The U.S. economy is, in a word – “better”. But the stock and bond markets are not paying attention. Instead, their attention has been diverted to the mess in Europe.

I am very concerned about a domino effect melt-down in Europe. I am NOT calling for a “SPECIAL ALERT” to sell, yet. But, I am close. I carefully monitor Italian, Spanish, and French government bond rates. Higher interest rates there are very bad for Europe and the U.S. Click here for more information.

The stock markets have already dropped in the possibility of an economic slowdown AND uncertainty in Europe. 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. And it is very difficult to predict the actions of European central bankers and politicians. 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, gather more information, and carefully watch European interest rates.

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.

“Before you act, listen. Before you react, think. Before you spend, earn. Before you criticize, wait. Before you pray, forgive. Before you quit, try.”

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP. This week a pre-recorded show will discuss:

Lafayette/Lehigh – the most played game in college football. I attended the game and, as always, my alma mater won. GO LEHIGH! The national play-offs are next. Let’s continue to build respect for the Patriot League and non-scholarship college football.

In a week in which stock prices fell 4%, the harm was less than meets the eye, limited, psychologically at least, by sleepy trading volumes.

Shares stumbled on a combination of new ratings-downgrade warnings tied to European debt, and renewed frustration with Congress’s polarization and inability to come to an agreement on U.S. government-debt reduction.

Nevertheless, the market’s upward momentum since September remains intact for the near term, if still hostage to politicians on both sides of the Atlantic, market observers say. Volumes in the Thanksgiving holiday week are traditionally low, but there could be one unusual worry. More on that below.

The Dow Jones Industrial Average fell 357.52 points last week, or 3%, to close at 11,796.16, putting it 2% ahead year-to-date. Meanwhile, the Standard & Poor’s 500 is off 3.3% for 2011. The Nasdaq Composite, down 106.25 points, lost 4% to end at 2572.50. It, too, is down more than 3% this year.

Fitch Ratings warned Wednesday that unless the euro-zone debt crisis is resolved soon, U.S. banking’s broad credit outlook could worsen. “Whatever happens in Europe continues to drive markets,” notes Kate Warne, an investment strategist at Edward Jones. “No attention at all was paid” to the generally better-than-expected U.S. economic news all week, like Friday’s Conference Board report that its index of leading economic indicators rose 0.9% in October, the most since February.

In addition to the Fitch note, adds Randall Warren, chief investment officer at Warren Financial, “the market started to price in problems associated with congressional budget cuts or lack thereof.” Europe was the proximate cause, but “the deeper problem is the one at home,” he says. “There’s so much skepticism on anything good coming out of Congress. It’s hard to predict what will come out of the budget super committee.”

Investors are worried, says Warne, that Congress won’t be able to make the tough decisions necessary to put the U.S. debt problem on a better path than Europe’s. Looking ahead, the Nov. 23 deadline for the “Supercommittee” to come to a debt-reduction agreement looms painfully.

Given the market’s huge gyrations since mid-summer, thanks mainly to the vicissitudes of the slow-motion European sovereign-debt crisis, this particular Thanksgiving holiday could be more nerve racking than usual for investors. With markets closed in the U.S. Thursday, but open in Europe, the risk of mischief rises, at least for a day.

In Thanksgivings past, global markets typically took their cues from U.S. equities, and American investors could enjoy their holiday meal relatively undisturbed. Historically, European indexes have risen on Thanksgiving. The Friday following has been one of the best days of the year in S&P 500 Index performance, according to Bespoke Investment Group. This Thanksgiving, things could be different, with the tail wagging the dog. Bad news from the Continent could cause investors here to cut themselves while carving the bird.

And contrary to history, it could be tough going here Friday, too, if there’s more bad news about sovereign-debt yields. That day, an Italian Treasury bill auction will be taking place.

Then on Tuesday, Nov. 29, a two day European Union financial ministers’ meeting begins, so the potential for post-turkey day agita is also high. Meanwhile, Greece reportedly will run out of cash by mid-December. Well, Happy Thanksgiving anyway? (Source: Barrons Online)

Last week, U.S. Stocks and Foreign Stocks decreased and Bonds were
little changed.  During the last 12 months, BONDS outperformed U.S. STOCKS.