2013 Third Quarter Economic Update and the Great Recession

This September marked the five-year anniversary of the collapse of the financial market, which unleashed the worst panic on Wall Street since the Great Depression. The pillars of the nation’s financial establishment – investment banks, thrifts and insurance companies – crumbled. The real estate market and the incomprehensible and poorly regulated mortgage-backed securities market plummeted. Markets were paralyzed, US unemployment peaked at 10%, governments were overturned and the global GDP experienced a historic decline. When all was said and done, the Dow Jones Industrial Average lost 5,000 points and investors lost $7 trillion in wealth and confidence in the world’s financial markets was in shambles.

We continue to have our share of concerns today. The United States government is expected to run out of money on October 17th and the current battle over the debt ceiling has led to a partial shutdown. The debt ceiling was created under the Second Liberty Bond Act of 1917, which put a “ceiling” on the amount of bonds the United States can issue. With just under $17 billion of debt outstanding, it is understandable why some in Washington are resistant to raising the debt ceiling. Luckily, United States debt remains the world’s safe haven investment of choice, despite our dysfunctional government and fiscal troubles.  There is also concern about the timing of the Fed’s reduction of its asset-purchase program, rising interest rates and the negative effect this will have on bond investors’ portfolio income.

Fortunately, we have come a long way since September 2008 and the lows of the financial crisis. The domestic equity market continued to march forward with the S&P 500 up 2.91% in the second quarter and up 13.82% year-to-date. The stock market is up approximately 140% since March 2009 lows, with the S&P 500 and the Dow reaching all-time highs and the unemployment rate has steadily dropped to 7.3%. Our economy is improving but not as quickly as many would like. It is rather like the slow and steady tortoise, but hopefully this will change as global economies are finally improving, which should boost our growth.

It has certainly been an interesting market environment, although volatile and even nerve wracking at times. If you have learned nothing else from the past five years, it should be that it is important to remain engaged and invested. Investors who attempted to time the market or let emotions push them to the sidelines by collectively pulling $25 billion out of stock funds in March 2009 and $240 billion over the subsequent three years missed out on the market rally over the recent five year time period. And perhaps other useful lessons learned are don’t put all your eggs in one basket – diversify (i.e. bank stocks) and if an investment seems too good to be true, it probably is (i.e. Bernie Madoff)!

Please find enclosed your 3rd Quarterly Portfolio Report for 2013.  If you have any questions or concerns, please call me at 518-328-8104 or email me at olivia@mussettwealth.com.

Warm regards,

Olivia A. Mussett, CFP®