Great weekend for family events – both Erika and Jennifer were in town participating in family get-togethers, dinners, shopping expeditions, meetings, and Oktoberfest. As Albert Einstein said, “Rejoice with your family in the beautiful land of Life!”

PS: Oscar, my daughter Jennifer’s entry into the Dachshund race at Bethlehem’s Oktoberfest, did not win but the family had a great time cheering for him.

Last week the number of NEGATIVE developments equaled POSITIVE developments, and the stock markets gyrated sharply as a result

Positives:
1) Only a few more countries left to approve EFSF, moment of truth soon arriving for Greek bondholders past the debt exchange currently being done
2) Greece takes another step in getting next tranche with property tax hike
3) Chicago PMI surprises to upside likely led by auto sector
4) Final Sept Univ of Michigan confidence rises almost 3 pts from depressed Aug level, one yr inflation expectations fall to lowest since Dec as gasoline prices drop to cheapest since Mar
5) Aug Durable Goods better than feared, core cap ex component up 1.1%
6) Initial Claims fall below 400k BUT seasonal adjustment issues make it faulty
7) Aug Pending Home Sales fall 1.2% but a touch less than estimated
8) Refi apps rise 11.2% to most since Nov
9) China HSBC final mfr’g index at 49.9, a bit better than preliminary reading of 49.4 and flat with Aug

Negatives:
1) Germans will fight tooth and nail a further leveraging of the EFSF
2) Greece hikes property taxes, step closer to economic ruin and bankruptcy
3) Euro zone Economic Confidence falls to lowest since Dec ’09
4) German IFO at lowest since Jan but slightly better than expected, Aug Retail Sales down 2.9% m/o/m
5) Shanghai index falls to lowest since July ’10
6) US New Home Sales fall to lowest since Feb
7) Within confidence data, those that said jobs were Hard to Get rose to most since 1983
8) REAL Income growth down .3% and REAL Spending flat in Aug
9) Ingersoll-Rand earnings guidance a canary in the old earnings mine? (Source: The Big Picture).

Pick a minute, any minute, say, between 9:30 a.m. and 4 p.m. Chances are that 60 seconds later the stock market will be doing the exact opposite of what it was doing one minute prior. There probably won’t be a rhyme or reason, either.

There appears to be no end in sight to the gyrations that began in August—except for one thing: The speed of reversals seems to be increasing.

“The market feels like it’s being driven by the hour,” says Bernie McGinn, CEO of McGinn Investment Management. “The Greek debt problems have been in the news for a year now. How can it not be priced in? Who’s going to be surprised if they default?”

Yes, confusion reigns, but there’s one thing bears and bulls can agree on: Nobody makes steady money in a market that continually vacillates.

The market’s commitment issues make it a trader’s market. If you can’t trade nimbly, then you’d better have a strong stomach for volatility. It might be awhile before the market decides on the following issues, each of which continues to whipsaw investors moment by moment: euro-zone sovereign debt problems, a U.S. recession, a Chinese recession, weak banks, inflation, deflation and weak job numbers. These factors are like the dial on a diabolical, oscillating torture machine expressly made for investors, and each day the operator turns the dial to a new position.

The Dow Jones Industrial Average closed at 10,913.38 on Friday, down 2% on the day but up 1.3% from the previous Friday’s close. Nevertheless, it fell some 1,500 points, or 12%, in the just-ended third quarter and half that in September.

The Standard & Poor’s 500, meanwhile, fell 2.5% Friday, off 14% in the quarter and off 7% in September. The Nasdaq Composite finished at 2415, down 2.6% Friday, 2.7% on the week, 6.4% on the month and 13% for the quarter.

Some may draw solace—though not much—from history: The third quarter is typically the worst of the year. The one just ended was the weakest for the S&P 500 since 1928, according to Bespoke Investment Group. Going back to 1928, the fourth quarter has been the strongest, though, with the S&P averaging a gain of 2.4%, and 4.6% in the past 20 years. Feel better? (Source: Barrons Online).

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

Returns through 9-30-2011	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap  Aggregate Index	-.4	6.6	5.3	8.0	6.5	5.7
US Stocks-Standard & Poor’s 500	-.4	-8.7	1.1	-4.9	-6.5	.3
Foreign Stocks- MS EAFE Developed Countries	2.6	-17.2	-12.0	– 4.0	-6.1	2.4

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized excluding dividends.

Two important questions are weighing on investors: (1) WHEN, not if, Greece defaults, will some other country or mega European financial entity be dragged into default/bankruptcy? (2) Will the U.S. economy slip into a recession?

The importance of the first question is markets usually do a pretty good job of coping with default problems one at a time. When one default occurs, analysts analyze and investors reach conclusions and calmly adjust their portfolios. But when more than one defaults occur close to each other, the markets can become overwhelmed and lose their ability to function (this state of affairs could result in a large drop in the equity markets). The probability of this occurring is difficult to compute. But, I can tell you that I am hearing more and more experts say it is likely.

As to the second question we have stated in past issues of The Weekly Commentary that changes of a recession in the U.S. are approximately 50%. For this reason, we have continued to recommend the Action Plan for your portfolio described below.

 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 five 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.

Author Unknown

“As a nation we still continue to enjoy a literally unprecedented prosperity; and it is probable that only reckless speculation and disregard of legitimate business methods on the part of the business world can materially mar this prosperity.”

Teddy Roosevelt
December, 1906

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 Laurie welcomes Patricia Peoples, CERTIFIED FINANCIAL PLANNER ™, ChFC, Vice President and Financial Advisor with Morgan Stanley Smith Barney and from Northampton Community College’s Institutional Advancement Department for the Northampton Community College Foundation, Sharon Zondag. They will discuss:

“Charitable giving strategies including those that you can use in your community.”

This show is pre-recorded but will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org

On behalf of the Leukemia & Lymphoma Society, Donna Young, Betty Adam, Andrea Schumann, Caroline Kohler, and Valley National, I THANK YOU for all of your support. Your contributions, participation in the Chinese auction and/or attendance at the Apollo Grill Thursday evening resulted in over $5,500 of contributions to fund research for a Leukemia or Lymphoma cure. This blew out our goal of $2,000!

Laurie Siebert and I debuted for our bartender role at the Apollo Grill, and it was a pleasure to serve you – for the first 30 minutes, then it became work for the next hour and one-half. Serving several hundred people at a bar is hard work! I have new appreciation for bartenders working a loud & thirsty crowd.