Washington Worries

- 2013 3rd Quarter

It is October 1, 2013, and in addition to me being on the ball and writing this a day after the end of the quarter, it is also what I expect to be one of the last calm days before what should be a very treacherous month ahead. Before we look to what lies ahead, let’s take a minute to reflect.

First from a Cleveland standpoint, the Indians were in a one game wild card playoff - first time since 2007, the Browns have a two game winning streak, and are tied for 1st in their division( and it doesn’t hurt that the Steelers are winless), and The Cavs looked mighty fine in the preseason opener.

Now, from a market perspective, things could not be much better. The S&P 500 Index was up for the quarter 5.24%, and is up YTD 19.79%. As participants get their quarterly statements, they will see values that are either at or close to all-time highs. While the International markets have been more miss than hit, and the bond markets are struggling, the domestic markets (large, mid, and small caps) have been surging.

We ended the 2Q13 with concerns about Washington, and their involvement on the market. On June 19th Fed Chief Ben Bernanke, while speaking to the Central Bank, made comments that strongly suggested the Fed was preparing to taper or halt the Feds $85 Billion Dollar monthly Bond Buy-back program. After Bernanke’s comments, both the equity and bond markets fell immediately and swiftly. What was expected to be a difficult quarter never materialized, and we experienced a few unexpected positive surprises in September. The Fed shockingly delayed its plans to start trimming back on the bond-buying program, and President Obama opted not to strike Syria to punish them for the use of chemical weapons.

As we start 3Q13 Washington is again front and center, and with a busy month scheduled for Congress, Washington will continue to dominate the daily news. We are likely to see Market-moving days on:

October 1st – Day 1 of the Government shutdown. This is the first shutdown in 17 years, and is the result of Congress being unable to strike a deal to keep funding everyday governmental operations. While previously shutdowns have been short, and for the most part non-issues, the longer this goes on, the more it hurts consumer confidence.

October 4th – The release of the September jobs report. This key piece of information is vital to the Fed’s decision to continue or taper the bond-buyback program.

October 8th – The beginning of corporate earnings’ reports. The reason the market has thrived is due to the success of “Big Business”, and most companies that make up the S&P 500 have posted record earnings.The question is – with the markets at record high points, can this type of growth continue? We will certainly not have to wait long to see.

October 17th – It’s BAAACK. This is the deadline for the debt ceiling. This means the cash reserves will be exhausted, and unless we raise the limit, we will default on debt obligations, and it could trigger a downgrade to the U.S. credit rating.

October 29th-30th – The exciting October comes to close with the Fed holding a 2-day meeting. The main issue on the table will be when will the tapering of the $85 billion dollar a month bond-buyback program begin?

The above are our concerns for the immediate future. My best estimate is you will see the market have a tough October, and that may continue until mid-late November. Historically the best time all year for the market is the last 6 weeks of the year, when the holiday season is upon us, and people are spending in both good times and bad.

As a participant, what should you do with a likelihood of increased volatility and the market going down in October? My answer is simple: your investments are for your Retirement Plan, which is long-term, and this, too, shall pass. When I used to pitch in little league and struggle, my mother used to encourage me by reminding me: “big deep breath”. This usually worked to help me calm down and relax. I offer the same advice to you.

We have seen the worst in 2008, and we have not only survived it, but thrived. With that said, like pledging for my fraternity, it is something I have no desire to go through again. Please note that as I mentioned before, your account balance is at or near all-time highs. If there is a time to change your account, it is now. If you cannot remember when you last reviewed your account, then it is probably time to do so.

As always, we are available at any time for individual consultations and look forward to meeting with you. Please do not hesitate to contact me directly at (216) 595-0700.

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