03|04|2016

“Dear Washington, Please learn from history!”

In August of 2011 Washington allowed the Debt Ceiling to rise, but under much duress. It was felt they didn’t increase it enough, they waited too long, and the deficit spending cuts resolved were too minor of a solution to the growing debt issue.

Why discuss 2011? While so much attention is being placed on the budget and subsequent Government Shutdown, the greater concern lies in the debt ceiling.  Jerry Webman, Economist for Oppenheimer Funds, estimates that the Government Shutdown detracts 0.1% from 4th quarter GDP per week.

The Debt Ceiling can have major implications to our economic state, including causing our soft growth environment to retreat into contraction and lead to a recession. It’s believed that this course of action has very little chance of occurring, but is something to be aware of.

While so much focus is being paid to what happens in the U.S. with our political inability to reach a compromise on the budget, affordable care act, and the debt ceiling; I feel that much positive economic data, both locally and abroad are being missed in market performance.  Should our government find a way to resolve the current standoff in an equitable manner, we should see quite the resurgence in equity markets, as was the case in 2011:

Eurozone: The Eurozone is showing a strong PMI at 52.2 and increasing (Under 50 indicates contraction, over 50 indicates expansion).  Also, unemployment is expected to level off late this year and decrease into 2014, currently sitting at 12%.

Japan: Housing starts are up 8.8% through August and retail sales were up 1.1%.

China: Chinese PMI sits at a 6 month high of 55.4 and Q3 GDP is expected to be in excess of the annual rate of 7.5%.

UK: Construction PMI stayed well above the expansion threshold at a mark of 58.9 for September.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services.  Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

If you would like an in-depth analysis of your current positions and allocation, please feel free to call Jason Roque at 719-313-7536 to schedule an appointment.

Sources: mfs.com, oppenheimerfunds.com, and morningstar.com

* Financial Action, Inc. is a Registered Investment Advisor.