Permanent Value

President’s Message

Bruce Doole
October 3rd, 2014

October 2014

Closing Out the 4th Quarter

Just as the San Diego Chargers seem to be finally closing out games in the 4th quarter, we hope the economy and the markets finish with a strong 4th quarter as well. Below, we will discuss some of the factors that could impact your portfolio through the end of the year.

Deficits and Debt

Internationally, we have seen an increase in volatility and violence in the Middle East. The United States may be withdrawing most of their troops from Afghanistan this year, but it could be just the beginning of additional turmoil in Iraq and Syria. This could have serious ramifications on the U.S. budget deficit as the government was counting on a decrease in defense spending by not having to fight two wars. Over the last 10 years, the growth of the U.S. federal debt is up by $10 trillion with 80% of this due to three main areas – defense spending, Medicare, and Social Security. The federal government has to keep interest rates extremely low in order to pay the over $200 billion in yearly interest on the debt. Due to the uncertainty of our military spending, and continued involvement in the Middle East, the U.S. needs to start focusing on ways to get the $500 billion budget deficit under control by addressing the issues surrounding Medicare and Social Security. When the Baby Boomers started reaching the age of 65 in 2011, the severity of our Medicare/Social Security crisis became evident. There are only a couple alternatives to stabilizing and balancing the federal deficit, these include:  increasing the eligibility age and/or taxes for Medicare and Social Security as well as potentially offering current incentives for individuals to wait to collect until the age 70.

Job Growth

In regards to the economy and job market, we are experiencing slow growth, but growth nonetheless. Current GDP economic growth is sitting at 2.5%. Unemployment rates are continuing to decline, for September 2014 they were 5.9% but they are flattening out. These growth rates could be much more significant if the government lowered corporate tax rates. Currently there are trillions of corporate dollars overseas because corporate taxes are significantly higher than most other countries. Lowering corporate taxes could bring hundreds of billions of dollars, and hundreds of thousands of jobs, back to the U.S. thus providing both economic stability and growth.

It is important to understand the potential impact of these economic events in relation to your financial plan as we help you reach your financial goals. Your financial strategy is subject to economic adjustments but it does not change its foundational goals. With every conversation, we build upon your financial foundation to ensure your goals are achieved. We look forward to speaking with you as we continually make the necessary adjustments that will make your financial strategy more effective.