Yoursomerset.com: Report from William Villafranco of Villafranco Wealth Management, November 25

Nov. 26, 2011 - PRLog -- All eyes remain on Europe as Germany experienced its first failed bond auction in memory and Italian and Spanish bond yields moved into unsustainable territory. As this is being written on the day after Thanksgiving, the Italian yield curve has become inverted, meaning that investors are demanding higher yields on Italian 2-year paper (7.611%) than on Italian 10-year paper (7.258%). Spain's yield curve is not inverted but its 2-year paper is approaching 6% (5.84%) and its 10-year paper approaching 7% (6.68%). None of these levels are sustainable for the so-called periphery countries, but the failure of Germany's bond auction demonstrates that there is no longer a periphery as the crisis permeates the entire European Union.

Investors in both Europe and the United States are waiting for the pressure on Germany to become so great that Chancellor Merkel will finally agree to some type of massive monetization program involving Eurobonds or massive bond purchases by the European Central Bank. Either of these would effectively place the full faith and credit of the 17 members of the European Union behind the debt of its weakest large members, with the main focus right now being on Italy and Spain (although Belgian yields are also rising). Frau Merkel is resisting any such scheme for any number of reasons, including the difficulty of convincing Germans to pick up the tab for its brethren and a desire to squeeze the maximum austerity concessions out of these spendthrifts before surrendering to what many believe is the inevitable. The truth is that nobody can be certain whether the Germans will ultimately cave in to the demands to rescue the Union. One can be fairly certain, however, that if Germany does concede, it will demand greater control over what its money is spent on. This will require bridging the gap between political and economic union that remains the fault line dividing Europe today. One can be certain of only one thing: Europe - and global financial markets - will be pushed to the brink before the crisis is calmed, and we are still a good distance from the brink today.

In the United States, Congress is licking its wounds after the failure of the so-called Super Committee to come up with even $1.2 trillion of budget savings over ten years. For many, this was not surprising and merely demonstrated that little will be accomplished in terms of economic reform until after the 2012 election. As long as U.S. interest rates remain as low as they are, there will be little pressure for Congress to act. As shoppers rush around like chickens without their heads this weekend to spend whatever discretionary income they have, they would do well to remember (they won't, but still...) that the U.S. debt burden passed the $15 trillion mark at just about the time the Super Committee talks failed. Moreover, third quarter GDP was reduced to 2% (although fourth quarter GDP should be higher than that) and both employment and housing remain in crisis mode. The possibility of a full-blown European crash is far from negligible, largely due to the Europeans' inability to govern their economic affairs. In other words, while the U.S. economy has stabilized in a slow growth mode, it still suffers from severe deficits and is very vulnerable to what happens in Europe. The Dow Jones Industrial Average dropped by 738 points from November 1 through Thanksgiving (much of it this week) but is only down about 2% for the year, while the broader S&P was down 7.35% for the month through Thanksgiving and 8.6% for the year through Thanksgiving. U.S. Treasury yields are at record lows, with the 10-year Treasury below 2 percent. The markets are signaling extreme unease about the future. We maintain our long term core equity holdings, municipal bonds and cash while adding to gold on dips. This week we sold our oil investment as the price action of oil and our holding began to diverge. The rest of 2011 and 2012 are going to provide quite a ride. p>

William S. Villafranco is the founder and CEO of Villafranco Wealth Management. ( http://www.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.
William Villafranco's blogs are also featured on http://www.myhudsoncounty.com.

Bill founded Footprints in the Sand, 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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