August 5, 2011: Market Update

Aug 5, 2011   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Looking for Opportunities

Unless you live in a cave, you probably are aware of the large market downturn this week.  We’re not going to sugar coat it.  The resolution of the U.S. debt ceiling did not solve all the world’s problems.  In fact, it may have distracted investors from the larger issues taking place in Europe these past six weeks.  As it turns out, Spain and now Italy are in precarious shape when it comes to their own financial state of affairs.

These are unprecedented times.  The issues we’re facing are global as opposed to domestic.

Analysts are speculating that the European Central Bank (ECB) could need a trillion dollars to stabilize the situation in Italy and Spain.  It’s a bit of a perfect storm that nobody imagined would happen.  The good news is that the ECB has committed today to start buying Spanish and Italian debt.  However, it’s not clear just how much they’re capable of committing at this time.  This uncertainty led to wild speculation and massively erratic markets.  Four and five-hundred point moves were the theme this week.

Earnings season is coming to an end and for the most part, the second quarter was good.  Companies beat to the upside more than the norm and those that did were rewarded.  However, there was a consistent theme amongst CEOs which talked about headwinds in the coming quarters.  Rising costs are pressuring margins and weakness both here and abroad could mean lowered expectations.  Despite the fact that many analysts remain bullish, the market seems to be pricing in a slowdown at these levels.

Truth be told, the market is quite oversold at the moment.  That’s not to suggest that it couldn’t go lower but to say that historically speaking stocks are cheap.  If earnings in the third quarter remain robust, we would expect the market to go higher.  We have positioned portfolios to be well diversified among a broad range of sectors and asset classes.  This diversification should help buffer portfolios in difficult times such as those we’ve recently experienced.  As already mentioned, these are unprecedented times.  We will remain nimble and vigilant as we gauge the markets and look for opportunities as they emerge.  As difficult as it may seem, times such as these are often good times to enter the market.

For the story of the week we turn to the U.S. Mint.  In December 2005, Congress decided to create a new series of $1 coins which honored the former U.S. presidents.  The Presidential $1 Coin Act was intended to create renewed interest in the coin like that seen during the 50 State Quarters program.  However, the $1 coins were awfully unpopular.  The coins began to collect and before long they had over one billion coins stored in warehouses.  To encourage collectors to buy the coins the U.S. Mint offered free shipping for all online purchases.  So what you ask?  Crafty individuals took advantage of the program by buying tens of thousands of dollars of coins online, accumulating frequent flyer miles, and then returning the coins to the bank.  There are stories of people taking first class vacations to Hawaii on nothing more than frequent flyer miles accumulated from this legal, yet dubious practice.  Last week, the U.S. Mint officially put an end to this practice by no longer accepting credit-card payments for coins purchased online.  If only we knew of this loophole a few years ago!  Now you know.

In closing, we want to mention that Marc was quoted and used as a resource for a recent article on Fox News business.  If you’re interested you can read the article by clicking on the following link: Eight Ways to Accelerate Retirement Savings

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