Disappointing

Just a week after it seemed that the economy was starting to gather some momentum and the stock market was following suit, weak stock prices and a soft employment report put a major damper on everything. It is now apparent that a significant strengthening of the expansion is not yet in the cards. Moreover, I suspect it won’t be forthcoming until the Iraqi situation is resolved. As long as the threat of war remains palpable, investors and consumers will be cautious about investing and spending, which restrains growth. In my judgment, that uncertainty will be resolved in the first quarter, most likely by a military conflict that outs Saddam Hussein. 

The latest figures do little to suggest a new direction for the economy. While the job losses were particularly disappointing, income growth is sufficient to enable consumers to continue to spend at a moderate pace. This will sustain the expansion, albeit at a moderate 3% annual rate. This growth rate will keep living standards rising at a solid pace for those Americans who are employed, but it is insufficient to lower the unemployment rate very much. 

The Administration is appointing a new economics team, one that is more likely to support its policies. Some tax cuts and spending initiatives are likely to be announced in the coming weeks. But the fiscal stimulus may be needed just to offset cutbacks at the state and local level, where budgets are in poor shape. In time, lower tax rates, higher spending, and low interest rates will work their magic. So, this fiscal stimulus may have a limited beneficial effect, at least until the concerns over Iraq are eliminated. 

This environment is unlikely to provide much direction to investors, except for those who are willing to look beyond the conflict with respect to Iraq. Stocks are cheap, at least in my judgment, which limits their downside. But stocks will be hard pressed to do well until the Iraq situation is clarified, which also limits the upside. Bond yields will rise once the economy does better, but bonds remain a safe haven as long as the threat of war looms, which limits their downside. So we wait. But I don’t think we’ll have to wait too long. The Administration does not wish to allow the situation to fester. They are surely becoming frustrated over the economy’s sluggish performance. I suspect Bush will make things happen. And I expect those to be a net plus for the economy and the stock market.

About Advisors Financial Center, LLC
Advisors Financial Center, LLC (AFC) is a provider of managed portfolios and financial services for industry professionals and their clients. As investment strategist, Dr. Lieberman oversees the company's "Portfolio Partners" investment program. Additionally, he provides guidance to the AFC Wealth Coordinators who integrate the work of financial advisors, financial planning, tax, estate and portfolio management professionals to build, protect, and maintain clients' wealth. Although the information included in this report has been obtained from sources Advisors Financial Center, LLC believes to be reliable; we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

About Advisors Financial Center, LLC
Advisors Financial Center, LLC (AFC) is a provider of managed portfolios and financial services for industry professionals and their clients. As investment strategist, Dr. Lieberman oversees the company's "Portfolio Partners" investment program. Additionally, he provides guidance to the AFC Wealth Coordinators who integrate the work of financial advisors, financial planning, tax, estate and portfolio management professionals to build, protect, and maintain clients' wealth. Although the information included in this report has been obtained from sources Advisors Financial Center, LLC believes to be reliable; we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

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