firm FactSetfinds that despite the losing streak, aggregate Q2 S&P 500 earnings estimates are basically unchanged from late May. The collective forecast projects a 14.6% growth in earnings for the quarter and a 10.4% jump in revenues. (That double-digit revenue growth would be the best since Q1 2010.) As earnings are truly the mother’s milk of stocks, the market could heat up this summer if these collective predictions come true.

Stocks are still cheap.On June 3, the S&P 500’s P/E ratio was 16.4 compared to 18.3 a year earlier. Most stocks look like a fair value right now.

The economy is still growing.The Federal Reserve’s latest Beige Book and the twin PMI indices from the Institute for Supply Management both signal this. In fact, the ISM service sector index showed the growth of that sector accelerating in May.

Homebuying could be poised to pick up.Sustained high unemployment isn’t going away this year, but some silver linings are emerging that bode well for the housing market. Moody’s Analytics says that the ratio of home prices to income is now 20.9% below the average ratio from 1985-2010. Mortgage interest rates are at levels unseen since the early 1960s. There are also indications that prices may be approaching a bottom in metro areas not rampant with short sales and foreclosures. Real estate analytics company CoreLogic found that home prices were down 7.5% year-over-year in April, but only down 0.5% when distressed sales were factored out.

We Were Born with Rose Colored Glasses. The belief that the future will be much better than the past and present is known as the optimism bias. Our optimism bias motivates us to pursue our goals. According to Tali Sharot in his book The Optimism Bias, optimists, in general, work longer hours, tend to work harder and save more. Optimism alters our expectations and shapes outcomes in a positive way.

Hang in there.The bull market is maturing; QE2 is ending. We haven’t yet seen a correction, just a pullback. Informed investors stay the course.  

Stay Optimistic and Stay the Course,

Lauren

PS. And have a great weekend. I am looking forward to spending time with my children and grandchildren who are visiting from the midwest. And going to a sneak film preview with friends.