J.L. Davis Weekly Market Update 10/18/2010

QUOTE OF THE WEEK:
“Kind words are the music of the world.” – F. W. Faber

THE MARKETS:

Fortune magazine showcased a headline on Friday that read, “Who can magically fix the economy?” A picture of a magician pulling a skunk out of Uncle Sam’s hat was comically pictured below. The article went on to read: “There is nothing that the U.S. government or the Federal Reserve or tax cutters can do to make our economic pain vanish overnight. There are no all-powerful, all-knowing superheroes or supervillains who can rescue or tank the economy all by themselves.”

Do you agree with the quote above? We do. The simple truth is, no one has a magic wand. Some politicians peacock as if they do. Some analysts would have you think they do. But as a nation, we’ve suffered a huge financial setback. Home values – investment accounts – jobs – all have taken a big hit. It took us a long time to get into this mess, and it will take us a long time to come out of it. Just because the “great recession” technically ended in June of 2009 , doesn’t mean we’ve healed. Despite the best efforts of the Fed, Congress, President Obama, and the famous talking heads, the recovery will take time.

So what’s the good news? We’re headed in the right direction and Americans seem to be sensing that. For the third straight month, retail sales are on the rise nationwide. Shoppers spent more than $367 billion at retailers in September, which reflects a 7.4% year-over-year increase. Because personal consumption expenditures comprise 70% of national output, these healthy percentage gains create a solid base for U.S. Gross Domestic Product (GDP). The level of total U.S. retail sales has now recovered two-thirds of its recessionary peak-to-trough decline from late 2007 through the end of 2008.

In other positive news, since June, the private sector has added an average of 85,000 jobs a month. By contrast, the economy lost 8 million jobs in 2008 and 2009.

Speaking on Friday, Federal Reserve Chairman Ben Bernanke said banks are slowly becoming more proactive in seeking out credit-worthy borrowers, and added that he expects a pickup of economic growth next year due to a "somewhat faster pace" of household spending. Tempering his optimism, he did express that economic growth would continue to be "relatively modest" due to persistent high unemployment and dampened consumer demand.

One of Bernanke’s comments is particularly noteworthy in the context of this discussion. "Sustained expansion must ultimately be grown by private demand," he said. So regarding the “magic wand” we mentioned earlier, if anyone has it, it looks like it is the American Public. Hire people – lend money – spend money. Take these actions, and the wheels of capitalism will turn.

ECONOMIC CALENDAR:
Monday – Industrial Production
Tuesday – Housing Starts
Thursday – Jobless Claims, Leading Indicators, Philadelphia Fed Survey
Friday – G20 finance ministers and central bank governors meet in Seoul, South Korea

HEADLINES:

President Barack Obama will press Congress to approve $250 stimulus payments to seniors, veterans and the disabled, the White House said Friday amid persistent worries about the US economic recovery. The Social Security Administration earlier announced it would not be making cost of living adjustments to pension payments to seniors for the second year running.

Countrywide's notorious ex-CEO Angelo Mozilo settled with the Securities and Exchange Commission over a civil fraud and insider trading case on Friday. Mozilo agreed to repay $45 million of profit made and another $22.5 million in civil penalties, the SEC said.

U.S. retail sales rose for a third consecutive month in September, posting a stronger-than-expected increase that should fend off fears of a double-dip recession but doesn't signal a strong recovery.

U.S. President Barack Obama on Saturday said he wants to strengthen the labor market by closing tax loopholes that would encourage companies to send jobs overseas. Mr. Obama said he's aiming to replace the tax loopholes with new policies that would allow companies to write off the cost of new equipment, provide tax breaks for clean-energy manufacturing and make the research and experimentation tax credit permanent.

The U.S. government debt is expected to increase by 32% over the next five years if U.S. economic growth stays as slow as it is now, according to the International Monetary Fund.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

These are the views of Platinum Advisor Marketing Strategies, LLC, not necessarily those of J.L. Davis or Multi Financial Securities Corporation, and should not be construed as investment advice (neither of whom gives tax or legal advice). All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

SOURCES:
Marketwatch
The Wall Street Journal Online
Barrons
CNN Money

http://money.cnn.com/2010/10/14/news/economy/no_fix_economy.fortune/index.htm
http://money.cnn.com/2010/10/14/news/economy/no_fix_economy.fortune/index.htm
http://www.8newsnow.com/story/13333775/consumer-spending-on-the-rise, http://www.reedconstructiondata.com/news/2010/10/september-u.s.-retail-sales-solid-but-inflation-lacks-sparkle
http://www.courthousenews.com/2010/10/15/31117.htm
http://www.courthousenews.com/2010/10/15/31117.htm
http://www.courthousenews.com/2010/10/15/31117.htm
http://www.econoday.com
http://www.google.com/hostednews/afp/article/ALeqM5iKyrgFGLjG4s_fPt1BNS_1iuKXHw?docId=CNG.615e81fcbfde979d9029b9abee0c4ef6.681
http://www.thestreet.com/story/10890475/1/foreclosure-crisis-spreads-weekly-financial-recap.html?cm_ven=GOOGLEN
http://online.wsj.com/article/SB10001424052748704779704575553811315645280.html?mod=WSJ_newsreel_business
http://online.wsj.com/article/SB10001424052748704706904575555643437459432.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsSecond
http://blogs.wsj.com/economics/2010/10/16/number-of-the-week-slow-growth-adds-to-deficit/