Resources

Each of us continues to be subjected to the relentless flow of information relating to the U.S. Debt Deal, the debt crisis in Europe and the seemingly constant “mood” shifts of the market. We believe this is a good time for us to share the strategic perspective and tactical focus of your Sequoia team. Let’s start with the bad news first...

SOME BAD NEWS

• The U.S. Debt Deal was underwhelming since it did not address any of the core issues creating the deficit spending (expenses and revenues). This appears to be a key driver in this weekend’s unprecedented downgrade of U.S. debt (by Standard & Poor’s). The affects on corporation and consumer mindsets are real and create headwinds for economic expansion. In short, the risk of a slowdown, or even a recession, has increased.
• Unemployment is still above 9%.
• European Debt Crisis continues with a greater focus on the larger countries of Italy and Spain.
• Global political dysfunction and Washington rhetoric is unhelpful at best.
   

SOME “SLIGHTLY LESS BAD” NEWS

• Out of the $14.4 trillion government total debt exposure – The CORE or Public Debt number is $9.8 trillion with the remaining $4.6 trillion being intra-government debt -- that is debt the government owes to itself (Source: U.S. Treasury, J.P. Morgan Asset Management data as of 7/28/2011). While this does not change the fundamental issues, it does give a slightly different perspective.
• We believe the U.S. debt downgrade is not likely to cause a panic throughout the markets and the U.S. will most likely remain a safe haven for core debt needs around the world for the near term. This new reality has however, added yet another layer of fear and uncertainty to an already volatile market.
• The “egg on the face” of Washington seems to have legs, and appears to give some hope for a better process and outcome when we tackle this again in the near future. Just the fact that we are finally discussing a deficit reduction plan is a positive in the long run.
   

SOME GOOD NEWS

• Corporate profits are at record levels – For example, second quarter 2011 estimates have the S&P 500 Earnings Per Share at a record high of $24.79 (Source: Standard and Poor’s, J.P. Morgan Asset Management data as of 8/2/2011).
• Per Bloomberg, corporate profits are projected to increase by 14% in 2012.
• Stocks are “cheap” based on historical metrics such as 12-month forward looking price to earnings ratios.
• We believe much of the “bad news” above is now priced into the market and any positive news or outlook should result in an upward movement of the equity markets.

We continue to believe that if we focus excessively on any one data point, we lose our ability for an appropriate strategic and long-term perspective. Our review of all of the data has not altered our strategic perspective – we continue to believe in the markets for the long-term, and support the continued use of a diversified portfolio to help obtain the desired results for which we are planning. In addition, we believe that we should continue to see significant volatility with erratic ups and downs. It is our unyielding conviction that over the long term we should be rewarded for being disciplined and continuing to focus on the horizon while navigating short term market movements. Lastly, we believe that while our long-term convictions remain in place, we also see potential opportunities for short-term tactical adjustments. You will hear from your Sequoia team in the near future regarding any potential tactical shifts concerning your accounts.
 

Warmest regards,
 

SEQUOIA FINANCIAL ADVISORS, LLC