BDC Newsletter

August 10, 2011

Market Review

In April of this year, Standard and Poor's, the global credit rating agency, put the United States' debt rating on credit watch with a negative bias.  Knowing this, the President and Congress dithered while time ticked away.
 
Our equity markets peaked on May 2nd, then corrected through late June.  In late June, we saw a nice rally in stocks - based, we believe, on (1) the prospects for positive reports for second quarter corporate earnings and (2) on constructive deliberations regarding decreasing the rate of increase in our national debt.
 
Please remember all the talk about the August 2nd deadline to have a signed debt ceiling bill in place.  Also, remember that in order to have a bill printed, reviewed and signed by August 2nd, the President and Congress had to have agreed upon and voted to pass this bill by July 22nd.  Let's also remember that Standard and Poor's told our Treasury Department, in April, that in order to avoid a debt downgrade, the reduction in the rate of our national debt increase had to be at least $4 Trillion over 10 years. 
 
The President and Congress didn't come close to $4 Trillion; they also didn't come close to meeting their self-imposed deadline of July 22nd.  With this as a backdrop, stocks started selling off on July 22nd.
 
Given these most recent acts of political brinksmanship, we are frankly not surprised that recent economic reports are painting a picture of a slowing - albeit still growing - economy.
 
Our equity holdings, along with the market, are down for the year.  As we have shared with you before, we have been under weight in equities for most of 2011 and we believe those equities we are continuing to hold represent good value.  In most cases, if we didn't own them, we would certainly be looking to buy them.  Our bonds continue to outperform stocks, and our precious metals positions - while getting quite overvalued on a short-term basis - continue to perform well.
 
Before we would be inclined to make new, or additional commitments to most equities, we need to see markets stabilize, build a base of support, and then breakout to the upside on expanding volume.  We have higher than normal cash positions to preserve capital and to fund future investment opportunities as they become apparent to us.
 

Current Perspective

History of the Federal Debt Ceiling Limit and Budget Deficits:
 
                    Debt Ceiling                               Federal Budget Deficit                    
 
1961             $     298  Billion                              $     23   Billion
1971             $     430  Billion                              $   121   Billion
1981             $  1.080 Trillion                              $   184   Billion
1991             $  4.145 Trillion                              $   420   Billion
2001             $  5.950 Trillion                              $   153   Billion
2008             $11.315 Trillion                              $   455   Billion
2009             $12.394 Trillion                              $1.416  Trillion
2010             $14.294 Trillion                              $1.294  Trillion
2011             $17.000 Trillion                              $1.650  Trillion
2013            ...Back for More...

These debt figures and budget figures do not include the unfunded future liabilities of Social Security, Medicare and Medicaid.
 
                         2010 Federal Tax Revenues           2010 Federal Spending

                         $ 2.4 Trillion                                        $ 3.7 Trillion
 
*Source:  U.S. Department of the Treasury, Financial Management Service, Treasury Bulletin (referenced years).  Bureau of the Public Debt, Monthly Statement of Public Debt, CRS calculations.  Totals may not sum due to rounding.

We have now gone 2 1/2 years without Congress passing a budget.

Even with the latest debt ceiling deal, our official debt will more than double over the next 10 years. 

With all the bailouts and stimulus packages of the last three years, we have fewer Americans working today than were working in 1999.

Looking Ahead

Like American families, governments at all levels must rein in spending and balance their budgets.  Like most American families, our government cannot afford to give itself a raise (raise taxes) at this time.

We must reject political ploys that seek to divide us and demand that those in Washington shape up or we will surely ship them out.

A personal request:

Now, more than ever, families are looking for experienced financial advice from someone they can trust.  If you know of family, friends or small business owners who are looking for an advisor, we would appreciate you sharing our name with them.
 

 Selected Quote:
"So, my fellow Americans — ask not what your country can do for you — ask what you can do for your country...Let us go forth to lead the land we love, asking His blessing and His help, but knowing that here on earth God’s work must truly be our own".   
        
-   John Fitzgerald Kennedy, 35th President of the United States

Yours truly,

Gary

Gary W. Wood, CFP®,

President, Benefit Design Corporation
Branch Manager, Raymond James Financial Services, Inc.  Member FINRA / SIPC

Securities offered through Raymond James Financial Services, Inc.
Member FINRA / SIPC

Benefit Design Corporation is independent of Raymond James Financial Services, Inc.  The information contained in this newsletter does not purport to be a complete description of the securities, markets, or developments    referred to in this material.  Any opinions are as of this date and are subject to change, and are those of Benefit Design Corporation and not necessarily those of RJFS or Raymond James.