News and Notes from Ellen R. Siegel & Associates
Mid-August 2011

I have just returned from four days at the LPL National meeting in Chicago. Our Chief Investment Officer Burt White and our Chief Market Strategist Jeff Kleintop were both in attendance. They provided in depth analysis of the current environment. We are reminded to take a three dimensional view of the market and the economy, which means looking backwards for similar events, looking around for other economic factors that mitigate the drama, and looking into the future for where opportunities exist. For perspective, I remind us all that the Dow closed a year ago (8/13/10) at the Dow was at 10,303 and it closed on Friday at 11,269. See Austin Frye's comments below for details on the LPL communications.

Certainly the headlines are upsetting, even creating a sense of doom and panic in many investors. In this issue I have collected and am sharing perspectives (with attribution) from various sources, so you can have other viewpoints than mine from other financial professionals.

From former Miami Herald business journalist, Niala Boodhoo, who now lives in Chicago, you can read and listen to an immediate reaction aired on WBEZ:

http://www.wbez.org/story/keeping-perspective-times-market-volatility-90268

You'll appreciate the comments of my colleague Gunther Karger, author of Thieves on Wall Street, in his newsletter to his clients:

"The wild market gyrations of the past week are driven by high frequency computer based trading systems making Wall Street appear like a mega Las Vegas casino. Has Wall street become bi-polar with all these mood swings?

Wall Street is driven more by psychology, reaction to politics, computer driven trading systems and master manipulators than economic fundamentals and trends.

• Although Wall Street gyrations can trigger economic upheavals which can have serious consequences, these are generally short term.
• While some money is being made trading the Wall Street roller coaster, few traders last long.
• The serious money is made by better understanding the economy and knowing which industrial trends are on the rise and which are on the decline.
• The winners are those who go to Wall Street buying when the losers are dumping in despair driven by fear, margin calls and lack of capital to last through upheavals."

My LPL colleague, Austin Frye, shared this in his client newsletter:

Companies Are Lean and Cash Rich

Inventory levels are much lower.

Companies have streamlined costs and built massive cash balances. In the US (where we have the longest data series), cash as a percent of assets is now at the highest level since the early 1960s.

Financial System Is Better Prepared

Bank balance sheets, particularly in the US, are in better shape than they were in 2008.

Capital ratios are much stronger, providing a cushion to cover loan losses.

Interest rates in most developed economies remain at historically low levels.

Liquidity support facilities remain in place around the world.

The US Federal Reserve committed to keeping interest rates low at least through mid-2013 (while another round of quantitative easing appears more likely), and the European Central Bank has eased off from its more hawkish tone.

Oil Prices Are Much Lower

Oil prices today are significantly lower than in 2008, providing an effective tax cut for consumers. WTI light sweet crude prices are near $80 per barrel, versus $140 in mid-2008.

Commodity prices broadly have declined, which should relieve inflationary pressures on emerging markets. It should also reduce corporate input costs, bolstering margins.

Consumers Have Slashed Debt

Consumers have deleveraged significantly since 2008. The ratio of US household financial obligations to disposable personal income has declined to levels last seen in the early 1990s."

And from Scoby Zook, an advisor in California, in his newsletter:

"For every one of our clients, an investment policy decision was made, and provisions are in place for money that is needed in the short term (within 1-2 years.) The funds in the stock market are diversified among sectors, manager style, and investment strategies, including asset classes that are not correlated with the stock market.

The world has a lot to worry about, granted, but then it often does. The markets respond as they will, with greed sometimes, and sometimes with fear. Programmed trading is accounting for a good amount of the volatility we have seen this past week. Yes, the US economy is weak and yes, the Euro-zone countries are dealing with huge debt issues. And yes, our government is currently dysfunctional.

On the other hand, despite the downgrade of the US Treasury, debt of the US government is at almost historically high prices. In other words, the bond market isn't worried about the US paying its debts.

I would urge you to view these gyrations as theater, but not as fuel for reactive investment decisions. If stocks continue to fall, I'll recommend buying more. If they rally and you end up with 'too much stock' (according to your investment objective and plan) then we'll sell some.

Either way, we'll sell what's done relatively well recently, and hold onto (or buy) what's done relatively poorly. This is another version of buy low, sell high, and it does take intestinal fortitude to hold to this process when things are looking bleak."

I could not have said any of the above any better. If you have questions or comments, or feel a need to immediately review your own portfolio, please, please let me know.

Have a good week! May the rollercoaster level off in an upward direction!

Ellen

Ellen R. Siegel, CFP^®, ChFC, CLU

Ellen R. Siegel & Associates
7344 SW 48 Street, Suite 301
Miami, FL  33155
Visit www.siegelplanners.com for more information.

(305) 665-2130
(305) 665-3504 (fax)

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The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing may involve risk including loss of principal. The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
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