It was a weak week in the world’s financial markets and
these headlines from The Wall Street
Journal, Saturday, June 2, and Sunday, June 3 editions, leave no doubt of
that.
·
Grim Job Report Sinks Markets
·
Euro-Zone Reports Deepen Gloom
·
Asia Weakness Heightens Fears of
Contagion
·
Brazil Loses Steam as World Slows
·
Dow Tumbles Into Red for the Year
·
Raw Materials in a Free Fall
·
Government-Bond Yields Sink to
Record Lows
But, let’s keep something in mind. Headlines like these are
designed to do one thing – get you to keep reading. By doing so, the publisher
can sell more papers and charge higher rates for advertising. Fair enough.
Unfortunately, there’s an unintended consequence to this
type of hyped headline. It has the potential to scare the public into doing the
wrong thing at the wrong time for the wrong reason.
The fact is, scary things happen every day, however, that
should not derail a well-thought out plan that has checks and balances in place
to try and distinguish between short-term noise and long-term secular change.
Our job as a financial advisor is to dig beneath the
screaming headlines and get to the crux of what’s happening. With a clearer
understanding of the real issues, we can do a better job of discerning how
changes in the economy impact the markets, and, ultimately, your goals and
objectives. And, with that information in hand, we can make course corrections
as needed to help keep you on track.
IN THE CLASSIC MOVIE THE
SOUND OF MUSIC, the nuns asked (or rather sang),
“How do you solve a problem like Maria?” For the past couple years, the leaders
of Europe have been asking, “How do you solve a problem like over-indebtedness?”
So far, the debate has been framed as a choice between growth or austerity,
according to the BBC. As the biggest member of the euro zone, Germany has been
aggressive in acting as the enforcer of the austerity route for its weaker
sister countries. Greece, for example, had to agree to major austerity measures
in return for bailout money. The result? The economy hasn’t improved and the
people are revolting.
Countries in favor of austerity believe spending cuts and
general belt tightening are the ticket to lower budget deficits. The growth
camp favors more government spending on things like infrastructure and energy
technology as a way to create more jobs and help a country grow its way out of its
debt problem.
Recently, with the election of Francois Hollande in France,
and the popular support of Alexis Tsipras in Greece ahead of the upcoming Greek
election, the support for austerity is starting to fade and is being replaced
by a growth agenda, according to BusinessWeek. Germany, however, remains firmly
in the austerity camp.
But, here’s a question, “Can we have austerity and
growth?”
As complicated as our world is, the debate between austerity
and growth might be a false choice so says Christine Lagarde, head of the
International Monetary Fund, according to the BBC. She and others argue that
given the precarious state of some countries, a two-pronged approach might be
needed. First, spend more in the short-term to stabilize the economy, then
gradually tighten the belt down the road when the economy is better able to
handle it.
In theory, that sounds like a less painful way to solve the
deficit conundrum. In reality, it may not be that easy.
For years, countries such as Greece and, yes, even the U.S.,
have lived on borrowed money and borrowed time. It appears the bill for this
“living beyond your means” spending is coming due sooner rather than later as
evidenced by the continuing economic stagnation in many countries.
While one can hope the politicians and economists will come
up with a plan to steady the ship, we can’t bank on it. We have a
responsibility to you, as our client, to help you meet your objectives
regardless of what happens in Washington or Athens or Berlin. And, we take the
responsibility very seriously.
Weekly Focus – Think About It…
“When asked in surveys, most Americans believe that spending
money on personal desires brings greater satisfaction than giving it away. But,
when participants actually were given the chance to do that, to spend $20 on
themselves or give it away, it was the act of generosity that led to greater
happiness. To care is good.”
--Dacher
Keltner, professor of psychology at the University of California-Berkeley, commencement
address at UC-Berkeley on May 14, 2012
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