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The financial markets generally are unpredictable. So that one has to have different scenarios.. The idea that you can actually predict what's going to happen contradicts my way of looking at the market. ~ George Soros
MARKETS:
U.S. stocks fell sharply Monday morning as investors' renewed concerns over the financial health of European governments triggered a flight to safer assets.
Both the blue-chip index and the S&P 500 have slid for three straight weeks, marking their longest losing streak since August. Though lengthy, the slide had been relatively shallow heading into the week. The Dow was down 2.3% in the three-week period that ended Friday.
European bourses were broadly lower Monday after Standard & Poor's cut its outlook on Italy's credit rating to negative from stable over the weekend. Adding to the downbeat tone, Spain's ruling Socialist party suffered heavy losses in regional elections. It didn't help that Iceland's most-active volcano erupted, restricting flights over the island and raising the specter of another round of European airline disruptions.
"The concern is one of contagion," J.P. Morgan Asset Management market strategist Joseph Tanious said. "If you have a 'soft restructuring' in Greece, it could open the door to a financial catastrophe. Investors are asking, 'What does this mean for the remaining peripheral countries?'" he said.
Besides the overseas news, there were also a handful of domestic items weighing on investor sentiment, such as accusations that Bank of New York Mellon took advantage of clients while trading currencies, plus state attorneys generals' renewed effort to investigate the mortgage industry.
There were no major economic indicators scheduled for release, nor sufficiently important corporate earnings reports, to deflect investors' attention from the overseas news.
We are operating in a defensive period in an overall bullishly configured market. Supply has gained control of nearly all of the intermediate-term indicators suggesting caution for the near-term in regards to adding new money and also wealth preservation measures in regards to current holdings which break down on either a relative or absolute basis.
INFLATION CONSPIRACY?
Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. ~ Ronald Reagan
Household budgets are certainly impacted by the recent and rapid increase in the cost of gasoline. Frustration mounts when the government reports low numbers for core inflation which excludes food and energy. (The items are excluded due the volatility of prices). Nevertheless, we want to ask the people at the Fed, "Don't you ever shop for groceries or gasoline?" The two items we buy most frequently are, in part, responsible for the fears of rampant inflation lying in wait for us.
However, deflation remains the dominant force in our economy, especially in housing even though a prolonged downtrend is not generally accepted, yet. Cash for Clunkers was expected to crate auto sales for several year which has not happened. Car sales have rebounded though prices have remained soft with buyers waiting for rebate offers to open their wallets.
Other areas of our economy continue weakness in pricing as demand has not returned since the end of the 08-09 recession. Referencing an article in the BusinessInsider.com, the Bureau of Labor Statistics data indicates these sectors remain under deflationary pressure:
Apparel
Energy Services
Lodging away from home
Household furnishings and operations
Video and Audio
Recreation
Even homeowners have an assumed rent equivalent cost in calculating inflation. With housing at 33.8% of the index and transportation at 17.6%, it will be many more years before real inflation returns as an economic driver.
The other inflation fear is the government's money printing expedition of the past few years. During periods of economic growth, monetary expansion has been inflationary because demand is present to use the new dollars to buy more goods and to expand borrowing. In today's "new normal" the demand is not present. The newly printed money is being "saved" by the banks for capital to protect against more bad loans and possibility of have to buy back bad mortgages sold to Fannie and Freddie.
Borrowers are in short supply. What loans bankers are willing to make are most likely matching the old adage, "If you don't need the money, the banker is your friend. If you do need the money, the banker won't part with his." Tighter credit standards and the population's new anathema for debt have more than offset the government's monetary expansion, hence deflation continues to be a bigger concern for central planners. Deflation works its way through various sectors on differing schedules, but it remains the dominant trend for several more years.
Money is still not moving
BOOMERS:
The boomers' biggest impact will be on eliminating the term "retirement" and inventing a new stage of life...the new career arc. ~ Rosabeth Moss Kanter
Most middle-income baby boomers are delaying their retirement by an average of five years, according to a new study.
The study, released by the Bankers Life and Casualty Company Center for a Secure Retirement, found that 73 percent of middle-income boomers are rethinking retirement and of those, 79 percent are delaying their retirement by an average of five years.
The study, Middle-Income Boomers, Financial Security and the New Retirement, which focused on 500 middle-income Americans between ages 47 and 65 with income between $25,000 and $75,000, found that one in seven (14 percent) believe that they will never be able to retire due to the turbulent economy.
According to the study, 71 percent worry about outliving their money once they retire, 68 percent have experienced a decline in the value of their retirement accounts within the past three years and more than half (55 percent) have saved less than $100,000. One-fifth (19 percent) have saved less than $10,000.
The CSR's study found that three out of four (75 percent) expect that their retirement will involve work in some form and more than half (57 percent) say that they will have to work for financial reasons.
Other interesting findings of the study include:
· Uncovered health-care expenses (80 percent), inflation (79 percent) and living longer than their money lasts (71 percent) are the top three financial concerns that middle-income Boomers have about retirement.
· Pensions and guaranteed income are what sixty percent (60 percent) of middle-income Boomers envy most about the retirement of previous generations.
· Three out of four (73 percent) middle-income Americans age 47 to 65 say that their financial situation, not age, is now the key indicator for when to retire.
· Three out of four (75 percent) middle-income Boomers expect to work in retirement; more than half (57 percent) of those expect they will have to work for financial reasons.
· Two out of three (68 percent) middle-income Americans age 47 to 65 have experienced a decline in the value of their retirement accounts since 2008; one-third (30 percent) of those have not seen any rebound in value as of March 2011.
The study was conducted in March 2011 by the independent research firm The Blackstone Group. A nationwide sample of 500 American baby boomers (ages 47 and 65) who are not yet retired and have an annual household income of between $25,000 and $75,000 participated in the Internet-based survey. Significant sub-sample differences were tested at the 95 percent confidence level.
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