Advocacy Investing Portfolio Strategies, Issue 27

A LOSS OF MOMENTUM

•Disappointing payroll data for the second consecutive month

•Global manufacturing growth falters in 2011, but seems to be regaining strength

•European debt crisis goes unabated as all 3 major debtors are downgraded to junk status

•Debt ceiling talks at an impasse

•With no clear trend or growth engine in the US economy, downside risks to the forecast are

on the rise, although a double dip recession is unlikely

•Nevertheless, markets remain resilient, with the 12,000 level for the Dow holding

The US economic recovery is soon to reach the 2-year point, but there is still little to celebrate. The final GDP revision puts 1Q11 economic growth at 1.9% (annualized), making this the weakest recovery since the Great Depression—although total output has regained its pre-recession levels. Policy paralysis has emerged as the major threat to the US and global economy. In the United States, the debt ceiling impasse continues as both parties dig in their positions despite warnings from economists across the political spectrum. In Europe, deep policy disagreements over a second rescue package have worsened the sovereign debt crisis and spooked global financial markets. However, there seems to be light at the end of the tunnel on both fronts. In Greece, the European Union agreed to extend new funds after the Greek parliament approved another austerity package, and European banks are moving towards a technical rescheduling with a tentative agreement to extend the maturities on about 70% of the €13.2 billion of Greek sovereign debt held by the banks that will be maturing over the next 2 1/2 years.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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