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Market Commentary

Today's Employment Report
February 1, 2013 David R. Kotok, Chairman and Chief Investment Officer

Today’s labor report confirms the ongoing slowness of our US economic recovery. We are seeing how difficult it is to accelerate the job-creation component.  We are also seeing the early impact of the Congressional/White House taxation policy that placed additional costs on working Americans. Remember, the policy that was applied was a “barbell.”

One side of the barbell imposed higher taxation on wealthy Americans. Wealthy people do not like to pay higher taxes but are able to do so. The amount of negative economic impact from rising taxation on wealthy Americans is relatively small. It is there, but it is not devastating.

The other side of the barbell was the restoration of the two-percent payroll tax on 125 million working Americans. That tax was applied on people who earn $113,700 or less per year. It is regressive and damaging to the economic recovery. The reinstitution of the two-percent payroll tax can only slow the recovery. The new labor statistics confirm that.

We expect more months of economic reports that show very slow growth.  They will support our estimate that 2013 will be a weak recovery year.

The US stock market likes weak labor reports, and so the upward trend of stock prices remains intact. The reason is simple: weaker employment reports mean a longer period of time before the Federal Reserve changes its interest-rate policy. The current policy means near-zero short-term rates and continuous downward pressure on longer-term rates.

Those low rates provide an upward bias to asset prices. That is true for all assets, whether they be stocks, precious metals, real estate, art, collectibles, or something else. Extremely low interest rates that mean rising asset prices are a general investment theme. Cumberland’s accounts remain fully invested.

David R. Kotok, Chairman and Chief Investment Officer

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