Summer Ends and the Volatility Season Begins

August 20, 2012

As the low summer volume is about to end and the aggressive Presidential campaigns start spending their billions in campaign funds begin; we are about to get some serious volatility over the next six months Maybe sudden sharp drops followed by "clarifications" and short-covering, changing and conflicting poll numbers and then more clarifications again and again.


We are facing a number of serious issues between now and the "State of the Union" speech in late January. For example:

1. The overly optimistic, but constantly being revised downward, GDP, revenues, and profit numbers being forecast for the third and fourth quarters,

2. The debate in Europe (or press releases that levitate the markets until the data is fact checked) about how countries with almost no growth and no way to pay the interest on past debt can increase their debt so they can solve their problems (our economy and markets are correlated with Europe),

3. The end of the "Bush" tax cuts on December 31 which if not extended will increase Government revenues but lower revenues and spending by taxpayers and lower GDP,

4. The debt ceiling (again) will have to be increased by October (a guess) or the government will not be able to pay bills its now obligated to pay (and what about the threat of another credit rating downgrade),

5. The Federal Budget (or some temporary agreement to fund the government) needs to be approved by Fiscal year-end September 30. Even though Congress is obligated to do so, we haven't had a budget in four years, just continuing resolutions,

6. The 3% or $4 trillion dollar cuts the budget (Discretionary and Defense) that are suppose to take effect on January 1 that both sides now claim can't be done in this difficult economic environment (is that the same as "Recovery"). Maybe that's why they kicked the ball into 2013 because there is no willingness to cut anything.

7. The 21 new tax increases and many new requirements of ObamaCare that begin in January. Will they be implemented or rescinded by the election?

That's enough to give you the idea that all of these issues, plus the political rhetoric and the daily polls, will make each day a new adventure. Also, since we have moved from an entrepreneurial to a centrally-planned economy over the years, all we can do is react to what the central planners propose and do.

This increase in volatility with no way to predict the market direction on any given day means we have to look at an investment strategy that will protect our capital during this volatile period; and for more aggressive investors, offer ways to capitalize on this volatility. Call your investment advisor and discuss how to get through this upcoming volatile period.