Stock Market Update
You may have been expecting the markets to respond favorably to the news the debt ceiling deal has been worked out. Obviously this is not the case. Let me explain what is happening, how we have prepared for this situation, and how this is designed to avoid altering your plan for retirement.
1. Aside from the debt ceiling issue which has dominated the news recently, there has been quite a string of weak economic news regarding consumer spending (today), jobs and the lack there of, manufacturing activity and so on. This is contributing, perhaps predominantly so, to the market drops over the last two weeks.
2. The debt deal that was reached doesn’t decrease spending like you and I would in our budgets. What it decreases is the increased amount that is to be spent. Let’s say your monthly budget is $10,000 for 2011 and you expected things to be better so you budgeted to spend $13,000 per month in 2012. The debt ceiling deal is cutting from the $13,000 number resulting in expected spending of $11,500. While you and I consider this an increase of 15%, Washington considers this a reduction of about 12%.
3. There continue to be economic concerns about Europe, where Greece is expected to need another bailout, Italy is faltering, Spain is in trouble, and Ireland is treading water. (I wrote a piece last year on why Greece matters in all of this; you can access that here.)
4. The debt ceiling deal could have been much worse. At least the conversation has turned from increases on increases to cuts of increases. Without this reversal, things would be a lot worse in the coming years. This also makes the 2012 election cycle very important, so as to build on this monumental mindset change which resulted in a small amount of financial change. The Tea Party Republicans did not complete the job; but they started it, changed the entire conversation, and we need to send more of them back to Congress so my Chelsea, and your children and grandchildren are not saddled with a situation similar to Greece.
We have been preparing since October of last year, 2010, for what is happening now. We began selling off profitable positions at that time and continued to do so through early July this year. Right now the total portfolio we manage is close to 70% in cash and that amount is completely avoiding these gyrations. Investments still owned or added took place because we could buy on sale, or because investments were not yet ready to harvest.
We are presently preparing for the time when we can go back and reinvest. While I do not pinpoint a specific market point or calendar day to make investments, we continue to research investment options and monitor market situations/opportunities very closely.
If you are still worried after reading this, please give us a call. We are happy to provide comfort/peace of mind, investment assistance, and retirement advice if you or a friend needs it.