Weekly Commentary July 23, 2012 The Markets

ThemanwithhisfingeronthepulsesaystheU.S.economyfacestwomainrisks.Wehavenocontrol overoneofthoserisksandtheother,well,wedohavesomecontrol,butwhetherourpoliticianswill appropriatelyexercisethatcontrolisabigquestion.

FederalReserveChairmanBenBernankefacedCongresslastweekandhedeliveredarathersubdued outlookinhissemiannualmonetarypolicyreport.Hesaidoureconomyfacestwomajorheadwinds:

1. TheEuroareafiscalandbankingcrisisanditspotentialspillovereffectsonoureconomy. 2. TheunsustainablepathoftheU.S.fiscalsituation(e.g.,thefiscalcliff).
Source:FederalReserve

TheU.S.haslittlecontrolovertheeuroareasituationsowereatthemercyofEuropeanleadersto makeboldandtoughdecisionstogettheirhousesinorder.Theseconditem,though,isclearlywithin ourcontrol.

Thesocalledfiscalcliff,inwhichaseriesoftaxhikesandspendingcutswilltakeeffectin2013if Congresstakesnofurtheraction,couldthrowtheeconomybackintoarecession.TheCongressional BudgetOfficeestimatesifnopolicychangesaremade,thenour2013federalbudgetdeficitwill declinebyabout$600billion.Onthesurface,thatsoundsgreat.However,suchahugeshocktoour systeminashortperiodoftimecouldbeproblematic.

So,willCongressagreetoadjustthelegislationforthebenefitoftheeconomy?Wellsee.

Forhispart,BernankesaidtheFederalReserveispreparedtotakefurtheractionasappropriateto promoteastrongereconomicrecoveryandsustainedimprovementinlabormarketconditionsina contextofpricestability.ItsgoodtoknowthattheFedisreadytohelpifneeded.

Dataasof7/20/12 1Week YTD 1Year 3Year 5Year 10Year

Standard&Poor's500(DomesticStocks) DJGlobalexUS(ForeignStocks) 10yearTreasuryNote(YieldOnly) Gold(perounce) DJUBSCommodityIndex DJEquityAllREITTRIndex

0.4% 0.6 1.5 1.2 4.2 1.1

8.4% 0.5 N/A 0.1 3.9 16.0

2.8% 16.9 2.9 0.6 11.1 9.5

12.7% 3.3 3.6 18.3 6.3 31.4

2.3% 7.8 5.0 18.3 3.4 2.7

5.2% 5.6 4.6 17.2 3.8 12.1

Notes:S&P500,DJGlobalexUS,Gold,DJUBSCommodityIndexreturnsexcludereinvesteddividends(golddoesnotpayadividend)andthe three,five,and10yearreturnsareannualized;theDJEquityAllREITTRIndexdoesincludereinvesteddividendsandthethree,five,and10 yearreturnsareannualized;andthe10yearTreasuryNoteissimplytheyieldatthecloseofthedayoneachofthehistoricaltimeperiods. Sources:Yahoo!Finance,Barrons,djindexes.com,LondonBullionMarketAssociation. Pastperformanceisnoguaranteeoffutureresults.Indicesareunmanagedandcannotbeinvestedintodirectly.N/Ameansnotapplicable.

ITSBEENALMOSTAYEARsinceAugust5,2011,thedaytheU.S.lostitscovetedAAAcreditrating fromStandardandPoors.So,howhavethefinancialmarketsrespondedintheyearsince?Quitewell, actually.

Itmaynotfeellikeit,butthebroadU.S.stockmarket,asmeasuredbytheS&P500index,rose13.6 percentbetweenAugust5,2011andlastFriday,accordingtodatafromYahoo!Finance.Despiteallthe angstfromthecreditdowngrade,thethreatofadoublediprecessionandtheturmoilinEurope,the stockmarkethashunginthere.

Thereturnsinthebondmarketareperhapsevenmorestartling.The10yearTreasuryyielded2.56 percentonAugust5,2011andbylastFriday,theyieldhaddroppedto1.46percent,accordingto Yahoo!Finance.Normally,youmightexpectinterestratestoriseafteracreditdowngradesincethe ratingsagencyisessentiallysayingyourbondsareriskierthanpreviouslythought.

TheU.S.,though,isperhapsaspecialcase.Thedayafterthecreditdowngrade,noneotherthan WarrenBuffettwentonBloombergtelevisionandsaidhethoughttheU.S.shouldbeaquadrupleA rating.And,tothisday,theU.S.dollarremainstheworldsleadingreservecurrencyasmorethan60 percentoftheworldsforeigncurrencyreservesareheldinU.S.dollars,accordingtoBusinessWeek.

Weshouldntgetoverconfident,though.WhiletheU.S.hastremendousassets,itmightonlytakea fewbaddecisionsfromourleaderstoundowhattookdecadestobuild.

WeeklyFocusThinkAboutIt

ThereisnothingwrongwithAmericathatthefaith,loveoffreedom,intelligence,andenergyofher citizenscannotcure. DwightD.Eisenhower,34thpresidentoftheUnitedStates Bestregards,

PattyLoris,MBA,CFP LPLFinancialAdvisor

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* This newsletter was prepared by Peak Advisor Alliance. * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the longterm bond market. * Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association. Precious metal investing is subject to substantial fluctuation and potential for loss. * The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Past performance does not guarantee future results. * You cannot invest directly in an index.

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