October 2011

Kreitler Financial:

We commented in our July newsletter the world is going through huge changes and we are on a "Journey." We know where we came from, but the path to where we are going remains uncertain. Many of the events we see happening around the world are steps on this journey - some forwards, some backwards. We believe it is easier to deal with the uncertainty when you realize it is all part of the Journey. The uncertainty, of course, makes investing most challenging.

We think we see some good news so let us lead off with this. On the fringes of ideas being bantered around we see people beginning to challenge America to rejuvenate itself. We saw this first in Thomas Friedman and Michael Mandelbaum’s new book, That Used to be Us. "We need to study harder, save more, spend less, invest wisely and get back to the formula that made us successful as a country..." We are also hearing this challenge from others. Perhaps this view will grow.

There is other good news, from Europe, where their financial problems have been our number one concern. We are beginning to see signs of willingness to address their two basic problems: 1. Who will own the bad debt when it is written off (bad debt has to be written off even if they don’t use the word "default") and, 2. How to get countries back to where they limit spending to their revenues; or find someone who will pay for the shortfall? It is not pretty but we think we see progress. In the end, we think the Germans will give in on principle and decide to absorb some of the losses from the southern European countries. They will decide holding Europe together is the number one priority. The likely impact is to reduce their long term competitive position in the world.

In the United States the debate seems to be getting more vocal, probably no surprise since the election cycle is heating up. We see progress in that the major issues are finally on the table. However, progress is likely to be slow until after the elections. Many complain Washington does not seem to be able to resolve even minor issues (e.g. the deadlock on FEMA funding after Irene). We think resolution is difficult because the minor issues are really big issues on which neither party is willing to yield. States also have huge challenges and it is interesting the variety of ways they are trying to solve them. In Hartford the new governor has promised that the "Connecticut is open for business" and there are initial signs to support this.

With world finances very uncertain, it is not surprising that investors have kept markets so volatile. The movements are large as investors struggle to project the future. Just since May the high to the October intra day low, global stock markets (as measured by the S & P 500) dropped 20 percent. The US dollar has been strong as investors fled to the safety of the "least ugly" currency. The strong dollar has made foreign stocks look worse versus US stocks. Bonds have been much stronger than we had anticipated, as the Federal Reserve has driven interest rates to extremely low levels. Raymond James analysts commented in mid-August that the tremendous selling pressure in US stocks looked like the beginning of a bottoming process. We are hopeful this will hold true. September and October are historically the worst months for stocks. Good news that has driven stocks higher in the last several days includes hope for progress in Europe and better numbers on the economy.

With our "Multi-Scenario Investing" we recognize there are many possible outcomes which could have widely different impacts on financial markets. We are designing portfolios with this in mind and in recent months suggested relatively few changes. We continue to look for information that challenges our views of what is happening and will suggest changes as we see it appropriate. Yes it is an interesting time as we continue on our Journey.

We have resumed our popular Wednesday’s at Mory’s / Thursdays at The Graduate Club series of monthly luncheons for the fall. Upcoming dates include October 20th at The Graduate Club and November 16th at Mory’s. Our discussions are always worthwhile. Please contact Amy at (203) 867-4396 or to reserve a space.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Robert and Charles Kreitler and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index. Currency investing is generally considered speculative because of the significant potential for investment loss. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.
Bottom Bar
Contact a Financial Advisor