Pat Webb - Phase 2 Advisors
 
Genie's Bottle or Pandora's Box?
Weekly Update - September 17, 2012
In This Issue
Performance
Headlines
Recipe
Golf Tip
Health Tip
Green Fact
The Markets:
Markets experienced a sharp rally last week as the Federal Reserve unleashed its long-expected quantitative easing. The major indices closed higher with The S&P gaining 1.94%, the Dow gaining 2.15%, and the Nasdaq picking up 1.52%.

Under the pressure of the previous week's disappointing jobs report, the Fed finally let the genie out of the bottle. The report showed that the economy had added just 96,000 jobs in August, a number much lower than economists expected.[1] This was enough to get the Fed to finally launch long-awaited additional quantitative easing. Under QE3, the Fed has made an open-ended commitment to buy mortgage-backed securities to the tune of $40 billion per month. The move is designed to lower long-term interest rates and spur more lending to businesses and consumers. The Fed said it also will "closely monitor" the economy and continue these purchases and possibly expand them until it sees substantial improvement in the outlook for the labor market.[2] This open-ended commitment means that QE3 will last as long as the Fed wants it to and we cannot be sure when it will end.

The Fed's recent action sends a signal to businesses and investors that it fully intends to use its powers in a major (and unusual) way to spur economic growth. That is a powerful statement to make in a time of economic uncertainty. QE3 is designed to convince businesses to invest in the future by assuring them that the Fed stands ready to do whatever is necessary.

On the negative side, our concern is that QE3 will simply add to the already enormous national deficit without dealing with the underlying causes of our current economic weakness. We are also skeptical that the Fed's actions will convince banks to lend aggressively; rates are already at historic lows, but businesses and homeowners are still having trouble borrowing from gun-shy lenders. In short, QE3 is not a magic bullet that will solve our economic issues. In fact, it may actually add to our problems when the Fed is forced to unload all the bonds it has purchased - not just the QE3 bonds, but the $2 trillion in Treasury bonds it bought during QE1 and QE2 as well. Selling all that debt will drive up interest rates and may stall the recovery just when it has finally taken off.

So, what can we expect next? It's clear that markets are jubilant about finally seeing what the Fed had in store. However, once investors get over their reaction high, if the economic numbers don't show improvement, markets will likely retreat. Although we hope that businesses respond positively to the Fed's move by increasing hiring and capital investment, we really want to see Congress pull itself together enough to address the fiscal cliff and tighten its purse-strings. If you have any questions about how QE3 or any economic issue will affect your portfolio, please feel free to call or e-mail us. We are delighted to be of service.


ECONOMIC CALENDAR:
Monday: Empire State Mfg. Survey
Tuesday: Treasury International Capital, Housing Market Index
Wednesday: Housing Starts, Existing Home Sales, EIA Petroleum Status Report
Thursday: Jobless Claims, Philadelphia Fed Survey
Performance



Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. N/A means not available.

 

Headlines

Consumer Sentiment Jumps in September. Consumer sentiment unexpectedly rose to its highest level in four months as Americans became more upbeat about their economic and job prospects. Although this could be a temporary bounce fueled by the recent presidential candidate conventions and the stock market rally, a significant increase could lead to increased consumer spending.[3]

Credit card use drops for second month in July. Americans cut back on credit card use in June and July amid concerns about unemployment and slow economic growth. According to the Federal Reserve report, consumer debt declined even as overall consumer spending grew, indicating that consumers are paying with current income.[4]

U.S. Credit Rating Cut by Egan-Jones. The ratings firm cut America's credit rating to AA-, citing its opinion that QE3 would hurt the U.S. economy by increasing federal debt and devaluing the dollar, making important commodities expensive and widening the trade gap.[5]

Gas prices push up inflation. A rise in gas prices pushed up inflation in August by the largest increase since 2009. Rising gasoline prices accounted for about 80% of the increase. Although other indicators show that inflation is contained, pressure at the pump could rein in consumer spending.[6] 




Quote of the Week
"It's never too late to be what you might have been."
 - George Eliot
Recipe of the Week

Ginger-Roasted Chicken with Bok Choy and Broccoli




Rub some extra garlic and ginger under the skin for even more flavor.
Recipe from RealSimple.com.


Ingredients:
1 cup jasmine or long-grain white rice
1 tablespoon chopped fresh ginger
2 cloves garlic, chopped
kosher salt
8 small bone-in, skin-on chicken thighs (about 2 1/2 pounds)
3 tablespoons canola oil
2 heads baby bok choy (about 8 ounces), quartered lengthwise
1 bunch broccoli (about 1 pound), cut into florets
2 tablespoons soy sauce
1 teaspoon toasted sesame seeds

Directions:
1) Heat oven to 450° F with a rack in the highest position. Cook the rice according to the package directions.
2) Meanwhile, in a small bowl, mix together the ginger, garlic, and ½ teaspoon salt. Place the chicken on a rimmed baking sheet. Loosen the skin and, dividing evenly, spread the ginger mixture underneath. Rub the outside of the chicken with 1 tablespoon of the oil. Bake until the skin is golden and the chicken is cooked through, 12 to 15 minutes.
3) Heat the remaining 2 tablespoons of oil in a large skillet over medium-high heat. Add the bok choy, broccoli, and ¼ cup water. Cover and cook, tossing occasionally, until the vegetables are tender, 6 to 8 minutes. Pour off any water from the pan, add the soy sauce and sesame seeds, and toss to combine. Serve with the chicken and rice.


 
Golf Tip
Lay the Foundation

Just as a house needs a solid foundation, so does a golf swing. Practice hitting some shots with your feet close together (about six inches apart). This forces you to maintain better balance, tempo, and rhythm, and will prove effective when you go back to hitting from your normal stance.

 

Healthy Lifestyle
Cut Back on Fat for a Healthy Heart

If your doctor has told you to cut back on saturated fats to improve your heart health, here are some tips for modifying your diet without giving up the foods you love.

When cooking a fatty cut of meat, trim as much fat as you can. For alternatives to high-fat meat, consider lean meats like poultry, and fish as well as low-fat dairy products. Replacing one or more eggs in a dish with egg whites or egg substitute will lower the fat while retaining the flavor. Other ways to reduce your fat intake is to substitute butter, margarine, and shortening with olive oil.


Green Living

Choose E-Billing

Switch your monthly bills to e-billing. Even if you print them out at home, you'll eliminate the postage carbon footprint and reduce paper use (no envelopes and annoying "special offer" inserts).
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The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S.
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The Housing Market Index (HMI) is a weighted average of separate diffusion indices based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. Each resulting index is then seasonally adjusted and weighted to produce the HMI.

The Pending Home Sales Index, a leading indicator of housing activity,  measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos and co-ops.  The PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years. The results are weighted to produce the index.

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The BLS Consumer Price Indexes (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services. Survey responses are seasonally adjusted and weighted to produce a composite index.

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Pat Webb
Pat Webb - Phase 2 Advisors
8100 Turman Ct
Fort Collins, CO 80525
970-776-3306
patwebb@phase2adv.com
http://www.phase2adv.com