Wednesday, October 6, 2010



I don’t usually begin my missives with a quote from someone else, but I have to give kudos to Caroline Baum for this quote in her Opening Remarks article in the September 6, 2010 edition of Bloomberg’s Businessweek . She writes, “It’s easy to be nostalgic for the 1990-91 recession that gave way to the Clinton boom. What will it take to ignite that kind of growth again? The US economy remains almost comatose…. The current slump already ranks as the longest period of sustained weakness since the Great Depression…. Once in a lifetime dislocations will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the banking collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit.”

The portion of the quote in italics was included in Caroline’s article, but it was quoted from Time Magazine in September. However, the year of the quote was 1992, and shortly thereafter, the economy was off to the races for one of the best economic cycles in American history. While I am not predicting a 90’s type recovery, I believe you have to have a long term historical perspective when attempting to understand the cycles of the US economy, and be very wary of the media with their hysterical style of reporting.

While the 1990-91 recession could be considered mild in comparison to the 2007-09 recession, which by the way ended in June 2009 according to the NBER, many of the same problems we are experiencing today were concerns in 1992. Of course, the once in a lifetime dislocations didn’t take years to work out then, and also turned out not to be once in a lifetime dislocations. My point here is to be careful not to get caught up in the sensational, overly pessimistic and simplistic descriptions of our current state of affairs, and the equally inadequate prescriptions for corrective action espoused by various experts.

An article in Barrons quotes Stephen Roach, non executive chairman of Morgan Stanley Asia, on the solutions offered by both parties. He states," Also, the idea that we can come up with a quick fix is ludicrous. Politicians aren’t being honest. They’re saying, ‘Well if you just listen to what my party says, we can turn America around tomorrow.’ That’s a crock. And the American public has lost respect for what politicians are saying on both sides of the isle because these are deep seated problems that have been building over time and there’s no quick fix.” The idea of no quick fix sums it up, but it doesn’t mean unsolvable.

Thomas Donlan also writes in Barrons, “Medicare, Medicaid, Social Security, government retirement programs and military spending already consumed all the government’s $2.1 trillion in tax receipts for fiscal 2010. The rest of the official cost of government-including the spending to create and save jobs and the interest on the national debt-was borrowed.”

Budget cuts, changes in entitlement programs, tax increases and continued erosion in the value of the dollar (inflation) are on the horizon as the American public continues to wrestle with the questions of what do we really want in the way of entitlements, and what are we willing to pay for them.

Meanwhile, some help from the markets, like September’s best in 71 years performance can’t hurt! The DJIA is now up 3.45% for the year, the S&P 500, has posted a 2.45% increase for the year and the NASDAQ is up 4.38%.


The mid term elections are rapidly approaching, and it seems the markets have priced in the prospects of Republican gains in the House of Representatives and possible control of that body. Since the market is always looking toward the future, don’t look for the actual election results to move the markets all that much. In the short term, the market’s prospects will be more focused on the earnings reports this month and the jobs report on Friday, October 8.

The overpromising by the Obama Administration that stimulus would save jobs has cost them their credibility. While it did lessen the effects of the recession, the stimulus hasn’t done much to help unemployment. This is because stimulus is a means of injecting government spending into the economy when it is weak, not a jobs program, per se. Employment only increases when the imbalances which caused the recession have been resolved.

As mentioned earlier, the recession’s official end was cited as June 2009. While many people feel we are still in the grip of recession, the facts don’t bear this out. We are in the recovery phase of the economic cycle, which means we are working our way back to the Gross Domestic Product level of the previous cycle. Because this recovery has been very weak, it is taking longer to reach GDP levels achieved prior to the recession, and it makes everyone impatient. The employment picture should begin to get better once we enter the expansion phase of the economic cycle, which will begin when we get back to the previous GDP levels of the last cycle. No one knows exactly when that will be, but it will be evidenced by lower unemployment numbers.

As we enter the last quarter of 2010, there may finally be a chance for a more pragmatic approach in Washington. It almost seems like we had to go through this exercise in idealism summed up in the quote “change we can believe in”, to reach the understanding politicians will say anything to get elected. The perception by the populace of a government moving so rapidly and unapologetically to the left, against the will of the majority, has led to a rebuke of big government ideas. While government is not the entire problem, it is also not the entire solution. I think if the administration fails to move more to the center, Obama will be a one term president.

At its last meeting, the Federal Reserve stated it stands ready to use Quantitative Easing, being called QE2, to further help the economy. This means the purchase of Treasury Securities in the open market, which will keep interest rates low, but could further erode the value of the dollar. This is a balancing act, and it can be positive for the markets. Rising stock markets mean better economic conditions, which can happen, if the government exhibits the fiscal discipline needed.


For those of you who have brokerage and retirement accounts through Pershing, there is a service called My Edocument Suite, which might interest you. It enables you to view account documents online, and is provided on behalf of Transamerica Financial Advisors, Inc. by Pershing LLC (member FINRA, NYSE, SIPC), a subsidiary of The Bank of New York Mellon Corporation.

On this secure website, you can request a user ID and password that will allow you to access your brokerage account statements, trade confirmations and other documents online. It also enables you to stop your paper statements and have notifications sent to your email when a new statement, confirmation or tax statement (1099) is available. All you need is your account number and a few minutes to answer some security questions. The link is . Call me for assistance.

Gold broke through the $1,300 per oz. level in late September. It belongs in your portfolio, but don’t put all of your eggs there!

DOLLAR COST AVERAGING THROUGH A SYSTEMATIC SAVINGS PLAN IS AN EXCELLENT WAY TO BUILD UP AN ACCOUNT WITHOUT A SIZEABLE INITIAL INVESTMENT.  THIS IS  THE WAY MANY COMPANY RETIREMENT PLANS FUNCTION.  Saving a portion of our pay each month is very important.  Company sponsored pension plans are one method to save and should be used for retirement.  Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES  can be opened, some for as little as $50 per month, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME.


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All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.