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What Happened? Why Did It Happen? Is It 2008 All Over Again?

Just a quick note to keep you informed on what All Star Financial is thinking about the world we live in these days. Actually let”s take the last 10 business days in review:

  1. The United States lost its AAA rating.
  2. The Federal Reserve came out with the ZIRP (zero interest rate policy) until 2013.
  3. The European community promised to buy bonds to help boost the economy.
  4. Europe also banned the ability to short stocks.

The main reason behind all of these actions is simple, “The distrust in policy makers!” You can also blame a structural debt problem, slower growth globally and the resulting shock to the financial markets that has created this enormous amount of volatility.

A question that I am sure is on everyone”s mind, can this be a 2008 again? It sure feels like it but it has quite a few differences. In 2008, the bubble was caused by leveraging our equity and then having to deleverage the monster. At that time the government and the Fed had both fiscal and monetary choices. Now in 2011, the Fed has used all of its bullets, and the President and congress have had very little imagination from a fiscal policy perspective.

The economy is like an airplane, it needs to maintain speed in order to maintain altitude or it will fall and potentially crash. With 2% growth now estimated to slow to stall speed, we could be in trouble.

Most experts believe there are four potential scenarios:

  1. A “V” bounce (highly unlikely).
  2. Muted growth with a bounce back (better chance but requires jobs that creates confidence and spending).
  3. An emerging market growth spurt alongside a domestic economic slowdown (stall)
  4. A global recession that would take better fiscal decisions to have a chance to climb out of.

We believe scenario #3 is most likely and for that reason we will continue to overweight the emerging markets and use our cash position to buy bargains when the domestic economy gives us the O.K. sign.

After taking chips off the table, our best bet is to be patient and continue to look for value!

Please give us a call if you have any questions or concerns. We are here to listen to your concerns and answer all questions.

Have a great day!

Bob and the All Star Team

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