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Lauren's Blog

Lauren’s blog covers topics that impact your finances, your family, and your future. Is there a topic you’d like Lauren to tackle? We’d love your suggestions and feedback.


Unimpressed with U.S. deficit reduction plans, S&P delivers on its warning.

You are probably asking: What happened this week? What is Klein Financial Advisors planning to do? And what, if anything do I need to do? The fight or flight animal in all of us wants to react. Remember that panic is not a strategy.  

Unprecedented and unsettling. Standard & Poor’s issued a historic downgrade of U.S. debt on August 5, sensibly waiting until the market week had concluded to send a shock wave toward global investors. It reduced America’s long-term debt rating – which had been AAA since 1941 – to AA+.

S&P felt Congress did too little too late. The credit rating agency had threatened the downgrade if Congress passed any deficit reduction plan smaller than $4 trillion in scope. The Budget Control Act of 2011 “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” an S&P statement noted. It also retained its “negative” credit outlook on the U.S.

S&P is also skeptical that the federal government can collect more money from taxpayers. Its analysts do not think the Bush-era tax cuts will sunset at the end of 2012 “because the majority of Republicans in Congress continue to resist any measure that would raise revenues.”

The other ratings agencies – Fitch and Moody’s have not downgraded the United States. Fitch has said a downgrade remains a possibility. Moody’s “thought a downgrade would be premature given that they [Congress] have come up with a plan for deficit reduction. Analysts are monitoring to see if lawmakers are able to agree on $1.5 trillion in further cuts.

China’s comments. The world’s largest holder of U.S. debt issued a withering critique of Congress through Xinhua, its official news agency. The state commentary stressed that the U.S. has a “debt addiction” only curable via major cuts to defense spending and entitlement programs. It also said that the option of a “new, stable and secured global reserve currency” should be explored.

The Treasury’s claim.Friday evening, the Treasury argued that S&P’s analysis contained an accounting error that unnecessarily added $2 trillion to its projection of U.S. debt. S&P admitted the error but stuck with the downgrade.

So what happens now?The markets that were open over the weekend, including Israel, have been volatile and nervous. The Asian markets that opened this morning with declines. The initial global response aside, analysts are divided as to what the short-term impact might be for the American economy. Could it cripple the recovery, or just prove inconvenient to it?

Demand was big for Treasury notes even before the threatened downgrade and Treasuries still symbolize comparative safety to institutional investors, so an August selloff might be short-lived. If this turns out to be the case, the effect on interest rates might be less significant than feared.

Could the Fed launch QE3*?The possibility exists, particularly if foreign investors ditch dollar assets. The Fed’s Open Market Committee will make an announcement on August 9, and few analysts expect another wave of bond buying – but it is an option.

When might the U.S. recapture its AAA rating?It might take years for that to happen. S&P has cited political gridlock on Capitol Hill as a major reason for the downgrade, and it doesn’t see that going away in upcoming months. On top of that, the U.S. economy expanded just 1.3% in the first half of 2011 - about half the pace needed to dispel the lingering effects of recession.

Wall Street might sail through this.Does that sound far-fetched? Look at some historical examples. S&P downgraded Canada’s AAA credit rating in the spring of 1993, yet Canadian stocks gained 15% in 1994 and our northern neighbor had its AAA rating back by 1997. Moody’s Investors Service downgraded Japan in November 1998 and its stock market advanced more than 25% in the next 12 months. Italy, Canada, Ireland, Japan, Belgium and Spain have all suffered S&P downgrades from AAA, and most of these cuts had little sustained impact on government bond yields.

What’s our outlook?Whatever happens in Congress, in Europe and in the daily market activity, Klein Financial Advisors will act prudently with your long term financial security in mind. Still feeling jittery? This may be a good time to revisit your risk profile – your ability, need and willingness to accept risk – and consider updating your investment policy.

Don’t hesitate to call to discuss your personal financial security.

And yes…stay confident and stay the course….especially on days like this.


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Fixed Income Making a Difference

There’s no point in sugarcoating it – the market has taken a pretty good beating over the past couple of weeks. The S&P 500 is off by over -10% since its most recent high on July 7th, and today was just plain ugly as the selling intensity picked up throughout the day and ended with a -4.78% loss.

Today, stocks opened with even more selling – dipping all the way down to 1200 and in the process blowing right through what seemed like fair value at both the March and June lows around 1250 on the S&P. We anticipate that stocks will again, as they did on Wednesday, stage a turnaround. Ultimately, the market will return to fair value despite almost 10 days of selling.

With investor angst reaching feverish-pitch levels on the heels of the debt ceiling drama and the latest market decline, there is actually some good news in all of this. The fixed income (bond) portions of your portfolios are doing their job: stabilizing your portfolios. In fact Treasury bonds have rallied signficantly in the past serveral days.

So, we’ve been able to dampen the blow from the equity markets somewhat. But we’re not just remaining complacent, either. Recent economic data and market action has been increasingly poor, and if this continues for much longer, we may consider taking some defensive measures in portfolios.

If you’re feeling anxious, please call so we can discuss what this means to your portfolio and your personal financial plans.

And as always….

Stay confident – stay the course.**


** PS. Yes, I know it's hard on days like this.
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Action Items in Uncertain Times

Business owners benefit by reading this excellent article titled "Action Items in Uncertain Times" written by my colleague and friend Ron Glickman, an expert on business transition planning.

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2011: A Second Quarter Review

It is July and the President and Congress are locked and loaded in a battle about raising the debt ceiling. As each party escalates the stakes, interesting times are ahead. But first, here is a wrap-up of a volatile quarter for the markets and the world. 


Market Overview


For the first time in four quarters, U.S. stocks did not advance. Indeed, across the globe, equity markets' results were largely mixed at the quarter's end. The MSCI World and Emerging Markets composite indices, respectively, lost 0.3% and 2.11% with widely varying quarterly results among the index components. In Europe Germany's DAX advanced 4.8%, Ireland's ISEQ gained 2.7% and England's FTSE 100 gained 0.6%. In Asia many indices delcined; included Hong Kong's Hang Seng which fell by 4.8% and Brazil's Bovespa also lost 9.0% for the quarter. Bond prices rose slightly as treasurey yields declined.
The Quarter in Brief
We have just been through a volatile three months - a period where domestic indicators, energy prices and foreign economic bulletins weighed heavily on U.S. consumers, companies and financial markets. Here are some highlights worth noting:
  • U.S. stock markets struggled to climb over a wall of worry wrought over Eurozone debt, the wrap-up of the Federal Reserve's second installment of quantitative easing, high gas prices and numerous signs that the U.S. recovery was stalling. Yet, as June ended, some encouraging domestic indicators and much improved headlines from overseas helped to renew the collective appetite for risk.
  • Unemployment actually increased in the quarter as the jobless rate climbed back to 9.1%. On the positive side, the pace of job creation is up; nearly double that of the 2010 average rate. In April, citing concern over the ballooning U.S.deficit, Standard & Poor’s cut the credit outlook for Americafrom “stable” to “negative”. Both Moody’s and Fitch made similar threats last month, hoping to spur the U.S.government into action to address the debt ceiling crisis.
  • By May inflation had risen to 3.6%; gasoline prices had risen 37% in one year.
  • The federal debt ceiling was reached on May 16 and Treasury Secretary Geithner noted a hard deadline of August 2ndto raise the debt cap. Congress continues to dither, playing politics first and putting compromise second. At stake is not just the U.S.’s reputation, but their AAA credit rating.
  • The Federal Reserve’s second round of monetary policy stimulus known as Quantitative Easing (QE2) ended June 30thand the impact of its demise wasn’t as hard a landing as was originally feared. Though the end of QE2 essentially meant the end of $600 billion thrown at the U.S.bond market, bond yields and stock prices rallied the very next day.  

Outlook and Commentary


The new quarter begins with quite a few questions. Will a QE3 be needed? Will inflation become more of a factor? Will cheaper commodities help U.S. companies? Will Greece require further bailouts or loans before 2011 ends? Are Portugal, Italy or Spain next on the EU/IMF rescue list? How long can foreign financial markets put up with inaction of the U.S. debt ceiling? And finally, what will all of these issues mean for the financial markets. Unfortunately, none of those questions can be answered with any certainty at this point in time, which means we call will have to just wait and see, and hope for the best.

As we enter the 2012 Presidential election cycle, it is especially important to listen rationally and unemotionally to the conversation. As Americans, we take our mandate to elect our leaders seriously. Beware of the sensationalizing and polarizing that is, and always has been, an essential element of the two-party system. Stay optimistic and remember that what all the candidates want (besides getting elected) is what we all want; the rebuilding of the America that puts Americans back to work.

As always, we will keep you informed… and share our perspective about what this means to your financial well-being.
Our Focus

Money is integral to our identity. It provides for our fundamental needs and empowers us to attain our highest ideals and values. When we understand the role of money in our lives we live with more confidence. As your trusted advisor, we bring personal finance home to you.  Our focus is to tell you the truth and advise you how to allocate your capital, take appropriate risks and live the life you were meant to live.
On a Personal Note
Summer is truly a wonderful time, hopefully filled with long, lazy days and peaceful sultry nights. It’s a time when July 4thholidays, fireworks, family reunions, and barbeques and good times with family and friends all conspire to make new and wonderful memories.

In June my son and his four children visited me and I got to experience the joy of grand parenting, if only for a few hours. Jamie has just returned from an "amazing" mission to Israel. At the end of July, I will go on my annual hiking trip with friends; but this year we’ve forsaken Mammoth and are heading to Park City, Utah; a new destination and a new adventure.

I hope you are making intentional plans to have a wonderful summer – whether a vacation, a barbeque with friends or quality time with those you love. Whatever you do – do it on purpose.

Stay optimistic and stay the course,



P.S.  Do you know anyone who is interested in reviewing their wealth plan?  If yes, please tell them about me and tell me about them. My firm only grows through your solid advocacy. Thanks for your support.

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Reasons for Optimism


When was the last time the Dow took a six-week tumble?On June 10, the Dow dipped below 12,000 and posted its sixth straight weekly decline. You have to go back to October 2002 to find a Dow losing streak that long. If you’re hearing bearish groans in the distance, you’re not alone: the bears are making their voices heard as the Dow is down almost 7% from where it was at the end of April. Despite the recent stock market volatility, the long term outlook is positive. Here are some reasons to be optimistic:

Q2 earnings projections are quite good.Investment research firm FactSetfinds that despite the losing streak, aggregate Q2 S&P 500 earnings estimates are basically unchanged from late May. The collective forecast projects a 14.6% growth in earnings for the quarter and a 10.4% jump in revenues. (That double-digit revenue growth would be the best since Q1 2010.) As earnings are truly the mother’s milk of stocks, the market could heat up this summer if these collective predictions come true.

Stocks are still cheap.On June 3, the S&P 500’s P/E ratio was 16.4 compared to 18.3 a year earlier. Most stocks look like a fair value right now.

The economy is still growing.The Federal Reserve’s latest Beige Book and the twin PMI indices from the Institute for Supply Management both signal this. In fact, the ISM service sector index showed the growth of that sector accelerating in May.

Homebuying could be poised to pick up.Sustained high unemployment isn’t going away this year, but some silver linings are emerging that bode well for the housing market. Moody’s Analytics says that the ratio of home prices to income is now 20.9% below the average ratio from 1985-2010. Mortgage interest rates are at levels unseen since the early 1960s. There are also indications that prices may be approaching a bottom in metro areas not rampant with short sales and foreclosures. Real estate analytics company CoreLogic found that home prices were down 7.5% year-over-year in April, but only down 0.5% when distressed sales were factored out.

We Were Born with Rose Colored Glasses. The belief that the future will be much better than the past and present is known as the optimism bias. Our optimism bias motivates us to pursue our goals. According to Tali Sharot in his book The Optimism Bias, optimists, in general, work longer hours, tend to work harder and save more. Optimism alters our expectations and shapes outcomes in a positive way.

Hang in there.The bull market is maturing; QE2 is ending. We haven’t yet seen a correction, just a pullback. Informed investors stay the course.  

Stay Optimistic and Stay the Course,


PS. And have a great weekend. I am looking forward to spending time with my children and grandchildren who are visiting from the midwest. And going to a sneak film preview with friends.

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >