Before getting into downfalls of the market, it’s worth pointing out that corporate earnings in the first quarter have shown that consumers and businesses are once again willing to buy and invest. A very broad example of this can be seen in the hardware sector. Apple’s stock price is up more than 7% due to strong iPad and iPhone sales. This has also benefited Sandisk, a supplier of flash memory for mobile devices.  The company returned 21% in the quarter.

There is still an elevated unemployment rate, and job growth may be slow or delayed for months or even years in the future. The uncertainty among the American population regarding their job security and employment prospects makes it difficult to stabilize the housing market and boost consumer spending. Recent housing data has shown that even though mortgage rates are at record lows, the demand remains significantly down. Of course, it’s just common sense that people unsure of future cash flows will hold off on purchases that require a large monthly obligation, so investors are left skeptical of the housing market’s ability to recover fully after the expiration of the housing tax credit.

In the Manufacturing Sector, energy companies have been harmed by falling oil prices, the drilling moratorium, and fear over increased regulation in the wake of the Gulf oil spill. The anxiety over increased regulation seems to be a common denominator across the market, as there has been a weak performance of the financial sector as well. This is due to Washington and Wall Street turning their attention to financial reform. With this news of government intervention, bank and financial stocks were sold off as investors feared the impact of reform.

Large-cap companies have also been subject to substantial headline risk in 2010 as well. When the public focuses on large companies like banks, oil companies, and healthcare, Congress does so as well. These negative headlines not only affect investor sentiment, but can also affect the company’s underlying business. A general idea of the impact of the financial reform bill being passed should become clear in the upcoming month, as the financial sector gains a little more clarity on what it faces in terms of new regulations and compliance.

Excessive government debt is another uncertainty that has been at the forefront throughout 2010. The flight from the troubled European debt of Portugal, Italy, Ireland, Greece, and Spain has led to a historic rally in the U.S. treasuries. The U.S. dollar, like in the past, has been seen as a safe haven to invest in despite growing borrowing needs and fundamentals that might suggest a rise in interest rates. The Federal Reserve, though, has committed to keep interest rates low for the foreseeable future. Although the U.S. still holds AAA status and should be in no immediate danger of a downgrade, the mounting debt issue with the US government will come under pressure unless measures are taken to reduce the record budget deficit, according to Moody’s Investor Service.

Granted, uncertainly will always be a factor in the market. Accurately predicting the future in the midst of reform, regulation, unstable governments, and future debt obligations is an extremely difficult proposition. In these times of negative feelings and general uncertainty, though, we can be certain that the different sectors will react negatively as they have this past quarter. In these subsequent quarters many of these unknowns will begin to come to light and the uncertainty driving the market currently will be clearer to investors.

By Paige Slusser

Casey Smith and Kyle Waller had their article on Fiduciary Responsibility posted at www.tabbforum.com.

This public debt isn’t anything new for our economy; it’s a part of our history. The only time when the U.S. was actually debt free was during Andrew Jackson’s presidency, when he ordered it to all be repaid. Today, our national debt remains at around 53% of our GDP. Compared to Japan’s public debt to GDP of 192%, the US doesn’t look quite as bad. Still, debt is borrowed and has to be paid back eventually.   The Federal Reserve could crank up their printing press and increase inflation to pay it all back, or default on government bonds.  Neither of these situations are likely, but since the Federal Reserve has done the ‘print more money’ trick before, it’s not improbable to think that something drastic couldn’t be considered.

Below is a comparison of the immense Federal Government deficit to American household debt. If public debt is increasing, it should follow that private debt is on the same path. When plotted on a simple graph, it is true and highly positively correlated at 97%:

Of course, just because two figures are highly correlated, there is not necessarily a cause and effect relationship. When public debt increases it doesn’t cause private debt to increase. There are numerous other factors that play a role. That being said, seeing the exponential explosion of debt and the relationship between the two figures on a graph can help put things in perspective and lends a little credence to the theory that overall, Americans are becoming desensitized to debt.

With the economic recession and high unemployment levels, it isn’t surprising that household debt has increased. Cardweb.com, a credit industry reporting website, states that American households with at least one credit card owe more than $8,000 in debt. However, this number has been found to be skewed by a portion of the population with a vast amount of debt. After analyzing the credit card debt of those surveyed, Bill Whitt at the VIP Forum, a Washington D.C. research firm, found that only 29% of households owe $1,000 or more on their cards. Although almost 75% of Americans owe less than $1,000 on their credit card bills, the effect on the economy can be huge. The collapse of the mortgage market is an easy illustration of how the default of a small portion of loans can have a tremendous effect on the economy.

How can you safely leverage yourself against the perils of debt? Unlike the Federal Deficit, there are ways to tangibly protect you and your family from debt and potential bankruptcy in your own home. One of the first and probably hardest lessons to learn is to not let your eyes be bigger than your wallet. Simply speaking, don’t buy things you can’t afford – especially if its monthly payments will max out your budget. Small amounts of debt over time will end up accumulating and eating away at your savings. Another couple of steps to take are in the world of credit cards. The best way to maintain good credit is by paying your balances in full and on time. If you are unable to keep track of your different balances, then you many want to consolidate into one or two cards.

There is no simple “cookie-cutter” answer on personal debt that would suffice for every personal situation. The best advice is common sense. Be fully aware of the combination of your personal credit balances (bills, loans, and mortgages), disposable income, and spending habits. From there, set a budget and adjust to your own wants and needs. You may find that you’re spending more than you’re making and need to cut back in a certain area, or that you should go ahead and pay off a high interest bill while maintaining the minimum payment on others. You may even find that you are able to save for retirement or other endeavors.

If the general population becomes more aware and averse to debt while they are still able to recoup, maybe the government will learn a lesson from its people – to cut out unnecessary spending and manage current resources wisely.

By Paige Slusser

This is, of course, just an economic theory. What does it mean for you and your investment strategies? While this certainly isn’t true 100 percent of the time, in today’s world of instant information, it is fairly difficult for the average investor to find an undervalued stock, or a specific stock to successfully short. For example, if a newspaper or a magazine suggests that readers buy a certain company now, it is likely that the readers are too late to capitalize on the investment. Maybe the publication’s sources tell them that the stock is undervalued, or that the price will double because of X, Y, and Z. By the time the information, already ancient just a few short hours later, is in the investors’ hands, the stock should already have this information incorporated in the current price, or the information could have changed entirely.

Granted, there are anomalies. Consider Enron for example. Bethany Mclean, columnist for Fortune Magazine, looked at Enron’s financial reports and discovered that they were overpriced at their peak. Mclean questioned Enron’s inflated stock price and wrote an article in Fortune entitled, “Is Enron Overpriced?”. If she, or anyone for that matter, had continued to look into the unclear revenues the books showed, they probably would have sold their stock before the scandal hit full swing.

However, a normal investor will probably not take the time to dig through each company’s annual reports, analyze ratios, or read the disclosure notes to find these price discrepancies.

Picking out individual stocks can be time consuming, risky, and difficult to do without complete information. Of course, the individual investor still usually wants to invest in the stock market. There are ways to do this that are both safe and profitable.

At Wiser Wealth Management, we invest in Exchange Traded Funds (ETFs). ETFs track indexes, such as the S&P 500, and trade on the stock exchange. An ETF is similar to a mutual fund in that it is a combination of stocks, but that’s where the similarities end. Our ETFs do not come with a slew of broker commissions for unnecessary trades or mysterious 12B-1 fees. ETFs insulate the investor from company-specific risk and provide a simpler, more practical way to invest.

Article contributed by Paige Slusser

Dawn R. Levine – Attorney at Law – Marietta, GA

www.GaEstatePlan.com

The Board of Visitors was estabilished in 1966 with the purpose of bringing together a dynamic group of advisors to Berry College. The Board of Visitors meets annually to provide insights and perspectives on a wide range of issues. This input helps Berry College fulfill its mission to integrate academics with a strong work experience, community service and oppertunities for spiritual growth.