The FED and other Central Banks have not yet followed through with coordinated efforts to support their economies and restore confidence. Meanwhile, last week’s economic reports indicate the economy has slowed more than economists expected. These reports coupled with last week’s drop in the stock market, will diminish American’s confidence even further. And, as I reported in The Weekly Commentary weekly during each of the past three weeks, a continued crisis in confidence will probably result in further economic slowdown, and maybe a full-fledged recession. I believe the probability of a recession has grown dramatically.

The stock markets have already dropped in anticipation of the economic slowdown. There is a possibility the forecasted downturn is now fully factored into stock prices. If true, this would not be the time to sell. On the other hand, the economic downturn could be long-lasting and severe. It is very difficult to predict its severity. There is no exact, 100% sure-fire way to time recessions or markets. Due to the lack of clarity in my crystal ball, I recommend the following, depending upon which category fits your unique circumstance:

1. Aggressive investors, moderately aggressive investors, and investors who do not intend to touch their investments for 10 years or longer – continue to hold the current allocation of core investments, and wait to gather more information, and carefully watch central bank activities especially from FED Chairman Bernanke later this week.
 
2. Investors who need to withdraw from the investment portfolio – “park” any amounts you expect to withdraw within the next 5 years in a short/intermediate term bond fund.

3. Conservative, moderately conservative, preservation minded investors and investors who with start withdrawing from their portfolio in 5 to 10 years– reduce exposure of the more volatile stock and stock mutual fund holdings in your portfolio.

(Bloomberg/Getty Images)

The “hand-off” in football is the action where a quarterback, usually lacking the ability to carry the ball across the goal line, places the football into the hands of teammate with greater ability. Bernanke came up with the hand-off this week. I think, in the long run, this is a positive. And, Bernanke did forcefully point out that the Fed has done about all it can do and that the forces of Congress and the White House need to step up to the plate with credible actions. It was as close to finger pointing as a Fed Chairman can do. Basically, he said the Fed has done what it can do with as easy a monetary policy as is possible and prudent.

Just in case Congress and the White House did not understand that they had just been handed the football, Bernanke continued with this: “most of the economic policies that support robust economic growth in the long run are outside the province of the central bank.”

One problem with that odd shaped football: even the frequently practiced hand-off can result in a fumble.

“To reach a port, we must sail – sail, not tie at anchor – sail, not drift.”

–Franklin D. Roosevelt

In a speech in Cape Town, South Africa, on 7 June, 1966, Robert F Kennedy said:
“There is a Chinese curse which says, ‘May he live in interesting times’. Like it or not, we live in interesting times…”

And, he was right on target. More proof is last week’s events – an earthquake and a hurricane all in the same week. The probability of this occurring in Pennsylvania is estimated to equal 1 in 1,500,000. And, this is on top of the Black Swan events I have been writing about since the first edition of The Weekly Commentary in July 2007.

Join us for Celebrity Bartender Night at Apollo Grill!

I would like to ask every one of you to come out and support Valley National Financial Advisors at the Apollo Grill on Thursday, September 15^th for our Celebrity Bartender event!  Laurie Siebert, host of “Your Financial Choices” will join me in taking over the bartending duties from 5-7 PM to support the Leukemia & Lymphoma Society.  VNFA has organized a team to participate in the 2011 “Light The Night” Walk in support of our colleague and friend, Donna Young, who has been fighting Non-Hodgkins Follicular Lymphoma since 2009.  Donna has been with Valley National Financial Advisors in 1989 and we are incredibly proud to support her and LLS with this event!

Photo:  Stan Honda / Getty Images / August 28, 2011)

Wall Street might have been miffed last week as the spotlight strayed as far west as Wyoming, where central bankers huddled to discuss monetary policy. But not so miffed that the market didn’t shake off a mild earthquake and incoming hurricane to post its first gain in five weeks.

Stocks’ 4.7% rebound came even without further monetary coddling from our benevolent Federal Reserve. In a much-anticipated speech Friday, Fed Chairman Ben Bernanke pledged to support our weakening economy but stopped short of promising yet another round of Treasury buying. This shifts the pressure to the administration to devise a longer-term solution for our structural debt problem, and by one count, the word “fiscal” appeared 15 more times in Bernanke’s speech than “monetary.” Stocks responded with a 1.5% gain on Friday to the decision to forgo a temporary monetary fix in search of a more sustainable fiscal cure.

With that, the stock market has rebounded 5.1% from its Aug. 8 low, after an 18% correction from its late-April peak. Economic data released last week were hardly inspiring: Orders for big-ticket items rose 4% in July from June, but sales of new homes fell for a fourth straight month, home prices slipped and unemployment claims increased. Yet stocks gained even as economists continued to trim their growth forecasts—a sign the market might have factored in much of the bad news. Bargain hunters were further emboldened when Apple shares (ticker: AAPL) held steady following the resignation of its visionary CEO Steve Jobs, and after Warren Buffett’s Berkshire Hathaway (BRK-A) invested $5 billion in Bank of America (BAC).

Will the Standard & Poor’s 500’s Aug. 8 low of 1119 remain the market’s low-water mark for 2011? Among the encouraging signs: While economic cues have been weak, consumer sentiment can’t seem to get much worse. Stocks have also become very cheap relative to bonds: The S&P’s dividend yield recently matched that of U.S. 10-year Treasuries, when the norm since 1981 has been for Treasuries to pay a yield 2.7 times richer, notes Ned Davis Research. On the other hand, readings among investment advisors haven’t yet reached the extreme pessimism seen at a selling climax. And assets in Rydex bull funds still amounted to 55.6% of all funds—compared to 50.5% or lower at market bottoms.

With stocks already anticipating a mild profit recession, traders will be on the lookout for signs that things are worse than expected. Yet plunging interest rates will encourage refinancing, and debt-service burdens will shrink, says Ned Davis’ consumer strategist Pat Tschosik. Retail gas prices have fallen 9% despite the summer driving season; jobs are being created (albeit slowly), and consumers’ net worth has risen in seven of the past eight quarters. But watch out for damage to the wealth effect among richer consumers should stocks or home prices fall further, or professional employment start to decline.

The Dow Jones Industrial Average had its best week in nearly two months when it ended last week up 467 points, or 4.3%, to 11,285. Nasdaq Composite Index jumped by 138, or 5.9%, to 2480, while the Russell 2000 index gained 40, or 6.2%, to 692(Source: Barrons Online).

Last week, US Stocks and Foreign Stocks increased. Bonds decreased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 8-26-2011	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap  Aggregate Index	-.6	5.8	4.6	7.2	6.6	5.7
US Stocks-Standard & Poor’s 500	4.1	-9.5	7.2	-5.4	-5.1	-.2
Foreign Stocks- MS EAFE Developed Countries	.6	-12.2	2.4	-6.4	-4.8	1.6