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October 17, 2013


October 17, 2013 Perspective

October 17, 2013 by Lesjak Planning

History once again repeats itself. Just like the previous 17 times that the government went down to the wire on a monetary shutdown this time was no different. Just before midnight on Wednesday the President signed the bill to re-open the federal government and increase the debt limit. At least for 90 days. After grandstanding in front of the television cameras for the past two weeks, Congress miraculously comes to a weak agreement to again kick the proverbial can down the road. The American people have seen this movie too many times and appear to be signaling that just maybe they’ve had enough.

As far as the markets go, this time it was basically a non-event. Equities, as measured by the Dow 30, never moved more than about 300 points from their record highs which we are quite near at this time. The more astute long term analysts were saying from the beginning of this government shutdown threat that it would not happen and to treat it as a non-event. The daily talking heads of course played up all sorts of doomsday scenarios to fill their 24/7 programming slots.

Record amounts have been pulled out of bond funds and municipal bonds this year. The average yield on municipals has risen to 3.13% from 2.17% at the end of 2012. This selloff could be marking the end of the lower interest rate trend. The good news for equity investors is that all of this cash has to eventually go somewhere. If the Federal Reserve continues to keep interest rates near all time lows, stocks will be the only game in town.

Now that the hard budget decisions have been pushed down the road for three months, markets should get back to the fundamentals and most likely we will all get to go through the political circus and volatility again in January 2014. As we have often said in the past – Stay the course and stick to your plan.

Hopefully, the markets will now turn their focus back to the good things that are happening

The President’s nomination of Mrs. Yellen as the next Federal Reserve Chair to replace Ben Bernanke in January assures a loose monetary policy which markets love due to interest rates being kept low. She will most likely continue to flood the markets with new money which will be good for equities.

Mortgage rates are staying low and real estate prices are back on the way to recovery from their lows. Investors are still scared because markets are once again near their all-time highs. Add to that the fragile economy, national debt and political infighting, and many investors are staying on the sidelines. This is actually a good sign that markets have not peaked yet. When there is no fear in the markets, tops are usually near. Even CNBC’s viewership has fallen to almost nothing. No one is interested in investing. The record amounts of cash on the sidelines and no rush to get in tells us there may be plenty of upside left.

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Lesjak Planning

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