From yoursomerset.com: Report from William Villafranco of Villafranco Wealth Management, Dec 16

Dec. 18, 2011 - PRLog -- Economic data in the U.S. continues to improve while the data in Europe is telling a completely different story. The question is whether the financial markets can begin to overlook their fears about Europe for more than a brief period or whether the albatross of Europe will weigh them down in 2012. With general agreement that the most recent European summit did not come close to solving Europe’s debt problems, it is unlikely that U.S. markets will see a sustained rally in the near future.

The good news is that jobless claims sank to 366,000 last week, the lowest reading since May 2008 (pre-Lehman Brothers) and is consistent with monthly increases in private sector payrolls of about 175,000. This is a respectable increase from recent levels of about 155,000/ month but is still insufficient to keep up with increases in population and well short of what is needed to replace the millions of jobs that have been lost in recent years. While there are signs of hope in jobs, the housing picture remains very problematic. It appears that many of the obstacles to foreclosures are starting to fall away in a number of states, which means that the number of foreclosed homes hitting the market in 2012 could increase significantly. Until the government and banks come up with a program to help underwater homeowners refinance their mortgages at lower rates, the combination of higher foreclosures and depressed property prices will keep housing in the dumps. Without a stronger housing recovery, it is difficult to see how U.S. growth can get much higher than 3%.

In Europe, the economic news is nothing short of catastrophic. A combination of shrinking bank balance sheets and government austerity is pushing most if not all European countries into recession, some into deep recession (i.e. Greece, Portugal, Spain and Italy). The larger problem is the difficulties that many banks are having in obtaining short-term dollar funding, which is forcing them to increase their borrowings from the ECB and dump dollar assets wherever they can. Europe remains at risk of seeing a major bank or sovereign default that would trigger a chain of further defaults throughout the interconnected global financial system. Until this risk is truly diminished – which it was not by the most recent summit – investors should tread very carefully with respect to owning risk assets.

U.S. Treasuries are rallying to record levels based on a flight to quality resulting from European fears. The 10-year Treasury is trading at 1.84% and the 30-year at 2.84% at midday today and the U.S. dollar is maintaining its strength against the EURO. Gold has seen a sharp sell-off despite the fact that none of the reasons for owning gold have changed and, if anything, have sharpened as a result of the obvious intent of European leaders to print at least €1 trillion new EURO to solve their problems.

As we mentioned last week, in our opinion the most attractive asset class looking into next year is less-than-investment grade corporate credit, which is trading at yields and spreads that are discounting much higher defaults than we are likely to see.

William S. Villafranco is the founder and CEO of Villafranco Wealth Management ( http://villafrancowealth.net/ ).
Opened in 1995, the Montvale, NJ company is an independently owned investment boutique focused on their clients’ goals of wealth preservation and growth. With over $300 million in client assets, the firm manages the portfolios for a range of high-net worth individuals, estates, and families. Bill has over 25 years experience in finance and investing. After working for large banks and investment firms, he founded Villafranco Wealth in order to offer clients an outstanding level of personal attention and fully customized advisory services. Bill also acts as trustee for a variety of family trusts and philanthropic organizations.

Bill founded the Footprints in the Sand Foundation, a 501 c (3) non-profit organization, to provide assistance to children and families who have experienced a recent tragedy. To date the Foundation has assisted over 120 families in Northern Bergen county and Southern Rockland County.

Disclaimer:
This blog does not provide individually tailored investment advice. It has been prepared without regard to the circumstances and objectives of those who receive it. This report contains general information only, does not take account of the specific circumstances of any recipient and should not be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. Each recipient should consider the appropriateness of any investment decision having regard to his or her own circumstances, the full range of information available and appropriate professional advice. Villafranco Wealth Management recommends that recipients independently evaluate particular investments and strategies, and encourage them to seek a financial adviser's advice. Under no circumstances should this publication be construed as a solicitation to buy or sell any security or to participate in any trading or investment strategy, nor should this publication or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The value of and income from investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies, geopolitical or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. The information and opinions in this report constitute judgment as of the date of this report, have been compiled and arrived at from sources believed to be reliable and in good faith (but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness) and are subject to change without notice. Villafranco Wealth Management and/or its employees, including the author, may have an interest in the companies or securities mentioned herein. Neither Villafranco Wealth Management nor its employees, including the author, accepts any liability whatsoever for any loss or damage arising from any use of this report or its contents. All data and information and opinions expressed herein are subject to change without notice.
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