We Are All Linked

I recently viewed a news report on the economic troubles in Europe. This report focused on Spain’s economy, how it’s housing market remained in steep decline, unemployment was 24%, close to 50% unemployment among youth, and how despite having above average college graduation rates, many graduates were leaving Spain for countries with better employment prospects. There were several interviews spliced into the report and I was struck by one, a young, 30-ish, college educated women who said, “We are all linked now OK, so if we are going to hell, the Germans are coming with us”.

The European economy has slowed to a recession across the region-not unexpected, but even Germany and France, the regional pillars have stalled, along with obvious weaker nations. We are now seeing weaker economic data in the U.S., China, Japan, and other nations, largely due to declines in Europe.

We and others warned early in the year that “policy error” was the major risk to markets this year and as we approach the second half of the year the risk of policy decisions will increasingly come into focus. Will Europe’s leaders commit the necessary resources to stabilize and integrate their financial systems and restore growth within their economies?
Will China’s new leaders be able to keep their economy growing amidst a European slowdown? Will leaders in the U.S. be able to keep our economy moving forward with a November election and looming decisions on tax and fiscal policyinflatable water slides canada?

We will know the answers to all of these questions soon, but one thing we know now is that “we are all linked”. All of the major economies have decisions to make, and all will feel the impact of each other’s decision.

Some things we cannot control, and some we can. Do I want to stay invested for the long-term or hide in cash (which pays close to nothing)? Do I want to reduce my risk level or become more aggressive? These are the things we can control and should review during times like this.

Many have commented that this feels like 2008 again. Just a reminder, the S&P 500 Index is still up 89% since March 2009. The average bull market lasts 68 months (currently at 38 months) and gains 176% from bottom to peak. If my math is correct we still have 30 months on average left in our bull market and 87% still to the upside average!

Please call us with any questions or concerns. Feel free to forward this to others who might be interested.

Have a great day!

The All Star Team