vaughnwoods

 

Not long ago, Credit Suisse calculated the probability of the US entering another recession at 35%. It was September. In November, they reduced this probability to just 12%. As of December 23rd, the probability was again reduced to 4%. Our domestic economy is showing signs of stability as the following fundamental observations exhibit:

• The US has seen 14 straight months of job gains (Briefing.com)

• Construction Spending has increased in six of the last eight months (Briefing.com)

• Consumer Sentiment has risen in each of the last five months (Briefing.com)

• Initial Claims for Unemployment have been below 400k, for each of the last four weeks (US Department of Labor, Briefing.com)

• Leading Indicators have increased in 16 of the last 17 months (Briefing.com)

• Existing Home Sales have risen in each of the last three months (Bloomberg.com)

• The Existing Homes Supply has declined in each of the last five months (positive for the housing market, Bloomberg.com)

• Industrial Production has increased in five of the last seven months (Briefing.com)

• Retail Sales have increased in 16 of the last 17 months (Bloomberg.com) • Motor Vehicle sales have risen in each of the last four months (Bloomberg.com)

• The ADP Employment Report has been positive in each of the last 21 months (Bloomberg.com)

• Consumer Confidence (a different report than Consumer Sentiment) has risen in each of the last three months (Briefing.com)

• The Unemployment Rate has decreased or held steady in each of the last six months (Bureau of Labor Statistics)

• The ISM Manufacturing Index has been above 50 for 28 straight months (readings above 50 indicate growth in the manufacturing sector, Bloomberg.com)

• New Home Sales have risen in each of the last four months (Briefing.com)

• The New Home Supply has fallen in each of the last five months (positive for the housing market, Census.gov)

• US GDP has risen for nine straight quarters (Bloomberg.com)

 Additionally, the Federal Reserve is keeping borrowing rates near record lows in order to stimulate consumer demand for large ticket items such as automobiles and houses.

Meanwhile, inflation pressures remain subdued. The European Central Bank and the Federal Reserve Board are supporting Europe’s financial system through Dollar/Euro exchanges and three-year loans to European banks. Furthermore, Italy’s short-term debt costs were cut in half at their December 28th bond auction and the yield on Spain’s 10yr bond has fallen nearly 18% from a month-ago levels (WSJ.com).

While the US economy is improving the European economy will struggle. This situation may continue to grind away, affecting volatility in the U.S. markets through the first half of the year. Thereafter a number of new positive economic initiatives should expand our economy. They are (1) coal to natural gas conversion, (2) shale oil and gas projects, (3) grain-a- food-stuffs exports (4) nuclear energy ramp-ups (5) China Gas Turbine Deliveries (6) Auto component deliveries (7) business jet build rates (8) manufacturing automation contracts (9) electric, water and gas conservation and efficiency build outs, and (10) truck sales.

So, sometime during the first half of the year, when things feel dour at best, that is when we are at the low end of the 2012 S&P 500 trading range (est. 1100). When this happens, take this letter out and read it again. We must be constructively patient. The US economy is a $15,000,000,000,000 behemoth. With an economy this large, it takes time for the slow paced recovery to display noticeable results. Therefore, as mentioned in my November letter, once we get through the next two quarters (Q1 and Q2) we may soon be able to say we are better off today than we were one year ago.

I wish you a happy and healthy 2012.

Best Regards,

Vaughn L. Woods, CFP®, M.B.A.

*Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views off Delta Equity Services Corp. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0147

The following sources were used to research and write this newsletter:

- Marketedge.com, Pershing NetExchange Pro, Bloomberg, Credit Suisse, Briefing.com, Standard & Poors, WSJ.com

- US Department of Labor

- Bureau of Labor Statistics

- Census.gov

-http://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/Aussenhandel/ Handelspartner/Handelspartner.psml