The term “Three-peat” was coined (and later trademarked) by the Los Angeles Lakers basketball coach Pat Riley after they won 3 consecutive NBA championships from 2000 – 2002.
While there hasn’t been a repeat champion in any major sport (baseball, basketball, football or hockey) in awhile, the economy and the financial markets now appear to have embarked on a “Three-peat” of their 2010 and 2011 performances.
In last month’s outlook I raised a Growth Alert for 2012. During May, the economic data turned clearly weaker and, as such, I believe we will hit a Growth Problem for the 3rd consecutive year.
Last month I highlighted several key similarities and differences between the May – October swoons in 2010/2011 and this year. May’s economic data has shown an increase in both the positive factors and negative factors with, unfortunately, the negative factors being more impactful. On the positive side, interest rates (US 10yr Treasury) actually fell to all-time lows, commodity prices (led by gasoline) continued to decline and the US housing market (helped by record low mortgage rates) continues to stabilize. On the negative side, the jobs market in the US has stalled (higher new unemployment claims and lower new job creation), the specter of the US “Fiscal Cliff” draws ever closer while our elected officials in Washington seem further apart, and the Euro zone problems appear to be getting worse.
Surprisingly, two areas that continue to show improvement are US Consumer Confidence and US Consumer Spending. The decline in gasoline prices and the improvement in housing are certainly factors at work here. Given that consumer spending accounts for 70% of the US economy this trend, if it continues, may moderate the size of the growth problem.
The direction of the next few months should take shape later this month. On June 17th Greece holds another round of elections, which should determine whether they remain a part of the European Union (EU) or not. June 19-20 is the next FOMC meeting (Federal Reserve Open Market Committee) which should determine what happens to Operation Twist (set to expire on 6/30/12) and whether the Fed is prepared to consider more quantitative easing to help stimulate the economy.
For now I am remaining cautious. While we appear to be having a Three-peat” on the growth front, I do not believe we are headed for a recession. Also, after rather steep declines in 2010 and 2011, the financial markets rebounded in the fall each year to finish the year with gains of 11% and 5.5%, respectively (basis Dow Indus Avg.). I see no reason that can’t happen again in 2012.
I will continue to monitor the economic and financial indicators and, in accordance with your risk tolerance, time horizon and investment objective, make any appropriate adjustments to your portfolio. Please call me if you have any questions or concerns.
Although the information included in this report has been obtained from sources we believe to be reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
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