After a miserable May, the markets bounced back in June - recovering 70% of the May losses. The market weakened the first week in July but it was a holiday shortened work week with low volume. The jobs report on Friday was exceptionally weak giving reason for some traders to book some of their June profits. However, as stated here a number of times over the last several months, we are in the unusual trading environment where many view bad news as good. If the economic and European woes get to be too much, then the Fed will be forced to act leading to much more liquidity and most assuredly rising stock prices. Eventually this Fed induced rally will end poorly but, in the meantime, there could be significant gains to be taken. Until the economy strengthens, employment begins to show signs of recovery, and Europe makes headway to forestall its impending recession, it is all about the Fed.

There is little in the way of economic news this week but Alcoa will jumpstart earnings season with its release this afternoon. Friday could be a key day as a number of banks are reporting and could be a harbinger of things to come. Absent an intermeeting intervention by the Fed, the next few weeks will be driven by corporate earnings reports. Expectations have been lowered but investors will be looking more at future guidance than the current quarters. It is difficult to know where the market heads next. Earnings and forecasts are likely to disappoint investors but with the Fed lurking in the background anything is possible and many traders have already begun to price in a third round of quantitative easing. We have our doubts on how much such easing will propel the markets and certainly the end game of such a move but we will invest with the trend. Right now the trend is up and we will likely begin to commit some assets back into the market but not without a wary eye.

While our defensive posture helped us tremendously during the market sell-off in May, we trailed a bit in June. However, the losses we avoided more than made up for the gains we missed. We would always prefer to be wishing we were in the market than wishing we were out. We have made a few portfolio adjustments over the last couple of weeks and will likely make additional ones to gain a little more exposure. This is not the time to throw caution to the wind but you "don't fight the trend" and, for now, the trend is up. We hope this rally has more room to go but we'll have to wait on the earnings and the Fed to get more clarity.

NOT ALL THE WAY BACK YET - 3 years after the end of the nation's most recent recession, the United States employs 3.9 million fewer Americans than when the recession began and 12.7 million people remain jobless. An 18-month recession took place in the country from 12/31/07 to 6/30/09. The number of employed Americans has dropped from 146.3 million on 12/31/07 to 142.4 million on 6/30/12 (source: Department of Labor).    

IS THERE A SIXTH YET TO COME? - 5 of 17 Eurozone countries (i.e., the countries that use the Euro as their common currency) have received a financial bailout in the last 2 � years. The 5 countries are Greece, Ireland, Portugal, Spain and Cyprus (source: BAM Research).

ARE YOU KIDDING ME? - The Court of Justice (the "Supreme Court" of Europe) ruled on 6/21/12 that European workers that become sick on vacation are legally entitled to take a second vacation. The ruling is effective in all 27 European Union countries (source: New York Times).

JUST THREE MONTHS - Since the August 2011 debt ceiling debate that paralyzed Congress, the nation's debt ceiling has been raised twice from $14.3 trillion to $16.4 trillion. The nation's debt total is $15.8 trillion as of 5/31/12. Since last summer's debt ceiling debate, the US has added $4.68 billion of debt per day. If that amount of daily debt continues into the future, the United States will hit the $16.4 trillion debt ceiling total on 10/11/12 or just over 3 months from today (source: Treasury Department).

OVER PROMISED, UNDER FUNDED - The city of Stockton, CA filed for Chapter 9 bankruptcy protection on 6/28/12, becoming the largest US city ever to seek bankruptcy protection (both by population and by the size of their debt load). Stockton has a population of 300,000 and has $700 million of outstanding debt and had promised its public sector workers free health care for life (source: BAM Research).     

Traditionally we have a big day planned for the 4th of July with fried catfish and fireworks at Kelly's brother's house in Clarksville. However, this year we were only afforded a more modest celebration as Carter was away at camp, Emily had to work until early afternoon and the firework ban meant no big show! Thankfully there was no ban on fried catfish and we had plenty of that!

Carter and I are heading to Knoxville this week for a short campus visit. It is hard to believe that I will soon have my second in college. We will take a campus tour and then a tour of the new business building. It will be fun for me to go back to my old stomping grounds and to see all the changes to the business building. I spent many hours there in class and working as a graduate assistant. I don't imagine I will recognize much. We will spend a night with Sam and Nancy before the tour and then after the tour will head to the mountains for a day of fly fishing in the Smokies. It should be a fun time and, if we can avoid the rain, perfect temperatures. Carter and I have made this trip a number of times and it is always much more challenging to catch the native trout than the stocked ones. Hopefully, we will catch our limit and avoid the bears!

Sam and Bo

Remember to visit our blog for market comments and observations in between newsletters.  We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day.  You can access it by clicking here. 

Published by Sam C. Bills, Jr.  Copyright � 2008 Bills Asset Management.  All rights reserved.

BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management  3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management  is an independent registered investment advisor (RIA) not associated with any financial institution.  Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed.  Performance results do not take into account any tax consequences and are not predictive of future results.  This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals.  This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

Important Disclosure Information

Bills Asset Management ("BAM") composite performance results represent time-weighted actual performance results for continuously managed BAM accounts, which individual accounts BAM believes to be representative of its investment management process (i.e. mutual funds and exchange traded funds) for each specific strategy during the corresponding time period.  The composite performance results reflect the reinvestment of dividends and other account earnings, and are net of applicable account transaction and custodial charges, and the separate fees assessed directly by each unaffiliated mutual fund and exchange traded fund holding that comprised each account, and the maximum investment advisory fee that the accounts would have incurred (by applying BAM's current investment advisory fee as set forth in its current written disclosure statement) during the corresponding time periods.

Please Note:  Past performance may not be indicative of future results.  Therefore, no current or prospective client should assume that future performance will be profitable, equal the performance results reflected, or equal any corresponding historical benchmark index.  The historical index performance results for all historical benchmark indices do not reflect the deduction of transaction and custodial charges, or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results.  The historical performance results for all indices are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual client or prospective client in determining whether the performance of BAM program meets, or continues to meet, his/her investment objective(s).  A corresponding description of each index is available from BAM upon request.  It should not be assumed that BAM account holdings will correspond directly to any such comparative benchmark index.  The BAM performance results do not reflect the impact of taxes.

For reasons including variances in the investment management fee incurred, market fluctuation, the date on which a client engaged BAM's investment management services, and any account contributions or withdrawals, the performance of a specific BAM client's account may have varied substantially from the indicated portfolio performance results.

In the event that there has been a change in a client's investment objectives or financial situation, he/she/it is encouraged to advise BAM immediately.  Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investments purchased and/or investment strategies devised or undertaken by BAM will be profitable. 

Information pertaining to BAM's advisory operations, services, and fees is set forth in BAM's current disclosure statement, a copy of which is available from BAM upon request.  Performance results have been compiled solely by BAM, are unaudited, and have not been independently verified.  BAM maintains all information supporting the performance results in accordance with regulatory requirements.