Recent economic indicators suggest that Europe’s economy, which has been mired in a nearly two-year long recession brought on by the region’s sovereign debt crisis, is finally showing signs of life. This gives us a compelling reason to begin adding back to Eurozone investments.
Data released in August showed that economic growth in the Euro area as measured by real GDP turned positive in the first quarter of 2013 to the tune of 1.1%. Germany and France led the way with year-over-year GDP growth of 2.9% and 1.9%, respectively.1
Harsh austerity measures (tax increases) implemented over the past 3 years to reduce government debts by individual countries has finally produced a stable and opportunistic environment for economic growth.This is great news for many of the individual countries in the region as resolving the structural issues such as high debt levels, and elevated rates of unemployment are a natural byproduct of economic growth.
It's Time To Revisit European Investments
The global economy would certainly welcome Europeability to carry its share of the load again as well. The GDP of the European Union is bigger than that of the U.S. or China and is a key destination for American foreign investments.
Fall / Winter 2013
ECONOMIC GROWTH IN THE EURO AREA AS MEASURED BY GDP TURNED POSITIVE IN THE FIRST QUARTER...
If the improvement in the core countries and stability in the peripheral countries continues, it could provide increased support to global trade and overall global economic growth. We believe that this translates into higher stock prices for European brands.
Partner, Financial Advisor
Valuations of individual equities in Europe have risen along with markets, but remain below trend as the economic doldrums kept many investors away. The price-to-earnings ratio for the MSCI Europe ex-UK Index is 31% below its historical median.2
At the current stock prices, we see an opportunity to own strong companies at attractive long-term value (especially compared to similar U.S. based multinational companies in the same industries.)
Europe still has a lot of work to do, and looking at the region as a cohesive unit is difficult because the divergence of economic fortunes and political stability vary greatly from country to country. But as the recent data indicates, the Continent as a whole seems to have turned a corner.
Investors in our managed strategies will see the addition of incrementally more European investments in the months ahead so long as this trend continues.
1JPMorgan Asset Management
2Ned Davis Research
About the Same
27% of individual stock investors were “bullish” 2 days after the 2008 Lehman Brothers collapse. 36% of investors are “bullish” today.
American Association of Individual Investors
The United States has added 6.15 million jobs since 12/31/09, equal to 72% of the 8.57 million jobs that were lost during the 2007-2009 recession.
U.S. Department of Labor
When Helping Out Hurts
Many of you have run into this issue in the past or will in the future: You desperately want those around you to succeed and you want to help financially. But you must ask yourself, at what cost? The truth is we all want to help.
The danger is that helping can quickly cross the line to financial enabling. Psychologist Brad Klotz gives a great definition for financial enabling: “Giving money to others whether you can afford it or not; giving when it is not in the other’s long term best interest; having trouble saying no to requests for money; and even sacrificing one’s own financial well-being for the sake of others.”
Increasingly, I see financial enabling not only between parents and children, but also between spouses and aging siblings. Between a married couple, the best advice I can give is to be completely open and honest about your financial situation. Make sure that both of you are living within your means and make sure you both have the same understanding of “within your means”.
When helping out another family member, I’m going to give you my three rules for giving financial help (if you read into them a bit you’ll realize these rules hold true for charitable giving and helping a friend as well).
Rule #1: Make sure you don’t give more than you can afford. Your first goal should always be to ensure that you continue to be financially stable. The worst outcome is that you sacrifice your financial well-being to help another. This can lead to a situation where you and the person you were trying to help are both in financial trouble.
Rule #2: Make sure that you define and limit the amount of help you give. There is a difference between telling a child that you will help with expenses for 6 months and that you will help “until they are back on their feet”. This second scenario can lead to a very long “job hunt” while your child looks for that perfect dream job. Four years later you may still be waiting and enabling a person who is perfectly capable of working.
Rule #3: Make sure you are sending the right message. You may explain that you are just giving some money to help out and then justify the help again the next time. Later you tell them that this is the last time that you can help. Stay true to yourself and to others. Do what you say you are going to do (that’s always good advice) and stick to your guns. If you have the money, but you know that you could be endangering your financial situation, explain that to them. If you are giving some money now, but may not be able to every year make sure they hear that as well.
We all want to help our families. At times financial help is necessary and can be life changing, but that change is not always for the better. Follow the rules!
Financial Advisor, CFP® Partner
In And About The Office
Fall / Winter 2013
AFP welcomes Garrett Layell, CFP®
Garrett joined the Adams Financial team in March with three years prior industry experience as a financial advisor with Edward Jones. He is a Certified Financial Planner with a Bachelor’s Degree in finance from East Carolina University.
Garrett and his wife, Heather, live in Apex with their son, Gabe, and are active members of Baptist Grove Baptist Church.
AFP also welcomes Ann Broadway
Ann Broadway recently joined our team as a financial consultant specializing in retirement planning and Social Security consulting. She heads up our community education initiative to increase financial literacy and intelligence in our community.
Ann has over 20 years of marketing and strategic planning experience with Fortune 500 companies. She earned her Bachelor’s degree from Vanderbilt University and her MBA from N.C. State University. Ann is a Registered Representative holding her Series 6, 63 and 65 registrations. She and her husband, Michael, live in Chatham County.
In The Market
So far 2013 has been a good year for equity investors, seeing the S&P 500 up over 18.5% YTD. However, August was a rough month, with the S&P 500 giving back 3% amidst issues in Syria.
Economic data continues to be mixed. Company revenue growth is slowing, but still positive. Europe is turning around and is beginning to contribute to the global economy. We also believe housing has turned a corner and will continue to improve. This is particularly important to the creation of more jobs in the U.S.
Currently, interest rates are rising rapidly as bond investors anticipate less Fed stimulus (due to our improving economy).
There has been a substantial drop in refinancing activity because of this, which is causing a slight drag on lenders and homebuilders.
It is important to note that despite rising interest rates in the bond market, we do not expect rates on CD’s or Money Market Instruments
to increase any time soon, as these are tied to the Federal Funds Rate, which the Federal Reserve has vowed to keep low for a couple more years (currently 0-.25%).
We will keep a close eye on Congress over the next couple of months, with the debt ceiling talks looming. We anticipate mild volatility in stocks if those talks turn unpleasant. As always, please give us a call if you have questions about markets, or about your accounts.
The Family Budget
One of my favorite quotes about budgeting is “A budget tells us what we can’t afford, but it doesn’t keep us from buying it”. Living within a budget is a concept that almost everyone is familiar with, but few implement and even fewer sustain if they happen to begin the commitment.
Here are some very tangible steps you can take to establish a great budget:
Step 1: Know what you value and what you want to accomplish – make a list and rank it. This becomes the foundation of everything else you do.
Step 2: Track your spending – write it down. We have all heard the old adage, you will never get where you want to go if you don’t know where you are today.
Step 3: Develop your budget - allocate your income for a specific period to what you will spend, using the goals and values you outlined in Step 1 to determine your allocations.
Step 4: Implement your budget – do what you say you are going to do. While easy to say, this can be a challenging step for many because it will often test commitment.
Step 5: Periodically measure your progress. Budgeting, like any form of planning will always be impacted by the unexpected, both positive and negative. It is important to recognize change, make adjustments and whatever you do, keep moving forward.
As I talk to clients about this process, a common theme emerges – it is not the understanding of what to do that causes struggle, it is developing and sustaining the long-term habit that is difficult. Here are a few key things that will give you the best chance at success: Manage your expectations and start slowly. (Rome was not built in a day.) Don’t go it alone. Find a trusted partner who will both help you and hold you accountable. Take advantage of technology. The internet offers a variety of free tools to help you. Apply these principles, along with a little discipline and patience and you will take control of your financial future.
REQUIRED DISCLOSURES: Past performance is no guarantee of future results. Investments in securities are not FDIC insured, and may lose value. Please consult a current prospectus prior to investing in mutual fund shares. All information contained herein gathered from sources deemed to be reliable. For more complete information, please see your official statement. The views are those of Adams Financial and should not be construed as investment advice. All economic and performance data is historical and not indicative of future results. Investors cannot invest directly in an index.