The August 2nd Deadline

We all have learned it’s much better to make an “objective” rather than “emotional” decision. And with the national debt deadline less than a week away you may be wondering how the U.S. debt decision in Washington may affect you, your investments, etc. To hopefully help keep our thoughts rational and to try to “filter out” all the clutter (Fox News, CNBC, The Wall Street Journal, another Presidential speech, Congressman “political” posturing interviews, etc.), we are assembling questions to consider. Hopefully thinking through these questions will help you in your planning and to possibly help reduce some “hysterical” thoughts and knee-jerk tendencies to “fix it”.

1) Do our politicians and President have the guts and political muster to not compromise and place our Country in default? Would it be political suicide for some?

2) How long could a default last and what might it look like? (One Day, 1 Week, 1 Month, 6 Months, Longer)

3) Which is worse, a default or just a downgrade?

4) When could the markets begin to adjust for a default, what could it look like, and how long might it last?

5) What assets could be affected the least in a default? Which assets the most?

6) How could the S&P 500 Index behave (fluctuate like) in the following scenarios over the 1st day, over a month or more, or over a year or two:
— If a default is avoided…
— If a default and U.S. downgrade is avoided…
— If a default and U.S. downgrade happens, but is cured within a short period of time…
— If just a downgrade happens…

7) What might be the costs or benefits for an investor trying to “time” the outcome?
— If a default was prevented?
— If a default actually happens?

Posted by Randy Mascagni, CFP®

Mascagni Wealth Management — A Registered Investment Advisory Firm
205 E. Main Street, Clinton, MS 39056 — Phone (601) 925-8099 — Toll Free (888) 925-8099

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Past performance is no guarantee of future investment returns.

Market Update 7/5/2011

Since our last Blog on June 7, the market has moved positively in spite of many predictors. This is while news headlines have reported repeatedly on Greece possibly defaulting on their debt, a possible slowdown in the US economy, as well as the U.S. debt ceiling problems in Washington. In fact, just last week the market was up 4%. And since our last post (June 7), see the changes below…

DOW Jones +1.1%
S&P 500 +0.3%
Nasdaq +1.8%
Note: June 7 close through July 1 close; Source: Yahoo! Finance

There is a saying that many times proves itself true… ”The stock market climbs a wall of worry”. What this means is that the stock market can go up in spite of lots of bad news. Since June 7 this appears to be the case.

Going forward on a short-term basis it’s impossible to predict the stock market. However, as far as the economy we could see some slow improvements caused by increased supply shipments from Japan since the earthquake (helping manufacturers such as auto, technology, etc.), and declining gas prices. Just this morning we have seen that Factory Orders released today for May showed a +0.8% improvement over April. We will keep our fingers-crossed hoping this slow-down is just a temporary “soft patch”.