Now What: A Guide to Retirement During Volatile Times

Is a compromise in the works for the Fiscal Cliff?


Markets appeared to be in a holding pattern last week as traders await a fiscal cliff deal. Equities finished the week slightly in the red, pushed down by fresh concerns that lawmakers may not reach a deal this year. For the week, the S&P slid 0.32%, the Nasdaq trimmed 0.23%, and the Dow slipped 0.15%.

Despite ongoing talks, no fiscal cliff resolution is imminent. While Congress had expected to recess last Friday, lawmakers are delaying their holiday break to see the process through and may stay until Christmas, if necessary. In a new twist, sources close to the talks say that House Speaker John Boehner has offered up tax increases on incomes above $1 million as part of a deficit reduction deal to move negotiations forward. In exchange, Republicans want tax cuts extended for all incomes under that amount, as well as spending cuts to entitlement programs. While we don’t know if a deal is around the corner, this shift toward compromise on both sides is an important breakthrough.

Last week, the Fed made a huge, game-changing step towards adopting a more aggressive, expectations based monetary policy. On Wednesday, the FOMC announced QE4, promising to buy $45 billion in longer-term Treasuries on top of its monthly purchase of $40 billion in mortgage-backed securities. In an unprecedented move, the Fed also announced that it will keep interest rates low until unemployment falls to at least 6.5%, as long as inflation remains below 2.5%.

Tying monetary policy to specific guideposts is a fundamental shift in the way the Fed does business and moves it much closer to fiscal policy. We have hopes that this bold move will entice business leaders to move some of their cash stockpiles off of the sidelines and into the markets, giving the economy a much-needed boost. At the same time though, we’re concerned about how the Fed will ever be able to disengage (by selling off bonds) from this massive purchasing program without sending markets into a decline. Only time will tell the whole story. Next week analysts will be watching the release of GDP and unemployment numbers and waiting hopefully for more news from Washington.

On a final note, we feel compelled to acknowledge the tragic loss faced by the families of Newtown, Connecticut. Our hearts go out to the community who unjustly lost 26 precious lives. Though words cannot express the pain they are facing, may we at least be reminded how important it is to cherish our friends and family members with every moment we have.

NOTE: This will be our final commentary of 2012. Our next edition will be an annual recap sent on Tuesday, January 3rd. We urge you to take a break from the hustle and bustle of financial and political news to enjoy some undistracted time with your family and friends during the final weeks of this year, as we will also be doing.

ECONOMIC CALENDAR:

Monday: Empire State Mfg. Survey, Treasury International Capital

Tuesday: Housing Market Index

Wednesday: Housing Starts, EIA Petroleum Status Report

Thursday: GDP, Jobless Claims, Existing Home Sales, Philadelphia Fed Survey

Friday: Durable Goods Orders, Personal Income and Outlays, Consumer Sentiment

means not available.

HEADLINES:

China promises to maintain prudent monetary policy in 2013. China’s new Communist Party leaders reiterated their intention to closely monitor the country’s still-fragile economy in case more policy easing is required. Although China’s economy is recovering, weaker-than-expected November data indicates it’s not out of the woods yet.

U.S. factory output jumps in November. Manufacturing rebounded from Superstorm Sandy by posting its largest monthly increase – 1.1% - in a year. Strong auto production largely drove the gain, reigniting hope for the domestic economic recovery.

Holiday retail shopping takes off. Despite worries about the effects of Superstorm Sandy and the fiscal cliff, retail sales rose 0.3% between October and November, driven by lower gas prices and a steady job market. However, with a decline in consumer confidence, retailers are still concerned that fiscal cliff worries may dampen December sales.

Survey of economists/analysts says fiscal cliff is at top of worries. Over 35% of respondents to the CNBC survey say that the fiscal cliff is the biggest threat to the economic recovery. Although 41% believe that lawmakers will fail to reach a compromise in 2012, over 40% of respondents believe the issue will be resolved within the first weeks of 2013.



QUOTE OF THE WEEK:

‘We grieve for the families of those we lost. And we keep in our prayers the parents of those who survived’ President Obama





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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets



The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.

The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.

The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.

The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.



By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.



Will Lawmakers push investor’s over a cliff?


The combination of unease in Europe and political bickering in Congress set equity markets on edge last week. In spite of the turbulence, key indices still managed to close positive for the week, with the S&P 500 gaining 0.5%, the Dow gaining 0.12%, and the Nasdaq gaining 1.5%.

Markets slid Friday after comments by House Speaker John Boehner indicate that fiscal cliff talks have stalled. While the Democrats are seeking $1.6 trillion in tax increases (aimed largely at wealthy taxpayers), as well as $50 billion in additional stimulus spending, Republicans are focused on reducing the deficit through closing tax loopholes and reducing entitlement programs. Since these are essentially the same issues that have been argued over the last year, it seems as though lawmakers are more interested in theatrics than in resolving the issue before the end of the year.

A Greek aid deal was finally reached Tuesday as European ministers convinced a skeptical International Monetary Fund (IMF) that their formula for getting Greece back on track had good odds of success. The deal will cut Greek interest rates and give the ailing nation additional time to pay back rescue loans while giving it a 34.4 billion-euro loan installment in December. As part of the agreement, Greece’s debt-to-GDP ratio is expected to decline from 190% in 2014 to 124% in 2020. We hope – rather than expect – that Greece will be able to meet the terms of its new deal. Markets appeared to share our skepticism and did not show much reaction to the news.

Next week will see the release of some key economic data, including November jobless claims, which we expect to come in lower as the effects of Superstorm Sandy continue to fade. Although Sandy hit in the latter days of October, the Labor department conducts its payroll survey on the 12th of each month, meaning that November data will capture the effects of the storm. We’ll also be able to take a peek at the preliminary consumer sentiment report, which analysts will pore over to get a sense of what holiday retail numbers might look like. We’ll keep you posted. Have a great week!

.

HEADLINES:

Chinese manufacturing expands in November. In a further sign that China may have turned the corner, the country’s official manufacturing index rose to the highest level in seven months. Economists believe that the country may experience additional growth in December due to Christmas.

European rescue funds downgraded. Moody’s Investors Service downgraded the Eurozone funds responsible for bailing out periphery nations to Aa1 from Aaa. The move was prompted by concerns about the high correlation in credit risk between the rescue funds and the countries funding them.

Investors flock to Treasuries. Despite the risks posed by the fiscal cliff, investors can’t get enough U.S. Treasuries. Reversing a 6-month trend, Treasury purchases topped corporate bonds as investors piled on, seeking asset protection rather than investment growth.

Corporations rush to issue debt in 2012. Record-low rates and potential tax law changes are driving a gusher of new corporate debt. The amount of investment-grade and high yield bonds issued this year is already at a record $1.2 trillion and is likely to increase before the new year when applicable tax laws may change.



QUOTE OF THE WEEK:

" You're happiest while you're making the greatest contribution.” - Robert F. Kennedy


Share the Wealth of Knowledge!

Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!



If you would like to opt-out of future emails, please reply to this email with UNSUBSCRIBE in the subject line.



Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets



The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops. The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.

The Chicago Board Options Exchange Market Volatility Index (VIX) is a weighted measure of the implied S&P 500 volatility. VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized.

The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.

The Conference Board Leading Economic Index (LEI) is a composite economic index formed by averages of several individual leading economic indicators, which are weighted to produce the complete index.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

.



By clicking on these links, you will leave our server as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.