Happy New Year!
We trust that you enjoyed a safe and peaceful holiday season. Despite the challenges and difficulties of the past year, we see reason to be hopeful for what 2012 has in store.
One of the main reasons is that we see so many individual success stories in the work we do with so many of you. Sometimes that success comes in the form of wealth accumulation, but just as often it comes after the creation of a financial plan, bringing direction and understanding to your personal and financial path. At other times, it comes after steps are taken to achieve simplicity by consolidating investment accounts. The common thread in each case is the willingness on the part of all parties to thoughtfully consider what really matters, and then agreeing to honor that consideration, personally and financially.
Whatever 2011 sent your way, we know that we can help you find greater peace and prosperity in 2012.
Looking Back at 2011 and Ahead to 2013
While we would always prefer better overall market performance than what we experienced in 2011, we still feel there is a strong case for remaining active participants in the capital markets. We remain impressed with the improvement experienced by many of the companies and industries we are exposed to. Corporate balance sheets and earnings are generally strong, setting the stage for what should be continued profits for shareholders.
The major downward drag on the market has been driven by concerns about the strength and depth of the U.S. economic recovery, and by continued uneasiness with European debt issues. We want to look at the domestic economy first, and will address the European situation a little later in this letter.
A Perspective on Jobs
Any discussion of the prospects for economic recovery will focus on the outlook for employment, It dominates the electoral discussion, and every politician has a plan. We are pleased to have seen some recent improvement in the jobs numbers, but sustained improvement seems unlikely until some of the following issues are resolved:
Capital once again flows for small and intermediate-sized businesses.
The White House and Congress develop a long-term tax policy.
Housing inventories decline and new construction heats up again.
The last item is a particularly critical element of economic activity. Housing has traditionally contributed about 1% annually to our gross domestic product. Until that industry improves, we should not expect to see GDP rise above the 2-3% range that we have seen over the past several years. Unfortunately, that is unlikely until some of our other challenges are mitigated. For that reason, we feel continued slow, moderate growth rates are likely to persist for the foreseeable future.
Thank YOU for Occupying Wall Street
While the ‘occupy' protests have gained attention in the local, national, and international press, we wish to thank you, our clients, for your decision to constructively and positively “Occupy” Wall Street.
Our system is not without flaws. We are dismayed that executive compensation does not correlate more closely with company performance. We also are concerned about the role that incentives play in corporate governance. In many financial companies, compensation structures do not promote ideal outcomes for shareholders. Although these challenges persist, by participating through investment of capital in the stock markets and lending of capital in the debt markets, YOU are the reason our system works and is the most prosperous economic engine in the history of mankind.
There are improvements that can and must be made and inequities that need to be resolved. We feel the most productive way to be involved in that process is continued participation in the capital markets.
The Hen Comes Home to Roost
Given how significant an impact the European debt crisis has had on our capital markets, we felt it was worthwhile to explain some of the issues at play, and how we think things will proceed.
The European Union, and its predecessor organizations, were created in part to help Europe compete economically with the rest of the world, and the United States in particular. In many ways it has been successful, leading to improvements in trade and workforce mobility among its member states. The desire to expand the EU was a natural outgrowth of the seemingly certain economic prosperity that existed prior to the financial crisis. The most successful economies were already a part of the pact, so growing Euro membership would mean inviting nations with less successful economic backgrounds. Greece was the first, and its inability to meet its obligations in the face of declining revenues and slumping economic activity has led the EU to its current point.
As the financial crisis has played out, cracks have appeared in the EU's ability to address the Greek situation, and others. With 27 member countries, representing 14 languages, and complex histories and relationships, the EU has had difficulty acting decisively on the matter. The most promising solution is one that would give the EU's judicial branch some actual enforcement powers as it relates to member nations adherence to budget rules.
This means that most EU members will surrender a portion of their economic sovereignty to the European Central Bank. In other words, the EU's most powerful economy, Germany, will have more sway than ever over the economic fates of other EU states. This measure seems necessary to secure Germany's willingness to accept the position of primary financier of all things economic in the European Union. It is ironic that German will likely accomplish economically what they could not accomplish militarily through 2 world wars, a fact not lost on the other EU member states.
We expect to see a continued working and reworking of the EU's structure. It continues to be likely that Greece will default on its debt in some way. Whether they paint it as a restructuring and how it affects Greece's continued use of the Euro is still unknown, but we tend to agree with those who think they are in an increasingly untenable situation.
As a result of these Eurozone difficulties, it is no small wonder that the USA, and the Dollar, have emerged once again as the country and currency of choice for anyone seeking safety. As Fidelity's Bruce Johnstone said at a conference that we recently attended, "The U.S. is the best house in a bad neighborhood."
While there are disagreements on all sides of the US political spectrum as to how we could have or might have solved our most recent financial crisis, the US financial system is still the most efficient and transparent of any in the world when it comes to problem-solving and prompt attention to crises. We can and must do better, and it is not too late to start!
Ask the Joes™
QUESTION: In light of recent environmental disasters and bad behavior on Wall Street, is there a way for me to invest in a way that I don't have to support companies or industries that I don't feel good about?
ANSWER: Yes. Socially responsible investing (SRI), is a practice that has become both more common and easier to implement as the number and quality of investment vehicles has increased. We have the capacity to utilize SRI-friendly investment managers where desired.
Fortunately, being “good” is becoming more important for many publicly-held companies. It is becoming a part of what makes a company desirable to investors, so it is likely that SRI investing will only get easier as time goes on.
For more information, you can visit our website: http://lowryfinancialadvisors.com/SRI
Send your questions to… jlowryjr@lowryandlowry.com
Housekeeping
Many of you utilize the Brokerage Portfolio account available through National Financial Services. You may have noticed the name of PNC Bank on your checks and debit cards. Please be aware that while PNC Bank provides some service related to those accounts, your accounts are not a part of the PNC banking system. As a result, you cannot cash checks or make deposits at PNC branches. As PNC Bank has expanded into some of the areas where more of our clients reside, we felt it was important to explain this distinction.
Kudos
We would like to point out that Joe, Jr. was recently honored as part of Home: Living in the Heart of Florida magazine's first-ever Forty under 40. He was recognized for his contributions to various charitable causes in Alachua County, as well as his work as a partner in our firm. As a firm, we remain committed to making our community a better place, a desire that we know is shared by many of you.
