What an intensely volatile few weeks in the
market!

I am sure most of you have read all about the debt ceiling deal that finally
passed Congress and was signed by President Obama. I won't bore you with another
run-down of the deal and most of the details won't be hammered out until the
bipartisan super-committee works on it over the next four months. All that we
can say for sure is that the debt ceiling is raised and we can pay our bills.
Our debt remains ghastly high and we don’t know yet the features of any budget
cuts or tax increases or if any of it will truly curtail our national
profligacy.

I think investors have been become
hyper-sensitive as a result of the government’s extreme bipartisanism and
dysfunction. They are on edge
dealing with a slow jobless recovery and watching growth come in surprisingly
weak in the second quarter. It seems scary, the future is unknown, and if we
continue on the path we are on, economists tell us we could slip into another
recession. The experience over the debt ceiling debate makes us think that our
leaders are directionless; if America is a big ship, our government seems to
have a captain gunning for starboard with a crew positioning leeward. No one
can fault you for being nervous about the economy.

There are two things to keep in mind. First,
though the greatness of our country appears harmed, we still outshine most
other nations. No other country’s sovereign debt is as revered as ours is.
Treasury securities remain the most liquid, reliable and secure debt instrument
in the world. That may not always be the case, but for today it is so. Currency
investors may express their fears by selling dollars, but fixed income investors
have not abandoned our sovereign debt.

Ironically, despite all the embarrassing
bickering among our leaders, if we do ultimately manage to make just a small
dent to shore up our national balance sheet over the years, it will go a long
way to impress foreign and domestic investors alike. Progress is painful but at
least it beats stagnancy.

Second, I want to share with you an
interesting and somewhat comforting report recently published by the Bespoke
Investment Group. They posit that the Treasury yield curve is a very strong
predictor of recessions, and the current yield curve shows that a recession is not
on the horizon.

The yield curve is the spread between 10-year
and 3-month Treasury securities. The bigger the spread is, the steeper the
slope of the curve. A positive curve is a normal one since investors usually
need to receive a higher return for the longer maturity. A flat curve means
there is little difference in yields across maturities. An inverted curve means
that longer maturity bonds yield less than shorter ones. When the curve is
inverted it means that investors are willing to receive a lower return for a
longer time period, implying that they have little faith in other investments
and that they aren’t worried about inflation (i.e., economic growth) eating up
their interest payments.

Here’s the kicker. The yield curve hasn’t
been inverted since August 2007, right before the last recession. It remains at
a historically high slope. While not every inverted yield curve historically
has led to a recession, every recession since 1962 has been preceded by an
inversion in the yield curve. If our economy was on the verge of a recession,
this would be the first recession in fifty years that was not preceded by an
inverted yield curve.

I am not saying that this guarantees that our
economy won’t erode, but according to this indicator, the signs are not there
at the present time.

Extreme stock selling born out of fear
presents opportunities. Your financial advisor’s job is to continually evaluate
when the market prices a company disproportionately to its ability to grow and
compete. Additionally, make sure
your portfolio includes good quality fixed income securities. Though the yields
are puny, they will help to alleviate some of the effects of stock market volatility.

* Ellen Le is the founder and president of Ascend Investment Management
(www.ascendinvmgt.com). She has been a financial planner and investment adviser
for more than 20 years.
I look forward to receiving your
questions about anything related to investments, retirement planning, or the
economy. Send them to: ellen@ascendinvmgt.com and write “Chadds Ford Live” in
the subject line.

About Ellen Le

Ellen is the Founder and President of Ascend Investment Management. She was born in Philadelphia and has lived in the Delaware Valley for most of her life. When she is not researching investments and managing portfolios, she pursues her interests in tennis, bridge, hiking and art. Beginning her investment career in 1981 as a stockbroker at E.F. Hutton and Co., Ellen now has over 20 years of investment management experience. Prior to founding Ascend in 2006, she managed high net worth assets for many years at Bank of America, Mellon Bank, and most recently at Davidson Capital Management. At Davidson Capital Management, Ellen served as a Senior Vice President and Senior Portfolio Manager of the firm. She managed assets for more than 50 family relationships and was a core member of the firm’s Investment Committee.Ellen earned a BA in History from Brown University and a MBA in Finance & Investments from The George Washington University. She is a member in good standing of the Chartered Financial Analyst (CFA) Institute, which is a global organization dedicated to setting a high ethical standard for the investment profession. Her professional memberships include the Delaware County Estate Planning Council, Women Enhancing Business (WEB), and the Chadds Ford Business Association. She is a docent with the Delaware Art Museum and an active volunteer with the Brown University Alumni Association.

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