Lee's weight and (our) investment accounts the next 10 years

This Week's Quote

"I never worry about diets. The only carrots that interest me are the number you get in a diamond." ~Mae West


After Europe, which seems already priced into the markets, here’s the “supposed” problem: China’s economy is growing only at about 7.6% this year, and the U.S. is projected to grow at around 2%.

So, using Lee’s current weight, we did some basic math to make sure we fully understood the issue. Lee is 6-4 ½ and currently weighs 215 pounds (he’s 8 pounds overweight*). If he grows at 7.6% (China’s growth rate) in 10 years, Lee will weigh around 450 pounds. If he grows by 2% per year (the U.S. growth rate) in 10 years, Lee will weigh about 262 pounds.

Either way, Lee would be larger. He’d be requiring new clothes, perhaps larger and stronger furniture. Maybe a larger automobile. He’d be consuming ever larger quantities of food, along with many other products over those years, no doubt. The Davis family contribution to the economy would likely be greater than if Lee maintains his current weight, relatively speaking.

We joke (hopefully). The point is that just like what happens if Lee grows, economies change when they grow.

The U.S. and China are growing economies. In our view, Europe will be too, even if it takes awhile. In a growing economy, companies and industries tend to make money and flourish. Investors tend to get richer and stock prices tend to go up.

Though the future may very well be dominated by today’s “emerging” economies, the U.S., ever the entrepreneurial engine of the world will be likely have a bigger more robust economy in our view ten years from now, as would countries the world over.

And markets will therefore, in our opinion, will be up substantially, whether Lee gains weight or not!**

*you can assess your own weight with a fun chart at http://www.cdc.gov/healthyweight/assessing/bmi/



Market Week: July 16, 2012

The Markets

After six days of plodding steadily lower, equities markets rebounded strongly on Friday, helped along by lower valuations and relief about continued (though slower) economic growth in China. The large caps of the Dow and S&P 500 ended the week basically flat, while the Nasdaq, Russell 2000, and Global Dow all fell slightly. Meanwhile, the euro fell to $1.22 for the first time in two years, while the benchmark 10-year U.S. Treasury yield once again hit a record low.


Last Week's Headlines

• To avoid shoving Spain's already shaky economy further into recession, eurozone finance ministers agreed to postpone until 2014 the deadline for cutting the country's deficit to less than 3% of gross domestic product. They also approved €30 billion in immediate assistance to support the country's ailing banks, with additional support postponed until after a September report on the condition of individual banks. Meanwhile, Moody's downgraded Italian sovereign debt by two notches to Baa2.

• Minutes of the Federal Reserve's Open Market Committee indicated that the Fed may have the gun loaded but hasn't yet cocked the trigger on additional economic support measures. However, a divided committee said additional steps might be warranted if the economy were affected by any significant slowdown in China, the eurozone debt situation, or next year's impending budget cuts and tax increases. Members also questioned whether further reduction in Treasury yields, which are already at record low levels, would have much impact.

• China's economy--the second largest in the world--expanded at an annual rate of 7.6% during the second quarter. That's a bit slower than the previous quarter's 8.1%.

• The Commodities Futures Trading Commission and the Securities and Exchange Commission adopted rules defining the types of derivatives that will be regulated under provisions of the Dodd-Frank Act. They include credit default swaps that are traded separately from the risk asset underlying the derivative; financial institutions' overexposure to such derivatives played a key role in the financial crisis of 2008. Other over-the-counter swaps to be regulated include currency-related swaps, interest-rate swaps, and total-return swaps. The decision clears the way for swaps to be traded through clearinghouses and exchanges, a step toward providing greater transparency in financial markets. The CFTC also set December 31 as the deadline for compliance with the rules.

• The SEC also voted to require stock exchanges and the Financial Regulatory Authority to set up a market-wide system over the next three to four years to track and audit all equities trades, executions, and cancellations. The SEC said a single audit trail would make it easier to investigate insider trading, market manipulation, and broad-based market events such as the May 2010 "flash crash."

• According to the Commerce Department, the U.S. trade deficit shrank almost 3.8% in May to $48.7 billion. The decline was driven by higher exports and a drop in the value of imports, primarily industrial supplies and materials.

• Wholesale prices edged up slightly in June. The Bureau of Labor Statistics said the 0.1% increase was largely the result of higher food and auto-related prices, while energy costs fell.



Eye on the Week Ahead

The tide of earnings reports may shed light on the impact of Europe's struggling economy on U.S. corporate profitability. Retail and housing data also will be watched.

Key dates and data releases: retail sales, Empire State manufacturing survey (7/16); consumer inflation, industrial production (7/17);housing starts, Fed "beige book" report (7/18); home resales, Philly Fed manufacturing survey (7/19); options expiration (7/20).


Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012