Last Friday Lowe Wealth Advisors informed our clients about the Feds’ new QE3 program and addressed its potential impact on the Capital Markets.
On Thursday and Friday, we saw a generally positive response in domestic equity prices and a somewhat negative response in certain bond prices. Some commodities such as gold rose in value. (Note: commodities are a historically volatile asset class.)
While virtually everyone expected QE3, exactly how the Fed would implement the program was unknown, and the fact that it is open-ended signaled an aggressive response by The Fed to the weakening economic recovery.
We discussed our belief that liquidity is not “the problem” with our economy and that conclusion remains intact. We further believe that for the QE3 market rally to be sustainable, it must be supported by improving jobs data, a Fiscal Cliff resolution and overall improving economic numbers.
While we are pleased with the recent domestic market growth, should the general economic data continue to deteriorate and should the Fiscal Cliff not come to a resolution, Lowe Wealth Advisors thinks the present levels could become more precarious. (This is not intended to be predictive of future results.) A prudent stance is still advised in regards to accepting that Europe remains to be a substantive risk to an economic recovery. In addition, recent tensions in the Middle East add a new factor for vigilant observation.
Most of our comments regarding QE3 have been focused on the potential short-term impact. Looking longer term, the impact of the QE programs here in the United States, as well as in Europe, will (in our view) likely devalue currencies.
The impact from devalued currencies is exactly why we hold hard assets, such as gold, in many of our allocations. While considered to be volatile, hard assets may have the potential to be a benefit in an environment of falling currency values. (This is not a recommendation to implement any investment strategy.)
Lowe Wealth Advisors will continue to keep you informed and to share our thoughts and financial strategy adjustments over the coming weeks and months.
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This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice.
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