Here We Go Again

So, here we go again. More doom and gloom in the media about the economy and Europe’s economy and there goes the stock market. First, our economy: let’s face it, our economy isn’t great right now. We are better than we were back in 2008 and 2009 for sure. But everybody’s hopes and expectations that we would rocket out of the Great Recession back into a boom time were a bit too unrealistic in hind sight. Jobs and housing are still the key to our recovery. Today, new jobless claims fell. That’s good news! New home sales are up. That’s good news, too! Leading economic indicators came out today and rose 0.3%. That’s good news – not great, but good. While these are all good data points for our economy, why is the market in a nose dive today? Well, yes, they are good news, but they need to be better. So, consequently, the market is ignoring them and focusing on what Fed Chairman Ben Bernanke’s message was yesterday – slower growth for an extended period of time. This sent the market down yesterday. That also sent the overseas markets down, which in turn is sending our market down again today. About now, you may be asking “are we headed for a double dip recession?” The answer to that is “no,” he said hopefully. The odds of a double dip are less than even. But, as pointed out above, things aren’t going to be rosy for awhile.
Now, let’s move overseas. Europe is probably in worse shape than the U.S. The big, obvious issues relate to the financial shape of countries like Greece, Portugal, Italy and a few others. Greece, being the most popular target for financial help lately, is in serious trouble. Their debt level is too big, and their GDP is too low. They are living “bailout-to-bailout.” The bailouts come with conditions – make serious cuts in your budget and get your economy going. But, when they make the serious cuts, it has a negative impact on their economy, so they need another bailout. There are only a few solutions to this problem – and none of them are exceptionally pretty: Greece could default, which would cause some problems for the other troubled countries. Another solution is that Greece could…well we probably have to go back to the first one. A default by Greece (and possibly some of the other countries) would have ripple effects for the European economy, likely sending it into a double dip recession. Now, if Europe goes back into a recession, what does that mean for the U.S.? The answer to that is less than clear. Sure, we will feel some pain, but will it lead to a double dip for us?
We don’t think so. Back to the beginning – while the economic readings of today are less than stellar, they are positive. (You have to look at the bright side from time to time.) Corporate earnings, for the most part, are pretty strong. Corporations are not saddled with as much debt as they were a few years ago. They are leaner and more efficient – better able to weather tough conditions.
So, for now, just hold on to your hat – and your portfolio. Don’t panic and do anything rash. We don’t know what tomorrow will bring, so stay with your asset allocation. And, try turning OFF the financial news every once and a while.
If you have questions, please feel free to give us a call at 1-866-848-0258.