Sep 29, 2008 Weekly Commentary

The Markets While the politicians fiddled, Wall Street and Main Street burned. The financial markets eagerly awaited confirmation of a government bailout last week, but all they got by last Friday was partisan bickering and finger pointing. With no deal, traders pulled in their horns and the markets fell for the week. It also didn’t help that last week’s economic news was mostly bleak. Here are a few of the highlights: • The four-week average of first-time claims for unemployment insurance rose to 462,500 last week. That’s the highest since November 2001, according to MarketWatch. On the positive side, some of the spike was caused by Hurricanes Gustav and Ike as opposed to economic weakness. • Second quarter GDP was revised down to 2.8% growth from a preliminary 3.3% rate, according to the Commerce Department. Over the past 12 months, GDP grew 2.1%, which is below the 2.75% growth rate most economists say is the economy’s long-run potential, according to MarketWatch. • New home sales fell to a 17-year low in August, according to data from the Commerce Department. The August rate was also 34.5% below the sales number a year ago. These weak numbers are not too surprising since weakness in housing is at the root of our current financial problem. • Orders for durable goods in August dropped a larger than expected 4.5% as demand declined in most major categories, according to data from the Commerce Department. Now, for what we hope is some good news. Over the weekend, Washington lawmakers got serious and announced they had reached a bipartisan $700 billion agreement to bailout the financial sector. The agreement may prevent a “worst-case scenario” from unfolding in our financial markets, but it probably won’t forestall further economic weakness. As we’ve said before, it took us years to get into this mess and it could take us years to get out of it. In the meantime, we continue to work hard at preserving capital and searching for new opportunities. THE CURRENT GLOBAL FINANCIAL MESS is a good reminder that it may pay to follow a few basic principles of good living. As a society, we’re inundated with messages that encourage us to spend, spend, spend, and buy stuff that might make us feel good in the short term, but in the long term could leave us with a migraine. For some people, the lure of easy credit and living the high life was hard to resist and they ended up getting in over their heads. By forgetting basic personal finance and life principles, some of these folks are unfortunately paying a heavy price. As we survey the landscape, there are plenty of people and organizations who can share the blame for the situation our country finds itself in. Greedy financial institutions, hedge funds, investment banks, mortgage brokers, politicians protecting their jobs, ratings agencies, and regulators are just a few in a long list of culprits. But, at the end of the day, laying blame on other people won’t solve the problem or prevent the next one. Ultimately, we each have to be responsible for our own actions and do the best we can to make prudent decisions that protect our hard-earned assets. Here are a few basic principles that can benefit all of us: • Live below your means. Consider saving at least 10% of your annual income. Before long, you’ll have a nice cushion that will help soften the blow if the unexpected happens. • Buy adequate insurance. There’s no need to expose yourself to a major loss if you can insure the potential loss for a relatively small amount. • Invest regularly. No one can predict whether the market will go up or down tomorrow, let alone next year. By investing regularly, you establish a discipline that may help smooth out some of the fluctuations. • Don’t stress out over things you can’t control. We can’t control if there will be a thunderstorm tomorrow any more than we can control whether or not the $700 billion bailout package will be successful. What we can do though, is be proactive in preparing ourselves for whatever outcome may occur. • Focus on what’s most important in life. We’re all given a certain amount of time on this earth and it’s in our best interest to use that time wisely. Spending time with your family, your friends, and helping others may help you stay sane in a sometimes crazy world. Weekly Focus – From $12,000 to $30 Million in 68 Years In 1940, surrealist artist Enrico Donati purchased a Picasso painting for a reported $12,000. Earlier this year, Donati died at age 99 and his estate is putting the painting up for auction later this year. Sotheby’s estimates the painting will fetch $30 million. What do you think is the average annual rate of return if the painting, purchased for $12,000 in 1940, sells for $30 million later this year? Would you believe about 12.2%? That’s a good example of the power of compounding!

Sep 22, 2008 Weekly Commentary

The Markets "Historic" is not a word we use lightly, but it seems appropriate to describe what took place in the financial markets last week. As you look at the box score below, it masks the volatility that took place in one of the wildest weeks in Wall Street history. When the dust settled, the broad S&P 500 index finished the week with a slight gain, but it took some pain to get there. Last Monday, the Dow Jones Industrial Average dropped 504 points, followed by a gain of 141, a loss of 449, a gain of 410 and it closed the week with another gain of 368 points. Whew! By Wednesday of last week, the world financial system was teetering on the brink of collapse. Credit markets had frozen, banks were unwilling to lend to each other and stock markets were plunging. A vicious death spiral was spinning out of control. After trying a “plug the hole” policy that had failed to stem the crisis, the U.S. government threw out the playbook and decided it was time to act decisively. By late last week, the government marshaled all its resources and created a plan to try to put the crisis behind us for good. The stock market liked what it was hearing and it staged a huge rally the last two days of the week. Let’s hope it continues. THE PAST, THE PRESENT, AND THE FUTURE OF THE CURRENT FINANCIAL SITUATION In light of the recent turmoil, this week’s report will be longer than usual. We thought it would make sense to discuss the past, present, and future of the current financial situation. This may help put things in context for you. The Past In order to understand how we can get out of this mess, it’s necessary to figure out how we got into it. The late 1990s is a good place to start. No doubt you remember those “good old days.” The internet was changing the world, technology stocks were soaring, and the economy was humming along. It was a great time to be in the stock market as the S&P 500 index rose 220% for the five years ending December 31, 1999, according to data from Yahoo! Finance. That’s an average annualized return of 26% excluding reinvested dividends, which is simply phenomenal. Of course, the good times didn’t last. The bubble popped and the S&P 500 declined by 49% between March 2000 and October 2002, according to data from Bespoke Investment Group. In order to limit the collateral damage to the economy from this steep decline, the Federal Reserve, under former chairman Alan Greenspan, embarked on a major interest rate cutting campaign to try and stimulate the economy. The Fed took the federal funds rate from 6.5% in May 2000 all the way down to 1% by June 2003, according to data from the Federal Reserve Bank of New York. This precipitous decline in interest rates set the stage for the next bubble – real estate. With interest rates super low and the stock market in a funk, investors turned their attention to the previously moribund real estate market. As the economy gradually improved, people started to buy homes again in a big way. And banks, mortgage companies, and Wall Street wizards were more than happy to come up with new fangled ways of getting Americans into the home of their dreams with little to no money down. Wall Street investment banks were thrilled with this new opportunity in real estate because they weren’t making much money on their traditional business of investment banking and buying and selling securities. By coming up with new ways to package, slice, and dice mortgage securities, Wall Street firms made a boatload of money. Unfortunately, many of these new securities, which provided capital to finance the real estate boom, were highly financed themselves. Effectively, the actual equity that underpinned some of these mortgages was negligible. When the real estate bubble became unsustainable, just like the earlier technology bubble, it all came crashing down. With very little equity supporting billions in outstanding mortgages, a slight decline in the value of the real estate caused a ripple effect of delinquencies and defaults. As the defaults spread, it began to feed on itself like a California wildfire inhaling dry timber. Eventually, fear took over as nobody knew when the vicious cycle would be broken. Enter last week. Investors had weathered blowups from Countrywide, Bear Stearns, Fannie Mae, Freddie Mac, and now, they were facing major problems with Lehman Brothers, AIG, and Merrill Lynch. By week’s end, Lehman had been forced into bankruptcy, AIG had been effectively nationalized by the government, and Merrill Lynch had taken refuge in the arms of Bank of America. This tumultuous turn of events propelled the government to act swiftly and decisively. The Present The situation is fluid and changes are happening with lightning speed. Over the weekend, the Bush Administration sent to Congress a $700 billion proposal that would give the Treasury broad authority to purchase distressed assets from U.S. financial institutions in an effort to stem the crisis. The proposal would also raise the nation’s debt ceiling to $11.315 trillion from its current $10.615 trillion limit, according to Bloomberg. To put $700 billion in perspective, that translates into an average bill of $6,500 per U.S. family, according to a report from MarketWatch. Now, it’s possible that the Treasury will turn around and sell the assets and recoup some or all of that $700 billion, but that will not be known for perhaps years. We also don’t know how hard of a bargain the government will drive when it tries to buy these distressed assets. If it tries to buy the assets at a very low price, then the financial institutions may have to take more write-downs and raise more capital, which could keep this vicious cycle spiraling down. Conversely, if it buys the assets at a high price, then the financial institutions benefit at the expense of the taxpayers who are on the hook for any future losses. In a surprising twist, investment banks Goldman Sachs and Morgan Stanley announced late Sunday night that they will convert their businesses into traditional bank holding companies, according to The Wall Street Journal. This will subject the companies to new regulatory oversight and possibly significantly reduce their future profit opportunities. It may also put the companies in a better position to be acquired, to merge, or to acquire a smaller bank with insured deposits. In other news last week, the Treasury announced that it is extending bank deposit-type insurance to money market funds. The news of a money market fund that “broke the buck” prompted the government to implement this safety net as a way to limit further damage in the $3.3 trillion money market industry, according to Bloomberg. Also, on Friday, the Securities and Exchange Commission implemented a ban on short-selling 799 companies through October 2. This may ease some of the pressure on these companies and shield them from “bear raids” that could depress their stock price. The changes announced by the government late last week helped spark a huge rally in stocks on Thursday and Friday. Nobody knows whether this is just a temporary reprieve or the beginning of a new period of stability. What we can say with some confidence is the government is all over this situation and they are trying to do all they can to prevent a replay of the 1930s. The Future As the old saying goes, “Forecasting is the art of saying what will happen, and then explaining why it didn't." At the risk of having to explain ourselves later, we’ll offer some comments about what the future may hold. First, capitalism as we know it may have changed dramatically. The concept of letting free markets adjust and self-correct with minimal government intervention is likely gone. The government’s actions over the past few months indicate that there are limits to laissez faire. We may see more government regulation and that may mean lower long-term returns from securities because the regulations could remove some of the risks from investing. Second, when a financial calamity is knocking on the door, a small number of people may assume tremendous power to make decisions that put hundreds of billions of taxpayer dollars at risk. Right now, Treasury Secretary Hank Paulson is arguably the most powerful person in America. He and his coterie of trusted advisors are massively reshaping our financial system with bullet train speed and little oversight. When the history books are written, Paulson may go down as the greatest Treasury secretary of all time or we may be throwing darts at his picture. Time will tell. Third, we live in a global society that is highly connected through commerce and instantaneous communication. What happens in the U.S. is no longer a U.S. issue and vice versa. As a global society, we may all sink or swim together – so we all better get along. The financial crisis we’re experiencing is a great example. It’s not just isolated to the U.S. It has global ramifications. In Closing As we wrap up this extended commentary, we need to keep in mind that it took us years to get into this mess and it may take us years to get out of it. The government’s unprecedented action last week may have stopped the bleeding, but that doesn’t necessarily mean the patient is well. We still have a glut of homes on the market, a relatively soft economy, and a host of other headwinds. With that said, new opportunities may arise and we are always on the lookout for them. No matter what the market may throw at us, we want you to know that we are closely following the situation and we are doing all we can as professional advisors to be good stewards of your money. If you have any questions, please let us know. Thank you for the trust and confidence you’ve placed in us. We’ve worked hard to develop it and we are working hard to keep it. Weekly Focus – Think About It “God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.” -- Reinhold Niebuhr ' style='margin: 0px 5px;' cols='100' rows='15'> First, capitalism as we know it may have changed dramatically. The concept of letting free markets adjust and self-correct with minimal government intervention is likely gone. The government’s actions over the past few months indicate that there are limits to laissez faire. We may see more government regulation and that may mean lower long-term returns from securities because the regulations could remove some of the risks from investing. Second, when a financial calamity is knocking on the door, a small number of people may assume tremendous power to make decisions that put hundreds of billions of taxpayer dollars at risk. Right now, Treasury Secretary Hank Paulson is arguably the most powerful person in America. He and his coterie of trusted advisors are massively reshaping our financial system with bullet train speed and little oversight. When the history books are written, Paulson may go down as the greatest Treasury secretary of all time or we may be throwing darts at his picture. Time will tell. Third, we live in a global society that is highly connected through commerce and instantaneous communication. What happens in the U.S. is no longer a U.S. issue and vice versa. As a global society, we may all sink or swim together – so we all better get along. The financial crisis we’re experiencing is a great example. It’s not just isolated to the U.S. It has global ramifications. In Closing As we wrap up this extended commentary, we need to keep in mind that it took us years to get into this mess and it may take us years to get out of it. The government’s unprecedented action last week may have stopped the bleeding, but that doesn’t necessarily mean the patient is well. We still have a glut of homes on the market, a relatively soft economy, and a host of other headwinds. With that said, new opportunities may arise and we are always on the lookout for them. No matter what the market may throw at us, we want you to know that we are closely following the situation and we are doing all we can as professional advisors to be good stewards of your money. If you have any questions, please let us know. Thank you for the trust and confidence you’ve placed in us. We’ve worked hard to develop it and we are working hard to keep it. Weekly Focus – Think About It “God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.” -- Reinhold Niebuhr ' style='margin: 0px 5px;' cols='100' rows='15'>The Markets "Historic" is not a word we use lightly, but it seems appropriate to describe what took place in the financial markets last week. As you look at the box score below, it masks the volatility that took place in one of the wildest weeks in Wall Street history. When the dust settled, the broad S&P 500 index finished the week with a slight gain, but it took some pain to get there. Last Monday, the Dow Jones Industrial Average dropped 504 points, followed by a gain of 141, a loss of 449, a gain of 410 and it closed the week with another gain of 368 points. Whew! By Wednesday of last week, the world financial system was teetering on the brink of collapse. Credit markets had frozen, banks were unwilling to lend to each other and stock markets were plunging. A vicious death spiral was spinning out of control. After trying a “plug the hole” policy that had failed to stem the crisis, the U.S. government threw out the playbook and decided it was time to act decisively. By late last week, the government marshaled all its resources and created a plan to try to put the crisis behind us for good. The stock market liked what it was hearing and it staged a huge rally the last two days of the week. Let’s hope it continues. THE PAST, THE PRESENT, AND THE FUTURE OF THE CURRENT FINANCIAL SITUATION In light of the recent turmoil, this week’s report will be longer than usual. We thought it would make sense to discuss the past, present, and future of the current financial situation. This may help put things in context for you. The Past In order to understand how we can get out of this mess, it’s necessary to figure out how we got into it. The late 1990s is a good place to start. No doubt you remember those “good old days.” The internet was changing the world, technology stocks were soaring, and the economy was humming along. It was a great time to be in the stock market as the S&P 500 index rose 220% for the five years ending December 31, 1999, according to data from Yahoo! Finance. That’s an average annualized return of 26% excluding reinvested dividends, which is simply phenomenal. Of course, the good times didn’t last. The bubble popped and the S&P 500 declined by 49% between March 2000 and October 2002, according to data from Bespoke Investment Group. In order to limit the collateral damage to the economy from this steep decline, the Federal Reserve, under former chairman Alan Greenspan, embarked on a major interest rate cutting campaign to try and stimulate the economy. The Fed took the federal funds rate from 6.5% in May 2000 all the way down to 1% by June 2003, according to data from the Federal Reserve Bank of New York. This precipitous decline in interest rates set the stage for the next bubble – real estate. With interest rates super low and the stock market in a funk, investors turned their attention to the previously moribund real estate market. As the economy gradually improved, people started to buy homes again in a big way. And banks, mortgage companies, and Wall Street wizards were more than happy to come up with new fangled ways of getting Americans into the home of their dreams with little to no money down. Wall Street investment banks were thrilled with this new opportunity in real estate because they weren’t making much money on their traditional business of investment banking and buying and selling securities. By coming up with new ways to package, slice, and dice mortgage securities, Wall Street firms made a boatload of money. Unfortunately, many of these new securities, which provided capital to finance the real estate boom, were highly financed themselves. Effectively, the actual equity that underpinned some of these mortgages was negligible. When the real estate bubble became unsustainable, just like the earlier technology bubble, it all came crashing down. With very little equity supporting billions in outstanding mortgages, a slight decline in the value of the real estate caused a ripple effect of delinquencies and defaults. As the defaults spread, it began to feed on itself like a California wildfire inhaling dry timber. Eventually, fear took over as nobody knew when the vicious cycle would be broken. Enter last week. Investors had weathered blowups from Countrywide, Bear Stearns, Fannie Mae, Freddie Mac, and now, they were facing major problems with Lehman Brothers, AIG, and Merrill Lynch. By week’s end, Lehman had been forced into bankruptcy, AIG had been effectively nationalized by the government, and Merrill Lynch had taken refuge in the arms of Bank of America. This tumultuous turn of events propelled the government to act swiftly and decisively. The Present The situation is fluid and changes are happening with lightning speed. Over the weekend, the Bush Administration sent to Congress a $700 billion proposal that would give the Treasury broad authority to purchase distressed assets from U.S. financial institutions in an effort to stem the crisis. The proposal would also raise the nation’s debt ceiling to $11.315 trillion from its current $10.615 trillion limit, according to Bloomberg. To put $700 billion in perspective, that translates into an average bill of $6,500 per U.S. family, according to a report from MarketWatch. Now, it’s possible that the Treasury will turn around and sell the assets and recoup some or all of that $700 billion, but that will not be known for perhaps years. We also don’t know how hard of a bargain the government will drive when it tries to buy these distressed assets. If it tries to buy the assets at a very low price, then the financial institutions may have to take more write-downs and raise more capital, which could keep this vicious cycle spiraling down. Conversely, if it buys the assets at a high price, then the financial institutions benefit at the expense of the taxpayers who are on the hook for any future losses. In a surprising twist, investment banks Goldman Sachs and Morgan Stanley announced late Sunday night that they will convert their businesses into traditional bank holding companies, according to The Wall Street Journal. This will subject the companies to new regulatory oversight and possibly significantly reduce their future profit opportunities. It may also put the companies in a better position to be acquired, to merge, or to acquire a smaller bank with insured deposits. In other news last week, the Treasury announced that it is extending bank deposit-type insurance to money market funds. The news of a money market fund that “broke the buck” prompted the government to implement this safety net as a way to limit further damage in the $3.3 trillion money market industry, according to Bloomberg. Also, on Friday, the Securities and Exchange Commission implemented a ban on short-selling 799 companies through October 2. This may ease some of the pressure on these companies and shield them from “bear raids” that could depress their stock price. The changes announced by the government late last week helped spark a huge rally in stocks on Thursday and Friday. Nobody knows whether this is just a temporary reprieve or the beginning of a new period of stability. What we can say with some confidence is the government is all over this situation and they are trying to do all they can to prevent a replay of the 1930s. The Future As the old saying goes, “Forecasting is the art of saying what will happen, and then explaining why it didn't." At the risk of having to explain ourselves later, we’ll offer some comments about what the future may hold. First, capitalism as we know it may have changed dramatically. The concept of letting free markets adjust and self-correct with minimal government intervention is likely gone. The government’s actions over the past few months indicate that there are limits to laissez faire. We may see more government regulation and that may mean lower long-term returns from securities because the regulations could remove some of the risks from investing. Second, when a financial calamity is knocking on the door, a small number of people may assume tremendous power to make decisions that put hundreds of billions of taxpayer dollars at risk. Right now, Treasury Secretary Hank Paulson is arguably the most powerful person in America. He and his coterie of trusted advisors are massively reshaping our financial system with bullet train speed and little oversight. When the history books are written, Paulson may go down as the greatest Treasury secretary of all time or we may be throwing darts at his picture. Time will tell. Third, we live in a global society that is highly connected through commerce and instantaneous communication. What happens in the U.S. is no longer a U.S. issue and vice versa. As a global society, we may all sink or swim together – so we all better get along. The financial crisis we’re experiencing is a great example. It’s not just isolated to the U.S. It has global ramifications. In Closing As we wrap up this extended commentary, we need to keep in mind that it took us years to get into this mess and it may take us years to get out of it. The government’s unprecedented action last week may have stopped the bleeding, but that doesn’t necessarily mean the patient is well. We still have a glut of homes on the market, a relatively soft economy, and a host of other headwinds. With that said, new opportunities may arise and we are always on the lookout for them. No matter what the market may throw at us, we want you to know that we are closely following the situation and we are doing all we can as professional advisors to be good stewards of your money. If you have any questions, please let us know. Thank you for the trust and confidence you’ve placed in us. We’ve worked hard to develop it and we are working hard to keep it. Weekly Focus – Think About It “God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.” -- Reinhold Niebuhr

Sep 15, 2008 Weekly Commentary

The Markets Despite a barrel full of bad news, the stock market actually ended last week with a modest gain. Some of the most significant news last week continued to come from the financial sector. At the beginning of the week, the government stepped in to bailout the giant mortgage lenders Fannie Mae and Freddie Mac. That was bad news for stockholders of those two companies, but the overall stock market greeted the news with excitement. On Monday, the Dow Jones Industrial Average soared 289 points. Unfortunately, the excitement was short-lived. The very next day, investment bank Lehman Brothers took the spotlight and it wasn’t pretty. Investors were hoping the firm would find a partner to inject additional capital, but none materialized, according to MarketWatch. Lehman stock dropped nearly 45% that day and it helped send the Dow down 280 points – all but erasing the previous day’s gain. As the week progressed, things continued to deteriorate in the financial sector as Merrill Lynch and American International Group both got caught up in aggressive selling. By the end of the week, Merrill Lynch stock had dropped 36% and American International Group had lost 46% according to data from Yahoo! Finance. Soured real estate investments coupled with a loss of confidence are the main culprits of the declining stock prices in the financial sector. Fortunately, not all financial companies are in trouble. Some major firms avoided the brunt of the real estate crunch and, as a result, they may become stronger as the weaker players get absorbed. On a more positive note, we did receive some good news in the oil sector. Oil prices dropped 4.8% last week and that may help keep inflation in check. The drop is even more remarkable when you consider Hurricane Ike pummeled the gulf coast region and caused a major shutdown of drilling and refining operations. It wasn’t that long ago when just the threat of a hurricane would cause oil prices to jump. Now, the psychology seems to have changed and investors are more worried about slowing demand, rather than falling supply, according to MarketWatch. To say we live in interesting times would be stating the obvious. We have a war on terrorism; hurricanes; the political silly season; failing financial institutions; soaring, then plunging oil prices; a depressed real estate market; and a myriad of other issues. Yet through it all, we have to find a way to be resilient. Yes, the market is down and it hurts, but for those who are diversified, it’s generally not catastrophic. We remain optimistic that we’ll pull through our current problems and end up stronger down the road. As Americans, that’s the way it’s always been, and we expect that’s the way it will always be. IF THE WORLD IS FLAT, does that mean we should allocate a higher percentage of our portfolios to foreign investments? With the economic rise of Brazil, Russia, India, China, and other foreign countries over the past few decades, the opportunities to invest overseas have multiplied dramatically. Along with that, the percentage of the world’s stock market capitalization represented by the United States has shrunk. For example, in 1970, the U.S. stock market accounted for about 66% of the world’s stock market capitalization. Currently, that figure is down to about 43%, according to a September 8 Wall Street Journal article titled, “Going Global: How Do You Get There from Here?” This significant shift means investors who stick just to U.S. companies are bypassing more than 50% of the world’s stock market opportunities. That’s like going to your doctor and telling him less than half of your symptoms and hoping he’ll be able to make the correct diagnosis. Let’s assume for a moment that you agree that investing in foreign companies makes sense, then the logical question is, how much? In a series of new asset allocation plans released this month by Citigroup, they recommend investors put 55% of their stock assets in foreign stocks, according to the Journal article. While that may seem high, it’s roughly in line with the percentage of the world’s stock market capitalization represented by non-U.S. stocks. Quoting from the Journal, investors who favor this type of weighting are trying to “match the world's stock-market weightings to get the best risk-adjusted returns over the long run.” Stepping outside the U.S. may have its advantages. For example, for the five years ending December 31, 2007, the Dow Jones Wilshire Emerging Markets index rose at an average annual rate of 46.5%, including reinvested dividends, according to the Journal. That compares quite favorably to the 12.8% return of the domestic Standard & Poor’s 500 index. But, before we get carried away, investing in foreign markets entails risks such as currency swings, different accounting standards, and potential government instability. Oh, and let’s not forget that foreign markets can go down, too. Through the first eight months of this year, the Dow Jones Wilshire Emerging Markets index was down 22.7%, according to the Journal. Ultimately, as you have more investment options to choose from, you may have more opportunities to find winning investments. While there may not be a specific percentage of foreign investments that will work for everybody, being a “worldly” investor may open the door to greater success when compared to just staying put in the U.S. Weekly Focus – Seven Years Ago As we pass the seventh anniversary of the terrorist attacks, it’s a good time to remember those who lost their lives, or were injured, and to thank those who are presently risking their lives to keep us safe. We may take for granted the relative safety that most of us enjoy, but it comes with a price. Let’s be grateful for all those who are paying that price on our behalf.

Sep 08, 2008 Weekly Commentary

The Markets Earlier this year, some investors thought the key to a rising stock market was to see a big drop in the price of oil. Well, we've now seen a 27% drop in the price of oil since its July 3 closing high, but, as of last Friday, stock prices were still languishing near their July lows, according to Associated Press. So, what’s the deal? The deal is investors can be fickle. They’re prone to quickly changing their minds based on which way the wind is blowing. Oil is a good example. Here’s a brief chronology of investors’ fickleness toward oil: • For the first few months of 2008, we kept hearing about how strong economic growth in China, India, Brazil, and other emerging economies was pushing up the price of oil and that it wasn’t a bubble, rather, it was a simple case of supply and demand. • During that same time, the U.S. stock market weakened as investors fretted that higher energy prices would ignite rampant inflation and tip the U.S. into a recession. • As oil prices rose to $145 per barrel in July and the U.S. stock market entered a bear market, economic pundits started suggesting that if oil prices would drop significantly, that would be the spark necessary to jumpstart our economy and fire up the stock market. • As if on cue, by Friday, September 5, oil prices ended the day down 27% from their July 3 high, while the Dow Jones Industrial Average was up only 2% during that same period, according to data from Yahoo! Finance. • Now, some market pundits are saying that falling oil prices are due to weakening demand from faltering global economies, according to Associated Press. That could be bad news for our stock market because strong exports have been one bright spot in corporate earnings. If export demand weakens, that could translate into lower corporate profits and lower stock prices. That sure makes a neat and tidy narrative, doesn’t it? Wall Street talking heads love to take the complexities of investing and turn them into short stories that can be easily understood. We’re all in favor of a good story well told, but when it comes to investing, we prefer non-fiction to fiction. Part of our job as stewards of your money is to try to separate the fictional stories from the non-fictional. And, when the story changes frequently – like it has recently – we become especially alert. DO FINANCIAL MARKETS EFFICIENTLY AND EFFECTIVELY reflect all available relevant information? Some academicians believe that you cannot “beat” the stock market. They believe that the market is smarter than any one individual and that stocks always trade at their fair value. As such, they suggest it is not possible—over a long period of time—for an investor to outperform a broad-based stock index. They call this the “efficient market hypothesis.” Critics of the hypothesis point to super investors like Peter Lynch and Warren Buffett who have long-term track records that show they’ve outperformed the market. Academics don’t dispute that some people have beat the market, but the academics chalk that up to luck and statistical anomalies. They also point out that it is near impossible to identify ahead of time the next Peter Lynch or Warren Buffett, so, most people can’t benefit from those few outliers. Putting the debate aside for a moment, in the investing world, there appears to be three camps. There’s the “If you can’t beat’em, join’em” camp that says markets are efficient and you might as well just invest in products designed to mimic broad market averages. These folks tend to focus on making an appropriate allocation to various asset classes. The second group says, “Yes, I can beat’em.” They think discipline and research may lead to superior market returns. Then there’s a third group that is in the “A little of both” camp. They think the other two sides have merit and it makes sense to manage portfolios using both passive and active strategies. So, which camp is right? Like many things in investing, it’s not always black and white. Reasonable people could make a case for each of these three strategies. And, at any given time, one strategy might work better than the other. Understanding that may make all of us better investors. Weekly Focus – Key to Health and Happiness Various researchers have concluded that one key to health and happiness is to actively try to become more grateful in our everyday lives, according to an article in Great Good magazine. Here are four steps we can all take toward that end: Write a letter of gratitude to someone you’ve never properly thanked and deliver it in person. 1. Keep a gratitude journal of everything for which you’re grateful. 2. Savor life’s little joys that come your way. 3. Think out of the box and thank people that you might not ordinarily thank. 4. Give these ideas a try and see if your life improves!

Sep 02, 2008 Weekly Commentary

The Markets As we wrapped up the traditional end of summer last week, buyers and sellers were scarce on Wall Street. For the first three trading sessions last week, volume on the New York Stock Exchange was the lowest of the year, according to Briefing.com. Apparently, investors decided it was time to relax a bit. Unfortunately, for those investors who did stick around, it was a bumpy ride. The market experienced three days when the Dow Jones Industrial Average rose or fell more than 100 points, according to Barron’s. Two of those instances were negative. Despite the lack of trading volume, there was no shortage of market-moving news. On Monday, the Dow dropped more than 200 points on renewed credit crunch jitters, according to The Wall Street Journal. On Thursday, the Commerce Department released revised GDP numbers, which showed that the economy grew a solid 3.3% in the second quarter, up sharply from the original estimate of 1.9%. That positive news helped spark a more than 200-point gain in the Dow, according to MarketWatch. And, then on Friday, weak personal income numbers and a downbeat earnings report from Dell Computer contributed to a 171 point loss in the Dow, according to MarketWatch. Of course, Hurricane Gustav didn’t help matters either. The relatively light volume last week probably exaggerated the market swings. However, when the market moves sharply in different directions within the same week, it may be a sign that investors lack conviction. To investors who believe the market is simply efficiently reacting to new information, those swings are normal. Other investors look at the swings as further indication that this market is still trying to find direction and that it lacks conviction. No matter which set of investors is right, the market seems stuck in a broad trading range. This yo-yo effect can be frustrating, but we understand that investing is not a sprint; it’s more like a marathon. And, we continue to do all we can to keep you prepared to go the distance. BOILED DOWN TO ITS CORE, what is the simplest formula for making money in the stock market? Arguably, you could boil it down to “buy low, sell high.” Conceptually, it’s hard to argue with that cliché, but practically, it’s hard to act on it. But, what if we could add some “practicality” to the cliché? Would that improve our odds of being a successful investor? Let’s find out. One of the most important questions we have to answer is, what is low and what is high? When it comes to investing, low and high are only discernable in hindsight. For example, back in May 1997, Amazon stock was selling for less than $2 per share on a split-adjusted basis, according to Yahoo! Finance. One year later, in May 1998, the stock was selling for more than $7 per share, split-adjusted. Now, one could argue that Amazon was “low” in May 1997 and “high” in May 1998 because the stock had more than tripled in one year. Would May 1998 have been a good time to sell Amazon? If we fast-forward a bit and look at the following 11-month period from May 1998 to April 1999, the data shows that Amazon stock rose from a little more than $7 per share to more than $100 per share. So, what looked like a high price in May 1998 actually turned out to be a low price when viewed just 11 months later. The point is simply that “low” and “high” only become clear with the benefit of hindsight. However, sharp investors apply some other measures to help them discern what’s low and what’s high. Here are a couple examples. In a December 14, 1996, article in Financial Times titled “Get Smart…and Make a Fortune,” super investor Jim Rogers discussed how learning to spot periods of extreme “conviction of certainty of all the participants” is one way to become a successful investor. By this he meant when you read in the media about “the new era” or your cab driver starts talking to you about stock tips, then you know that we may be near a top in the market. The same is true near the bottom of a market. When all you hear is doom and gloom and the magazines start heralding “The Death of Equities,” that may be a time to get in because the market may be near a low point. Rogers went on to say, “It is learning to listen to the gloom and doom at bottoms and question it, and to the exultation at tops and question this as well, that makes a sharp investor.” In other words, he’s suggesting you be a contrarian and go against what the crowd is doing at times of either extreme exuberance or devastating despair. No doubt it is hard to go against the crowd, but that’s what many successful investors have done. Rogers ended his article by saying the smart investor, “Learns to buy fear and panic and to sell greed and hysteria.” A second investor that you’re probably more familiar with is billionaire Warren Buffett. Adding more context to Rogers’ comments, Buffett said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” Buffett has no problem going against the crowd and when he does, it’s based on detailed analysis and sound reasoning. Frequently, he buys stocks that are somewhat out of favor (i.e., low in price, but high in potential value) and he reasons that eventually the crowd will come around to his point of view. In another insightful comment, Buffett said, “An investor should act as though he had a lifetime decision card with just twenty punches on it.” His point was we have to be patient. Great investment opportunities don’t come around that often so, rather than swinging wildly at lots of pitches, we should wait for those times when the odds appear to be in our favor. Both Rogers and Buffett understand the concept of buy low and sell high and they seem to be experts at understanding investor psychology and turning that knowledge into winning investments. They also seem to have enough patience to wait for the opportunities to arrive. As we look at the stock market today, it’s clearly down from its highs and there are many naysayers. Rogers and Buffett have successfully used these two ingredients to make winning investments in the past. And while no strategy can assure success or protect against loss, we continue to monitor opportunities and we’ll do our best to take advantage of them on your behalf. Weekly Focus – Think About It “In every walk with nature, one receives far more than he seeks.” – John Muir

Oct 29, 2007 Weekly Commentary

The Markets Black gold (oil) and the shiny yellow metal we simply call �gold� both seem to be coveted items these days. Last week, crude oil prices reached an intraday all-time high of $92.22 per barrel on the New York Mercantile Exchange, according to Barron�s. That�s up nearly 30% from its price on August 24th. Surprisingly (and we�re not complaining), prices at the gas pump have not moved up nearly as much as oil prices. So what�s driving the spike in oil? According to MarketWatch, you can point to falling energy supplies, global political tensions, and weakness in the U.S. dollar. It�s interesting to note that with all the talk about global warming, going green, and the search for alternative sources of energy, you�d think there�d be less demand for oil and hence, a drop�not a rise�in oil prices. Sometimes, the market appears to be illogical, but long term, it usually comes to its senses. Gold is another eye-opening situation as it closed at $787.50 per ounce last week on the New York Mercantile Exchange. According to Action Economics, gold shot to its "highest level since January 1980 on a combination of inflation concerns and safe-haven buying in the wake of a sensitive geopolitical environment and renewed concerns about the U.S. growth outlook." Throw in a weak dollar and the possibility of more interest rate cuts and you may have a recipe for continued strong gold prices, they added. It was way back on January 21, 1980, that gold set its all-time record high of $875.00 per ounce, according to MarketWatch. Of course, after adjusting for inflation, current gold prices are dramatically below their 1980 high, whereas oil prices are very close to their inflation-adjusted all-time high. With so many things to invest in these days besides the stock market, it seems like there�s always something that�s going up. That�s one good reason why it makes sense to diversify�you may have a better chance to own one of those things that�s going up. LAST WEEK, THE INTERNAL REVENUE SERVICE (IRS) released its cost of living adjustments for contributions to a variety of retirement saving vehicles. The limits affecting 401(k) plans, the federal government�s Thrift Savings Plan (TSP), and other similar programs provided for by Section 402(g)(1) remain the same at $15,500. However, the limitation for defined contribution plans under Section 415(c)(1)(A) increased from $45,000 to $46,000 and the annual benefit limitation for a defined benefit plan under Section 415(b)(1)(A) increased from $180,000 to $185,000. Other increases include: � The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) increased from $83,000 to $85,000. Additionally, the applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) increased from $52,000 to $53,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant, but whose spouse is an active participant, increased from $156,000 to $159,000. � The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for taxpayers filing a joint return or as a qualifying widow(er) increased from $156,000 to $159,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) increased from $99,000 to $101,000. These aren�t exactly huge changes�but every little bit helps. HAS THE NEWSPAPER GONE THE WAY OF THE DRIVE-IN MOVIE when it comes to a job search? According to a recent study, our nation�s job seekers are steadily increasing their use of the Internet. The Conference Board reported last week that of workers who searched for a job between January and September 2007, 73% reported using the Internet compared to 66% of job seekers during the same time period in 2005. The research shows that the Internet is being used for a variety of job search functions, from gathering employer/job information (59% of job seekers) and submitting resumes and applications (57%) to posting resumes on a website (40%) and signing up for email notifications (30%). Just how many jobs are posted online? Hold on to your mouse. In September 2007, there were 4,270,000 online advertised job vacancies according to The Conference Board Help-Wanted OnLine Data Series� (HWOL). That amounts to 2.78 advertised vacancies online for every 100 persons in the labor force in September. Although still a vital job-seeking tool, newspapers are dropping in popularity. Used by 75% of job seekers in 2005, only 65% used them in 2007. The survey also found over half (51%) of job seekers reported networking through friends and colleagues as part of their job search and roughly one quarter (24%) used other methods, such as employment agencies. Whatever tools they use, job seekers are successful. According to the Bureau of Labor Statistics, over the course of this year, jobless rates were down in 25 states and the District of Columbia, up in 23 states, and unchanged in two states. The national unemployment rate was essentially unchanged in September at 4.7%. Weekly Focus � A Little Math Each of the following letters stands for a different digit. Determine their values to solve the subtraction problem. This puzzle comes from Scientific American Mind magazine. A N T E � E T N A = N E A T See the end of the commentary for the answer. Good luck! Answer to the puzzle: A = 7, E = 1, N = 6, T = 4.

Oct 27, 2008 Weekly Commentary

The Markets Almost, but not quite. As we awoke early last Friday morning and turned on our computers, we saw something that doesn’t happen very often. Pre-market opening indicators were suggesting a massive drop in the U.S. stock market when trading opened at 9:30 am Eastern time, according to MarketWatch. We already knew that many overseas markets had plummeted since most of them start trading well before the U.S. market opens. Japan’s main stock market index, for example, had dropped more than 9% prior to the start of trading in the U.S., according to MarketWatch. With that backdrop, investors nervously awaited the opening bell in New York. As the bell rang that morning, stocks dropped significantly in the first few minutes. But then, something surprising happened—no panic ensued. After see-sawing throughout the day, the Dow Jones finished with a disappointing 3.6% loss, but that was greeted with relief by many investors, who feared a much steeper decline. It’s almost become a parlor game now with market pundits trying to call the bottom in the market. Many of them seemed to be waiting for the big washout-type capitulation day that takes the market down by double digits on record volume. Some people thought last Friday would be the day, but it didn’t happen. With so many people looking for a big capitulation day, there’s a reasonable chance that it may not happen. According to an October 25 Wall Street Journal article, “Bear markets often end not in a crescendo of selling but [in] a cloud of indifference.” Ultimately, bear markets may end when stocks get so cheap that buyers step in and start bidding up prices. Nobody knows whether this bear market will end with a record-breaking capitulation day or end unspectacularly as the selling pressure just peters out. This market has confounded so many “experts” that it’s anybody’s guess. Instead of worrying about calling a bottom, we’re trying to identify where the compelling values are and take advantage of them on your behalf. ARE HUMAN EMOTIONS PARTLY RESPONSIBLE for the volatility we’re seeing in the financial markets? There’s no doubt that volatility is running rampant right now. The VIX, which is a widely used to measure of market risk often referred to as the “investor fear gauge,” rose to a record high last week, according to Bloomberg. But, is this fear rational? Do the fundamentals of our economy support the worldwide declines we’ve seen in the past month? Clearly, the U.S. economy and many overseas economies are experiencing a significant slowdown. The ultimate severity of this downturn will not be known for quite some time. However, we do know that the financial markets are reacting violently to what’s happening. Could our emotions be getting in the way of sound investment judgment? Westcore Funds/Denver Investment Advisers, LLC, developed a chart, which illustrates how volatility in the financial markets may cause us to turn off our rationality switch and replace it with some degree of either fear or greed. Below is a brief summary of what they call The Cycle of Market Emotions: As markets rise, investors’ optimism begins to grow, excitement builds, and making money becomes thrilling. Over a period of time, the bull market finally reaches a crescendo, euphoria and greed set in and unbeknownst to most investors, this is the point of maximum financial risk. In hindsight, this could describe the first quarter of 2000, when the technology bubble reached its zenith. Inevitably, the market starts to drop, anxiety builds, and denial, fear, and desperation set in. Eventually, panic is followed by capitulation as some investors throw in the towel and say “I can’t take this anymore.” Capitulation is followed by despondency and it’s right here where you may find the point of maximum financial opportunity. Depression ensues, but then, when people realize the world is not coming to an end, the markets start to turn up. Hope turns into relief, which then leads to optimism and then the cycle starts all over again. Since the current bear market is still unfolding, it’s not possible to say where we may be in this cycle. However, it would not be going out on a limb by saying we’re probably at least in the desperation/panic area. If true, we may see more pain before the next gain. We need to keep in mind that successful investing takes more than just doing good research. It also takes strong emotional control and the ability to swim against the tide at times. By understanding the cycle of market emotions, and not letting fear or greed become dominant, you may be able to better tolerate and ultimately profit from market fluctuations. We do our best to embody these skills on your behalf. Weekly Focus – Can You Solve This Puzzle? Study this paragraph and all things in it. What is vitally wrong with it? Actually, nothing in it is wrong, but you must admit that it is most unusual. Don't just zip through it quickly, but study it scrupulously. With luck you should spot what is so particular about it and all words found in it. Can you say what it is? Tax your brain and try again. Don't miss a word or a symbol. It isn't all that difficult. See the end of this commentary for the answer. (Source: www.Brainbashers.com) Puzzle answer -- The paragraph does not contain an “E,” but it does contain all of the other letters though.

Oct 22, 2007 Weekly Commentary

The Markets After a 10% rally in the Dow Jones Industrial Average between August 16th and October 9th, the Dow lopped off some of its frothiness last week. By coincidence, last Friday marked the 20th anniversary of Black Monday, the day the Dow recorded its largest one-day decline in history. As you may remember, the Dow dropped a stunning 22% that day as nervous investors sold stocks indiscriminately. Now that we have 20 years behind us, was October 19, 1987, a good time to buy stocks? Here's how the Dow Jones Industrial Average has performed over the 5, 10, 15, and 20-year periods following the October 19, 1987, market decline: Average annualized return of the Dow Jones Industrial Average 5-year period ending October 19, 1992 12.9% 10-year period ending October 20, 1997 16.4% 15-year period ending October 21, 2002 11.2% 20-year period ending October 19, 2007 10.8% Source: Yahoo! Finance. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Assumes dividends are not reinvested. With those juicy double-digit returns, it turns out that "buying the dip" may have been a good strategy coming out of the 1987 crash. The above returns would be even more attractive if we added reinvested dividends. The point here is simple. The old Wall Street adage, "Buy low and sell high" tends to be a good one. YOU DON'T NEED A PEW RESEARCH CENTER SURVEYto tell you that the way you pay your monthly bills is very different from the way your parents did, but a new Pew study does uncover some interesting statistics. Not surprisingly, a sizable minority of Americans do most of their transactions online. Nearly three-in-ten adults (28%) say the most common way they take care of their regular monthly bills is online or by electronic payment. Just more than half, 54%, use checks, and 15% of respondents deal in cash. Interestingly, the survey also found bill-payers focused on line items that didn't exist a generation ago. At or near the top of the public's list of regular expenses were cable or satellite television service (78% say they pay such bills every month), cell phone service (74%), and internet connections (65%). When survey respondents were given a list of common household expenses, the only one they cited as often as these three information age expenses was housing (76%). Another regular expense for most Americans? Credit card bills. Among the 58% of adults who say a credit card payment is a regular household expense, about four-in-ten (41%) report that they generally pay their credit card bills in full each month while 53% usually make just a partial payment. Finally, in interviews with married people, the Pew survey tried to determine which spouse spends more time each month paying the bills. Most wives say they do and most husbands agree that their wives do more of the bill paying. But, here's where it gets interesting - while 63% of all wives say they pay the bills, just 51% of all husbands say their wives pay the bills. Hopefully, that lack of precision doesn't carry over into other financial matters. THE NUMBER OF WORKERS WITH RETIREMENT SAVINGS PLANS, such as 401(k) plans and individual retirement accounts (IRAs), grew significantly in the late 1990s into the early 2000s. According to the Employee Benefit Research Institute (EBRI), 401(k)-type plans reached just over 30% of workers ages 21 to 64 in 2004, up from 24% in 1996. At the same time, the average contribution for those participating in a plan increased from about $3,600 to just over $4,000 in 2004 dollars. What's more, the percentage of those making a contribution at the maximum dollar amount allowed under Internal Revenue Service (IRS) regulations also increased, from 3.2% in 1996 to 6.3% in 2004. IRA ownership increased from 15.9% in 1996 to 21.4% in 2004. According to EBRI, in 2004, about 38% of IRA owners contributed the maximum amount allowed by law. The percentage of workers invested in both of these retirement savings plans increased, too, from just 5.9% in 1996 to 11.2% in 2004. According to EBRI, as of 2006, about $7.5 trillion in assets were held in IRAs and private-sector defined contribution plans such as 401(k)s, up from about $4.8 trillion in 2000. The good news is American workers are taking more responsibility in saving for retirement. Weekly Focus - Watching TV Broadcasts Online Close to 16% of Americans using the Internet watch television broadcasts online. In fact, according to research organizations the Conference Board and TNS, the number of us who view entire episodes on the Internet has doubled from a year ago. What's driving online viewership? Personal convenience and the ability to avoid commercials. The research firms found nearly 73% of online households use the Internet for entertainment purposes on a daily basis and an additional 15% search for entertainment several times a week.

Oct 20, 2008 Weekly Commentary

The Markets High volatility continued last week, but when the closing bell rang on Friday, investors were smiling as the Dow Jones Industrial Average recorded its biggest one-week gain in more than five years, according to The Wall Street Journal. On Monday of last week, the Dow rose a stunning 936 points, but on Wednesday, it took a 733-point dive. And, for good measure, it popped higher by 401 points on Thursday. These dramatic daily swings suggest that investors still lack strong conviction on which direction the market is heading. The government intervention in the financial markets continued last week and investors were left trying to figure out what it all means. At one end of the spectrum, you have people who are thrilled that the government is stepping in and preventing more firms from going under. At the other end, you have free-market champions who are furious that the government is propping up weak firms that otherwise might fail because of their bad decision-making. If nothing else, these historic times are keeping bloggers and opinion page writers busy arguing their particular point of view. One surprising piece of news last week was the opinion page article penned by super investor Warren Buffett that was published in the New York Times. The normally tight-lipped investor went on the record as saying he was buying stocks last week for his personal portfolio, according to CNBC. Buffett also said, “Fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups as they always have. But, most major companies will be setting new profit records five, 10, and 20 years from now.” Buffett says one rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.” Right now, with these tremendous daily swings, there appears to be plenty of fear. And, if Buffett is right, then the prices we see today might look pretty attractive five or more years from now. WHAT WILL BE THE CLOSING PRICE of the Dow Jones Industrial Average five years from now? While nobody knows the answer to that question with 100% certainty, it is worthwhile to look at several different scenarios. By understanding what might happen, we may be able to put ourselves in a better position to profit from what actually happens. Here are three possible scenarios: Scenario 1: The stock market is significantly lower five years from now. In order for this to happen, we would likely need a severe and long-lasting recession that borders on a depression. In light of what’s happened over the past few months, this is not entirely out of the question; however, we think the likelihood of this happening is small. The U.S. government’s massive intervention in the economy and the global response to this crisis will likely prevent this type of complete meltdown. Scenario 2: The stock market is about even five years from now. This could happen if we have a major recession that puts a multi-year crimp in corporate earnings. This wouldn’t be as bad as the meltdown in Scenario 1, but it would probably have to be on par or slightly worse than the early 1980s recession. Even if this were to happen, there could still be some profit-making opportunities in the stock market. For example, between 1929 and 1934 during the depth of the Great Depression, there were 9 bear and 8 bull markets as defined by an increase or decrease of 20% or more in the Dow Jones Industrial Average, according to data from Bespoke Investment Group. So, even though the Dow experienced an overall drop between 1929 and 1934, there were several significant rallies in between that offered potential profit-making opportunities. Scenario 3: The stock market is higher five years from now. This might be the most likely scenario given the significant drop we’ve already experienced. Here are several pieces of information that help support the likelihood of this scenario coming to fruition:  First, as we mentioned earlier, Warren Buffett said he’s started to buy stocks for his personal portfolio. That’s a comforting sign for many investors.  Second, noted investment manager John Hussman mentioned in his October 13 market commentary that, “Stocks are now at the same valuations that existed at the 1990 bear market low. Relative to 30-year Treasury yields, the S&P 500 is priced to deliver the highest excess return since the early 1980s.” In effect, he seems to suggest that the downside risk from here may be small and that there may be some significant upside available.  Third, noted investment manager Jeremy Grantham, who is chairman of the $120 billion money management firm GMO, wrote in an October 17 letter to clients, “At under 1,000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early.” Grantham had been bearish on the market for many years, so this is a big turnaround for him.  Fourth, corporate insiders are buying much more stock than they are selling as of October 10, according to Vickers Weekly Insider Report as reported by Mark Hulbert at MarketWatch. This insider buying ratio was the best in nearly 10 years, which is often a bullish sign for future stock prices. Short of getting a copy today of The Wall Street Journal that will be printed five years from now, we know that any forecast about the future is subject to error. With that said, as outlined in Scenario 3, we think there are numerous reasons to be optimistic about the future. That doesn’t mean it will all be rosy from here. We’ll likely experience more harrowing hiccups, but, eventually, the crisis should pass, the excess should be cleared out, and the market should move higher. Time tends to heal all wounds. Weekly Focus – Think About It “Our interviews, experience, and involvement with people at mid-life have led us to believe that nothing is more important to fulfillment in the second half of life than the willingness to ‘risk walking new ground.’” -- Richard Leider and David Shapiro

Oct 13, 2008 Weekly Commentary

The Markets "Past performance is no guarantee of future results." That's a phrase you hear often in the securities business, in fact, securities regulators require that disclosure in certain written communication. It's most common usage is to warn investors that if an investment has performed extremely well in the past, it's no guarantee that the investment will continue to perform well in the future. Conversely, it could also mean that a poorly performing investment is not guaranteed to continue performing poorly in the future. Here's a third way to interpret that statement. The past performance of stock market indicators is no guarantee that those indicators will hold up in the future. What we mean by that is, historically, investment analysts have developed ratios, technical indicators, chart patterns, and various other tools to help them determine if stocks are “properly” valued. These tools help guide investors in making investment decisions. Unfortunately, the swiftness and the degree of this decline are rendering many of these indicators less useful. With that said, this is no time to throw up your hands and cry “uncle.” The depth and speed of this worldwide decline, coupled with the seizing up of the credit markets, is unprecedented in our lifetime and it caught many people off guard. For example, here are a few quotes that show how wrong some people in power were: • On March 28, 2007, Fed Chairman Ben Bernanke told Congress that subprime defaults were “likely to be contained.'' • On June 20, 2007, Treasury Secretary Hank Paulson said that subprime fallout “will not affect the economy overall.” • On June 27, 2007, Stan O'Neal, then the CEO of Merrill Lynch, called subprime defaults “reasonably well contained.” Today, there’s no doubt that the situation we’re dealing with is serious and despite their tardiness, government and business leaders clearly understand that. They’re doing what they can to solve this problem as are we. As your advisor, it’s our job to keep digging and keep searching for better ways to manage and protect your investments. When the historical indicators no longer work, then it’s our job to find new ways to analyze the situation and respond as we think appropriate. Please be assured that we’re not crying uncle. Instead, we realize that it’s times like these that the seeds of opportunity are sown. Major market disruptions as we’re witnessing now may lead to unprecedented opportunities down the road. We’re keeping our eye on that road and doing our best to take advantage of any opportunities we find along the way. If you have any questions or concerns, please let us know. We are here for you. WHAT HAS TO HAPPEN for this market to find a bottom? With an 18% decline in the Dow Jones Industrial Average last week and a 40% decline over the past 12 months, trying to call a bottom in this market has been futile. While nobody can predict exactly when we’ll hit bottom, here are a few things to monitor: • First, a credible government action plan could help put a floor under stock prices. So far, our government’s piecemeal approach to this crisis hasn’t worked. However, if they’re able to get their act together and work in coordination with their G-7 and G-20 counterparts, then we may see some confidence return to the markets and a bottom could begin to form. • Second, “Bottoms are made when selling becomes exhausted and long-term participants perceive value and lift stocks sharply off their lows,” according to Brett Steenbarger, Ph.D. As of last week, we still haven’t seen the long-term participants enter the market and lift stocks. Instead, we’ve seen one down day followed by another. It’s been a vicious cycle of selling that feeds on itself. At some point, though, we expect the strong selling pressure to abate and bargain buyers to emerge. Let’s hope that happens sooner rather than later. • Third, the credit markets need to get back to some semblance of normality. Currently, banks are afraid to lend money and this constriction of credit is causing major problems for consumers and businesses. Too much credit and too little credit are both bad things. We need to strike a balance in order for commerce to function. Right now, credit constriction is putting a crimp in commerce. One way to help determine if the credit freeze is thawing is to look at the “TED spread.” This is the difference between 3-month LIBOR (an average of interest rates offered in the London interbank market for 3-month dollar-denominated loans) and the 3-month Treasury bill rate. According to Bespoke Investment Group, “Elevated readings in the indicator indicate an increased level of risk aversion in the market, as investors flock to short term T-bills, which due to their credit quality and short time horizon, are considered risk free, while Eurodollar futures are more representative of the credit quality of corporate borrowers.” Historically, the TED spread has stayed below ½ of 1%, meaning the LIBOR interest rate has usually been less than ½ of 1% higher than the T-bill rate, according to Econbrowser. However, last Friday, the spread was a record 4.6%, according to Bloomberg. This extraordinary reading suggests banks are very leery of lending money and, when they do, they demand a significant premium. This number will likely need to come down dramatically before we see the stock market stabilize. In summary, keep your seatbelts fastened. There may be more turbulence ahead, but we’re doing all we can to get you to your destination as safely as possible. Weekly Focus – Think About It “Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble – i.e., to give way to hope, fear, and greed.” – Benjamin Graham

Oct 06, 2008 Weekly Commentary

The Markets There's only one word to describe what took place in the financial markets last week - ugly. You probably don't need to glance at the box score below to know that stocks dropped significantly last week. Monday's dizzying drop of 777 points in the Dow Jones Industrial Average, attributed to the House of Representative's failure to pass the bailout bill, set the tone. That was the largest point drop in Dow history, but in percentage terms, the 7.0% drop was not even in the top 15, according to MarketWatch. Interestingly, since the Dow was created in 1896, it has averaged a 7% or greater decline every 7 years. Coincidentally, the last time the Dow dropped more than 7% was on September 17, 2001 – just a fraction more than 7 years ago. While that offers little comfort, it does indicate that Monday’s decline was well within historical norms. Monday’s decline was very broad based. Out of the 500 stocks in the S&P 500 index, 499 of them declined that day, according to Bespoke Investment Group. Can you guess the name of the only stock to rise that day? Here are a couple hints. First, when we’re feeling sick, our moms typically encourage us to eat the kind of food this company processes. And, second, for art lovers, Andy Warhol turned this company’s main product into pop art. You may have guessed that the company was none other than Campbell’s Soup. How ironic. By the end of last week, lawmakers had approved a revised version of the bailout bill that included enough sweeteners to garner a few more “yes” votes. What started as a three-page treatment from Treasury Secretary Hank Paulson turned into a 451-page behemoth by the time President Bush signed the bill last Friday. Unfortunately, the added girth only weighed it down and investors sent the Dow to a 157-point loss on the day it was signed. Where do we go from here? As much as we like to be optimists and say everything will be rosy starting this week, we know that would be disingenuous. Frankly, we cannot predict the future, but we are doing everything in our power to anticipate it and respond appropriately on your behalf. Perhaps the best way to summarize our thoughts is to quote Admiral Jim Stockdale, the highest ranking U.S. prisoner during the height of the Vietnam War. In describing how he survived eight years of torture and imprisonment, he said, “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.” Simply put, having faith in the future and realism about your present situation is a good way to live and to manage money. THIRD QUARTER REVIEW STOCKS TOOK IT ON THE CHIN There were few places to profitably park money in the stock market in the third quarter. The Dow Jones Industrial Average closed the quarter with a 4.4% loss while the S&P 500 ended with a 9.0% loss. In the strange way that Wall Street works, the three biggest gainers in the Dow for the quarter were bank stocks. Bank of America, J.P. Morgan Chase, and Citigroup rose 46%, 36%, and 22%, respectively, for the quarter, according to The Wall Street Journal. Moving overseas, the picture was no better as shown in the chart below. Overall, the Dow Jones World Stock Index, excluding the U.S., dropped a stunning 22% in dollar terms during the quarter, according to the Journal. CREDIT MARKETS WERE ROILED Credits markets tried to withstand the government seizure of Fannie and Freddie, Lehman Brother’s bankruptcy, AIG’s $85 billion lifeline, Merrill Lynch’s shotgun marriage to Bank of America, and the conversion of Morgan Stanley and Goldman Sachs into bank holding companies. Were they up to the challenge? Not quite. Here’s how the October 1, Wall Street Journal summed up the quarter: “Credit markets came nearly to a standstill. Investors fled anything that seemed the slightest bit risky and rushed into super-safe Treasurys. Borrowing costs for companies soared, if they could borrow at all. Overnight and other short-term credit markets seized up as banks stopped lending, even to one another.” Investors were so scared at one point during the quarter that yields on the 13-week Treasury bill essentially dropped to zero, according to data from Yahoo! Finance. Apparently, the return of principal was more important than the return on principal. What’s really frustrating about the credit situation is that there’s no shortage of money. Banks and other financial institutions have money, but, the problem is, they’re hoarding it. They are so scared of lending money and not getting paid that they’ve decided to simply sit on some of their cash and beef up their balance sheet. Now, we’re not arguing that beefing up the balance sheet is a bad idea. The trick is to balance the need to shore up their capital base with the economy’s need for credit to grease the wheels of commerce. An analogy might help here. The economy is like the human body with the heart representing consumers, the brain representing businesses, and the lungs representing the government (notice how the brain does not represent the government). What helps keep our human organs functioning is the circulatory system. Credit is effectively the circulatory system of our economy. With too little credit, the economy shuts down. With too much of it, the economy blows up. Finding the right balance so we can keep the economy functioning smoothly is our current struggle. Right now, banks are being too stingy and the economy is shutting down. The aim of the bailout bill is to get the bad loans off the books of the banks so they will stop hoarding cash and begin lending again. COMMODITY MARKETS FELL BACK TO EARTH After a tremendous run in the first half of the year, many commodity markets lost steam in the third quarter. The Wall Street Journal said it was the worst three-month stretch for the commodity sector since at least 1970 as prices dropped 29.0%. Blame it on the financial crisis and a deteriorating outlook for global growth. It’s astonishing how quickly sentiment changes in this market environment. For example, it seems like one day we’re talking about running out of oil with demand far outstripping supply, then the next day global growth cools, demand declines, and oil prices plunge. What ever happened to the so-called “rational investor?” THE DOLLAR FOUND ITS GROOVE An explosive rally in the dollar saw it gain about 5% for the quarter when measured against a broad range of currencies in a Federal Reserve index, according to The Wall Street Journal. The rally was even more impressive when compared to the euro, where it gained 11.8%, and the British pound, where it gained 12.0%. According to Richard Clarida, global strategic adviser at Pacific Investment Management Co. and an economics professor at Columbia University, as quoted in The Wall Street Journal, the dollar strengthened “not because the U.S. looked better, but because the rest of the world looked worse.” The outlook for the dollar is uncertain because we have several crosscurrents coming into play. For example, the currency’s historical view as a safe haven in times of crisis may help support it, but the government’s need for hundreds of billions of dollars to support the bailout may put pressure on it. Of course, if the government starts printing money to jumpstart the “circulatory” system, then all bets for a strengthening dollar are off. SUMMARY We’re probably not out of the woods yet even though the bailout bill is now law. As Warren Buffett said on CNBC last Friday in reference to the bill, “This does not solve all our problems.” Hopefully, it will be a catalyst to get the financial system back on its feet. If not, the Federal Reserve, Treasury, and Congress may have to swing back into action with more goodies. No matter what happens, we remain focused on serving you. If you have any questions or concerns, please let us know. Thank you. Weekly Focus – Think About It “Some of the secret joys of living are not found by rushing from point A to point B, but by inventing some imaginary letters along the way.” -- Douglas Pagels

Nov 26, 2007 Weekly Commentary

The Markets Here is one place where insider trading is legal�and it�s sending us a bullish signal. Officers, directors, and large shareholders are considered �insiders� by the Securities and Exchange Commission and as a result, they are required to report their buy and sell transactions in their companies� stocks. A company called Argus Research publishes the Vickers Weekly Insider Report and it�s one of several companies that tracks how heavily these insiders are buying and selling their stocks. So what�s recent insider trading activity telling us? According to a report at MarketWatch.com by Mark Hulbert, publisher of the Hulbert Financial Digest, �It turns out that insiders in recent weeks have dramatically cut back the pace of their selling. In the Vickers Weekly Insider Report published Monday (November 19, 2007), Argus Research reported that in the week ended Friday (November 19, 2007), the average insider sold just 1.68 shares for every one share that he bought. That's well below the historical average for this ratio, and well below where the ratio stood as recently as early November, when it stood at 3.04-to-1.� Hulbert went on to say, �This is good news for the bulls. After all, if insiders did not believe that their companies' stocks would soon go back up, they would have reacted to the recent decline by immediately selling. That they did not must mean those shares will recover relatively quickly.� Insiders are not always right, however, the fact that they slowed down their selling in recent weeks may be seen as a bullish sign for the markets. We�ll see. DESPITE A SLUMPING HOUSING MARKET, RISING OIL PRICES AND A WEAK DOLLAR, the U.S. economy will not slip into recession, according to University of Michigan economists. �There is enough resilience in the economy to keep output expanding,� said Saul Hymans, University of Michigan professor emeritus of economics, in a November 15, 2007 news release. �The Federal Reserve�s recent action to contain the credit crisis stemming from problems in the subprime mortgage market appears to be averting the development of a system-wide credit crunch, and lower interest rates are lending support to economic activity.� In their annual economic forecast, Hymans and colleagues Joan Crary and Janet Wolfe note, however, that national economic output growth (as measured by real Gross Domestic Product) will remain sluggish in the short term�due to the ongoing decline in residential construction and subdued growth in consumer spending. They estimate the rate of economic growth will be just 2.1 % this year, down from 2.9 % in 2006. According to their forecast, residential construction and existing home sales will begin an upturn in the second half of next year. They expect housing starts, which are down 35 % since 2005, to continue to fall from 1.35 million this year to 1.21 million in 2008, before increasing to 1.55 million the year after. Existing home sales, they say, will keep sliding from last year�s 5.71 million to 4.94 million this year and to 4.14 million in 2008, then head back up to 4.84 million in 2009. On the energy front, although oil prices have jumped more than 50 % since the end of last year (from $60 per barrel to more than $90), the economists predict a 15 % decline over the course of 2008. Additionally, they say interest rates will hold steady throughout 2008, but should rise in 2009. The University of Michigan forecast is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics (RSQE). AS THIS YEAR�S HOLIDAY SEASON APPROACHES, your credit card transactions may be a little more secure thanks to the Common Vulnerability Scoring System (CVSS) Version 2 developed by the National Institute of Standards and Technology (NIST) and Carnegie Mellon University. When you swipe your card at a checkout counter or make an online transaction, your personal payment information is sent to a payment-card �server,� a computer system often run by the bank or merchant that sponsors the particular card. The server processes the payment data, communicates the transaction to the vendor, and authorizes the purchase. NIST�s Peter Mell, lead developer of CVSS Version 2, describes these payment-card servers as �houses with many doors,� each representing a potential vulnerability. �Attackers check to see if any of the doors are open, and if they find one, they can often take control of all or part of the server and potentially steal financial information, such as credit card numbers,� he noted in a November 8, 2007, report. According to the NIST, for every potential vulnerability, CVSS Version 2 calculates the risks of private information being compromised on a scale from zero to 10 and reports to payment card vendors. By June 2008, all Approved Scanning Vendor (ASV) scanners must use the current version of CVSS to identify and score security vulnerabilities. According to Bob Russo, general manager of the Payment Card Industry Security Standards Council, requiring the use of CVSS, will promote consistency between vendors and provide solid information to better protect electronic transactions. Weekly Focus � Making Life a Little Easier Are you traveling over the holidays? The Universal Packing List at http://upl.codeq.info/ can customize your packing list for your destination, even for the weather. If you are traveling overseas, www.coinmill.com can help you to convert U.S. dollars into foreign currencies. (Print a Coinmill rate table and slip it in your wallet.) Finally, log on to http://wakerupper.com/ to request wakeup calls sent to your cell phone.

Nov 24, 2008 Weekly Commentary

The Markets "Hope springs eternal," wrote Alexander Pope back in the 1700s and, after a rocky start, we ended last week on a hopeful note. If you look at the numbers in the chart below, it was another disappointing week in the stock market. Last Wednesday and Thursday didn't help matters as the Dow Jones Industrial Average posted back-to-back 400 point plus declines. That set the stage for another nail biter as markets opened on Friday morning. Fortunately, the markets opened steady and after see-sawing above and below the previous day's close, the Dow soared more than 6% in the final hour as word leaked that President-elect Obama would nominate Timothy Geithner as Treasury Secretary, according to MSN Money. Geithner is currently president of the Federal Reserve Bank of New York and has been deeply involved in all the recent machinations at the Fed and Treasury as they plotted to thwart a systemic failure of our financial system. While no one thinks Geithner will single-handedly solve all our problems, his potential appointment shed some clarity on this important position and offered a glimmer of hope, which helped Wall Street close the week on a positive note. Being hopeful and optimistic are certainly desirable traits and studies show they are associated with good physical and mental health. Unfortunately, those studies don't tell us anything about how to manage investments. Successful money management takes hard work and we’re doing all we can to try and help you reach your goals and objectives. And, while we remain hopeful and optimistic that we'll be successful in the long term, we don’t simply rely on having a sunny outlook to get there. JUST A FEW MONTHS AGO, inflation was a big concern. Back then, the price of a barrel of oil had skyrocketed to an all-time high of $147, gas prices were over $4 a gallon, and other basic commodities and foodstuffs were shooting higher, too. Today, the world economy is slowing down and few people are talking about short-term inflation; instead, we’re starting to hear talk about the dreaded “D” word – deflation. Deflation is a persistent decline in the level of consumer prices that’s typically caused by a decline in demand or a restriction of credit, or both. On the surface, you might think it’s a good thing because we’d all like to pay less for something rather than more, right? That sounds good in theory, but, when spread throughout the economy, deflation is an insidious condition that could cause serious harm. Here are three dangers of deflation as identified by Nouriel Roubini, Professor of Economics at New York University's Stern School of Business: 1. Falling prices may lead companies to cut production and employment levels because of reduced demand. With more people unemployed, it may exacerbate a vicious cycle of falling prices as fewer and fewer people have the money to buy goods and services. 2. Falling prices encourage consumers to hold off on purchases because they know they can buy the goods and services at a cheaper price in the future. This also feeds a vicious cycle of declining prices. 3. Falling prices increase the real rate of interest, which helps stunt future economic growth. For example, if consumer prices drop 2% in a year, the real interest rate is 2% even if the actual interest rate (nominal rate) is 0%. Last week, the Labor Department said overall consumer prices in October declined at a seasonally adjusted rate of 1%, which was the largest amount since records began in 1947. This was the third month in a row that prices dropped. The core rate, which excludes food and energy, declined at a 0.1% rate – its first decline sine 1982. While the headline number looks a little scary, some of the decline occurred because of a huge drop in gas prices, according to MarketWatch. Of course, we can’t count on gas prices dropping to zero, so we’d have to see other categories experience declines before we could say deflation has arrived. The government does have some tools at its disposal to combat deflation should it occur. One of those tools is to spend massive amounts of money to re-inflate the economy. The government has started to do that and it may accelerate when the new administration takes office. The trick is to add enough liquidity to the system to keep it running well, but not too much that we end up with runaway inflation—a delicate balance to say the least. Weekly Focus – Word of the Week “Hypocorism.” It’s a noun that means a pet name or the practice of using a pet name. For example, “Mike started calling Peggy by her hypocorism, “Bubbles,” when they were sweethearts in high school.” Just for fun, see if you can use “hypocorism” in a sentence this week.

Nov 19, 2007 Weekly Commentary

The Markets Recent volatility in the stock market has been good for the bond market. When investors get nervous, sometimes they flee to the presumed safety of government bonds. This so-called �flight to safety� has helped drive the 10-year Treasury bond�s yield down to 4.15 percent, as of November 16, according to Barron�s. That�s the lowest yield in more than two years. Lower bond yields may help revive the housing market and, ironically, may eventually lure investors back into the stock market. If we go back a few years, the yield on the 10-year Treasury bond hit a cyclical low of 3.10 percent on June 13, 2003, according to data from Yahoo! Finance. On that same day, the Dow Jones Industrial Average closed at 9117. Fast forward to last Friday and the Dow has risen nearly 45 percent since the 10-year bond hit its low. Now, the rise in the Dow over that period is not solely due to investors fleeing the bond market and putting their money in stocks. However, low interest rates tend to lubricate the economy in a variety of ways such as lowering borrowing costs and improving corporate earnings. As the current credit crunch and business slow down works its way through our economic system, interest rates may continue to drop. And as long as we�re patient, it may be setting us up for the next positive move in the stock market. THE FEDERAL OPEN MARKET COMMITTEE (FOMC) ANNOUNCED LAST WEEK that, as part of its ongoing commitment to improve the accountability and public understanding of monetary policy making, it will increase the frequency and expand the content of the economic projections that are made by Federal Reserve Board members and Reserve Bank presidents and released to the public. Since 1979, projections of economic growth, unemployment, and inflation have been published semiannually in the Federal Reserve�s Monetary Policy Report to the Congress. According to a press release from the Federal Reserve, the FOMC now will compile and release projections four times each year rather than twice a year. In addition, the projection horizon will be extended to three years, from two. Federal Reserve Chairman Ben Bernanke, in a speech at the Cato Institute 25th Annual Monetary Conference, in Washington, D.C. on November 14, 2007, noted that there�s considerable evidence that indicates that central bank transparency increases the effectiveness of monetary policy and enhances economic and financial performance. These changes, he said, �will provide a more-timely insight into the Committee's outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information, and will enhance our accountability for the decisions we make.� We welcome the increased frequency of the central bank's analyses and forecasts. You can read full text of Benanke�s remarks at http://federalreserve.gov/newsevents/speech/bernanke20071114a.htm. ABOUT 73 MILLION U.S. HOUSEHOLDS NOW HAVE DISCRETIONARY INCOME, up from about 57 million in 2002, according to a recent report by The Conference Board. The percent of the U.S. population with discretionary income has increased to nearly 64 percent, up from 52 percent in 2002. Total discretionary income in the U.S. topped $1.7 trillion in 2006, with the household average at $24,335. It�s noteworthy, however, that nearly 78 percent of all discretionary income is held by households earning more than $100,000. Average discretionary income for this segment, $66,451, is 2.7 times the national average. Where is the discretionary income concentrated? The region with the wealthiest concentration of households is New England (including Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont). About 63 percent of households have discretionary income, with an average amount of $27,337. Household discretionary income is lowest in the West North Central region (including Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota). Average household discretionary income in this region is $20,749. California, the most populous state, has the largest number of households with discretionary income � 8 million. These households hold $224.7 billion in total discretionary income. Also interesting: Of the 43.7 million households of baby boomers (born between 1946-1964), more than two-thirds have discretionary income. As the largest group, the boomer segment also has the highest average discretionary income, $29,754. Households with discretionary income, as defined by the study, are those whose spendable income exceeds that held by households with similar demographic features. Weekly Focus � Thanksgiving In the spirit of the upcoming Thanksgiving holiday -- �Let us remember that, as much has been given us, much will be expected from us, and that true homage comes from the heart, as well as from the lips, and shows itself in deeds." Theodore Roosevelt

Nov 17, 2008 Weekly Commentary

The Markets On second thought, maybe that wasn't such a good idea. Treasury Secretary Hank Paulson did an about face last week as he told Congress that the administration was backing away from the original plan of using the $700 billion bailout fund to purchase toxic mortgages. Instead, he said they would like to “consider using (the) remaining bailout funds on a second round of purchases of preferred shares in both banks and non-bank institutions that would match privately raised funds,” according to CNBC. Wall Street panned the flip-flop as the Dow Jones Industrial Average dropped 411 points on the day of Paulson’s change of heart. To his credit, Paulson didn’t stubbornly stick to a plan that may have been less than optimal as new information became available. Wall Street took it hard because the swift change just reinforced how quickly things are changing in the economy. Wall Street doesn’t like uncertainty and this change was another example of the unpredictability of our current environment. Glum retail sales, weak corporate earnings reports, and another jump in initial jobless claims added to the negative tone in the markets last week, according to MarketWatch. Last Thursday was the lone bright spot. After the Dow Jones Industrial Average dropped below 8,000, it staged a dramatic comeback and finished the day up a stellar 6.7%. This 11.5% intraday swing was the third biggest one-day swing in the past 46 years, according to Barron’s. Although the market finished up for the day, this stomach-turning volatility kept investors nervous and the market sold-off again the next day. IN 1958, A SEISMIC SHIFT OCCURRED in the relationship between dividend yields and bond yields. Fifty years later, that shift is close to reversing. If it does, what does that mean for investors? Prior to 1958, the dividend yield on common stocks was always higher than the yield on long-term government bonds, according to Stocks for the Long Run by Jeremy Siegel. As a refresher, the dividend yield is simply the annual dividend divided by the price of a stock. For example, if a stock pays a $2 annual dividend and the price of the stock is $80, then the dividend yield is 2.5%. Fifty years ago, investors felt it was normal for stocks to yield more than bonds because stocks were riskier than bonds. Investors felt they had to be compensated for this risk by receiving a higher yield. As 1958 unfolded, the stock market soared more than 30% and that dropped the dividend yield to below the yield on long-term government bonds and it’s been that way ever since, according to Siegel. Over the ensuing 50 years that stocks have yielded less than bonds, investors have gradually concluded that even though stocks may be riskier than bonds, the lower yield is justified because stocks may offer more growth opportunity. In other words, stocks offer the chance for a capital gain and a dividend, whereas long-term bonds bought at par and held to maturity only offer an interest payment. Fast forward to last Friday. According to The Wall Street Journal, the dividend yield on the S&P 500 index was 3.5%, while the yield on 10-year government bonds was 3.75%. As you can see, we’re getting very close to parity after a 50-year hiatus. In order for the dividend yield to surpass the bond yield, we would need to see stock prices continue to drop, bond prices continue to rise (remember: bond yields move opposite of bond prices), or some combination of the two. Here are some thoughts on each of those scenarios: First, if stock prices continue to drop, the relative attractiveness of stocks may improve. With a high dividend yield, investors can take some comfort in knowing they’ll receive a payment for holding stocks, while still offering the chance for capital appreciation down the road. Second, if bond prices rise, which leads to lower bond yields, then the economy may get some extra ammunition to spark economic growth. Lower interest rates may lead to more business investment, which could lead to higher corporate profits and, hopefully, higher stock prices. Third, if both scenarios happen, it may set us up for a big recovery at some point in the future. If the dividend yields end up surpassing bond yields, this reversal of a long-term trend may be a major signal that something momentous is about to happen. This “something momentous” could be a change in investor psychology that keeps stock prices low for a long period of time or it could be a sign that we’re nearing a trough in stock prices and that they’re poised to head up. Regardless of what happens and what it may signal, we keep working diligently on your behalf to help you meet your long-term goals and objectives. Weekly Focus – Think About It “We don't stop playing because we grow old; we grow old because we stop playing.” --George Bernard Shaw

Nov 12, 2007 Weekly Commentary

The Markets It was a bit rocky on Wall Street last week. The list of headline-grabbing news included: the resignation of Citigroup CEO Chuck Prince over subprime losses, a $39 billion quarterly loss from GM (mostly from a one-time charge), a falling dollar, soaring gold and oil prices, declining consumer sentiment, and a weak October retail sales report, according to various reports from Barron�s and MarketWatch. The net result was falling stock prices. While the market declined last week, we have to keep it in perspective. As indicated in the chart below, stock prices are still up for the year. Also, the Dow Jones Industrial Average dropped a �get your attention� 360 points last Wednesday. However, on a percentage basis, it equated to about a 2.6% decline, according to MarketWatch. By contrast, when the Dow dropped 508 points on October 19, 1987, it represented a 22.6% decline. Since the Dow has risen dramatically in the past 20 years, a comparable 508-point drop based on last Friday�s close would only equate to a 3.9 % drop. Just as fine wines improve with age�so may the stock market. Yes, we�ll see bumps along the way like last week, but over time, cooler heads tend to prevail. ARE YOU ONE OF THE MILLIONS OF AMERICANS WHO READS the Farmer�s Almanac for its long-range weather predictions and gardening and household advice? The Stock Trader�s Almanac offers investors similar information and historical data, tracking, since 1966, stock market history, cycles and patterns. A compilation of the market�s seasonal trends and tendencies combined with a calendar and designed for use by non-institutional investors, the Stock Trader�s Almanac has introduced many �statistically predictable� market phenomena-- from the four-year Presidential Election Cycle to the �Santa Claus Rally.� According to the almanac, some days of the week and months of the year are better for stocks than others. In fact, November has been a good time to be a bull. Since 1971, November has been the best month for the S&P 500, the second best for the Nasdaq, and the third best for the Dow. November also begins a favorable six-month period in which the almanac says the market tends to make almost all its gains for the year. However, before you embark on a buying spree, it�s important to recognize that not all stocks, or sectors, follow historical trends. Accordingly, there�s a significant risk involved in embracing seasonal trends as a market barometer. Rather, it�s wise to use the information the almanac offers on seasonal trends as one tool among many to evaluate market opportunities. SO WHAT MAKES A GREAT STOCK? According to money manager Louis Navellier, there are eight fundamental characteristics that add up to a great stock: positive earnings revisions, positive earnings surprises, increasing sales growth, expanding operating margins, strong cash flow, earnings growth, positive earnings momentum, and high return on equity. As Navellier notes on his blog, however, a stock must not only be fundamentally superior, but quantitatively strong. That is, he seeks stocks with �low risk relative to potential.� In addition, he favors assembling a diverse stock portfolio that tends to "zig and zag against each other, thus helping to achieve higher and smoother returns." There�s nothing to argue with in that approach. Navellier also explores how behavioral forces lure us away from what we know to be a rational investment strategy, making the point that the �herd mentality� often forces analysts into a conservative pack. Their thinking: It�s better to be wrong and be wrong in a group than take an unpopular position and risk being fired if it doesn�t work out. Navellier is considered a �growth� investor in that he favors stocks that are growing rapidly. �Value� investors, on the other hand, look for beaten down stocks that are selling at what appear to be cheap prices. Both types of investors have the potential to make profitable investments so it tends to make sense to own a little growth and a little value. That�s another way of saying�diversify! Remember, no strategy assures success or protects against loss. Investing in the market can result in loss of principal. Weekly Focus � End Annoying Calls The Federal Trade Commission�s (FTC) Do-Not-Call Registry continues to have great success. According to a recent Harris Poll, just under three-quarters (72%) of Americans have registered their telephone numbers for the Do-Not-Call Registry. Of those who have registered, very few people say they get as many telemarketing calls as before they signed up (6%) and only one percent say they get more than before they signed up. One in five (18%) report that they currently get no telemarketing calls while three in five (59%) say they still get some, but far less than before they signed onto the Registry. You can register for the Do-Not-Call Registry online at www.donotcall.gov or by calling 1-888-382-1222 from the number you wish to register. Registration is free.

Nov 10, 2008 Weekly Commentary

The Markets Last week's business news underscored the severity of the current economic slowdown. We all know October was a bad month in the financial markets. What we didn't know until last week was how bad the economy was faring during the market meltdown. Well, on Friday, the Labor Department delivered the dreaded news that our economy shed 240,000 non-farm jobs in October. And, if that wasn’t bad enough, they significantly revised the September payroll numbers to show a decline of 284,000 jobs. The data led to a 6.5% unemployment rate in October, which is the highest rate in 14 years, according to MarketWatch. The way the stock market responded to this news is rather instructive. In the two days prior to the release of the employment numbers, the S&P 500 index declined a whopping 10%, according to Bespoke Investment Group. That was the largest two-day decline since the market crash of October 1987. What triggered the drop? While we’ll never know for certain, it appears that some investors were selling ahead of the anticipated bad employment numbers. According to a Reuters article, “Goldman Sachs analysts had expected up to 300,000 jobs may have been cut from non-farm payrolls in October. So, when the Labor Department reported 240,000 jobs lost last month, that did not send the stock market into a tailspin even though the figure exceeded the median forecast of 200,000.” This is an example of how the stock market tends to anticipate what’s going to happen and, then, reacts accordingly. On the day the employment numbers were released, the S&P 500 index actually rose nearly 3%. In effect, it was a “sell on the rumor, buy on the news” strategy. Even armed with the knowledge that markets tend to anticipate what’s going to happen, it’s still difficult to try and profit from it. There are a couple reasons why. First, one never knows exactly what news is already baked into stock prices; hence, it’s hard to predict how the market will react when the news is released. Second, at times the market may predict things that don’t actually happen. For example, there’s an old Wall Street saw that says, “The stock market has predicted nine of the last five recessions.” Clearly, Wall Street’s crystal ball is not always “crystal clear.” Wishful thinking aside, it appears that this time the market is accurately predicting a recession. ISN’T IT IRONIC that one of the major causes of our current financial predicament – borrowed money – is exactly what the federal government is using to try and solve the crisis? One has to look no further than the Federal Reserve’s balance sheet. The Fed has pulled out all the stops and flooded our financial system with all kinds of “new facilities” that have dramatically expanded its assets and liabilities. As of November 5, the Fed’s balance sheet had ballooned to over $2 trillion in assets. That’s up more than 100% in less than 60 days, according to data from the Fed. And, it may not stop there. Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, said in a November 4 speech that, “I would not be surprised to see them [assets] aggregate to $3 trillion – roughly 20% of GDP – by the time we ring in the New Year.” The thought that the Fed’s balance sheet could triple to $3 trillion in the span of four months shows how serious the Fed is about trying to minimize the impact of this financial and economic crunch. So, where does the Fed get the money to expand its balance sheet? By borrowing, of course! Last week, the Bush administration announced plans to borrow a record $550 billion between now and the end of the year, according to Associated Press. That’s necessary to help fund our federal budget deficit, which some experts predict will hit $1 trillion this fiscal year (2009). For the full year, government borrowing could total $2 trillion, according to Mark Zandi, chief economist at Moody's Economy.com. Boy, a trillion here, a trillion there, and before you know it, we’re talking serious money. But, just like us normal people, the government can’t continue to borrow money indefinitely without major repercussions. The government’s ability to borrow is generally limited by somebody else’s willingness to lend. And, those lenders have increasingly been countries such as Japan, China, and the United Kingdom. At the end of August, the national debt of the U.S. was approximately $9.6 trillion, according to the Treasury Department. Of that, just three countries, Japan, China, and the United Kingdom, held about $1.4 trillion of the total. If these countries, or any of our other lenders, decide that they don’t want to own any more of our paper, then we may run into trouble financing our deficits. That, coupled with the specter of rising inflation if we juice the economy too much, may act as a governor on the government’s ability to add liquidity to the economy. With that said, it appears that the government still has takers for our treasury securities and that inflation is not currently a big concern. Consequently, the government may continue to borrow money to help jumpstart the economy. Hopefully, they’ll borrow just enough to get us out of this economic funk, but not so much that we end up drowning in debt from which we can’t escape. Weekly Focus – Stock Ticker During this week in 1867, the first stock ticker was unveiled in New York City. It replaced mail and messengers and allowed investors around the country to receive up-to-the-minute stock prices. But, most importantly, the tape from the machines made for great parades!

Nov 05, 2007 Weekly Commentary

The Markets Ask and you shall receive. Investors were asking for another interest rate cut and the Federal Open Market Committee (FOMC) delivered last week as they lowered the federal funds rate by a quarter percentage point. The market�s reaction to the cut that day was positive, but by the end of the week, additional influences came in to play and the broad market ended down, as measured by the Standard & Poor�s 500 index. At any point in time, as the FOMC ponders interest rate moves, they keep two key objectives in mind. First, they try to keep inflation under control and second, they try to ensure steady economic growth. If inflation is too high, the FOMC tends to raise interest rates, which increases borrowing costs and frequently results in slower economic growth. If economic growth is too slow, the committee tends to lower interest rates, which reduces borrowing costs and frequently leads to a stronger economy. As you can see, the FOMC has to walk a fine line here by trying to peg interest rates at a level that will balance these two key objectives. In the statement that accompanied last week�s interest rate cut, the FOMC said, �The upside risks to inflation roughly balance the downside risks to growth.� This means the committee is in a �neutral� position and that they are about as likely to lower rates in the future as they are to raise them. Investors tend to wait with baited breath each time the committee meets and then they tear apart the accompanying statement for any clues to the direction of the economy. At the end of the day though, the committee members are fallible just like everybody else. Sometimes they get it right and sometimes they don�t. However, despite the committee�s fallibility, investors still tend to put a lot of weight in the committee�s actions. THE NATION IS DIVIDED ON THE QUESTION OF WHETHER household finances have improved or gotten worse over the last year. When compared to a year ago, two in five (39%) say their household�s financial condition has improved while almost the same number (38%) say it has gotten worse. Almost one-quarter (23%) of survey respondents say it has remained the same. Regionally, there are some differences in household finances. Those in the West are most likely to think things are going well as 45% say things have improved and just three in ten (31%) say things have worsened. They are followed by those in the East and South where four in ten (40%) in each region say their household�s finances have improved and 36% each say their finances have gotten worse. The Midwest is the region with the most financial trouble; just three in ten (30%) say their household�s finances have improved while almost half (48%) say their financial conditions have gotten worse compared to last year. Asked to look six months into the future, Americans display their characteristic optimism as almost half (46%) say they expect their household�s financial situation to be better while just over one-quarter (26%) say it will be worse and 29% believe it will remain the same. The most agreement came over inflation. Asked if they expect prices for things they normally buy to increase, decrease, or remain the same six months from now, more than four in five adults (82%) believe prices will increase, while 13% say they will remain the same. Just 5% of Americans expect prices to decrease. It�s important to note that this survey was conducted in early September 2007, before the Federal Reserve�s most recent interest rate cut. The effect of that cut on the economy and consumers� moods remains to be seen. COLLEGE DEBT HAS A PROFOUND EFFECT ON FINANCIAL SECURITY, according to �The College Debt Crunch,� a survey of college graduates, recently released by Alliance Bernstein Investments, Inc. The results illuminate the fact that how a family funds college has implications for more than just the student�s four years in school. Notably, of the 69% of respondents who reported that they or a spouse are still paying off undergraduate or graduate debt, 39% said it will take them more than 10 years to wipe the slate clean. The average outstanding balance? More than $29,000. How does debt like that impact a graduate�s life? Asked whether they would describe themselves as �living paycheck-to-paycheck,� 42% of respondents with college debt said that described them �very well,� compared to just 24% of those who graduated without debt. More than one-third (34%) of those with college debt reported having sold personal possessions such as furniture, clothing and CDs to make ends meet � compared with just 17% of those living debt free. Of those with debt, 44% have delayed buying a house; 28% have delayed having children; and 32% were forced to move back in with a parent or guardian or live at home longer than expected. Respondents who graduated with no college debt are also more likely to have higher accumulated average savings ($53,900 vs. $36,500). Debt also impacts career choices. Among those graduating college with debt, 43% report having postponed graduate school, compared with 25% of the debt-free. Clearly, these results underscore the importance of saving for college � and we�re always happy to discuss strategy. Think about it, what better gift could you give your child � or grandchild? Weekly Focus � Creative versus Methodical Thinkers Why do some people solve problems more creatively than others? Are creative thinkers different from methodical thinkers? A new study by John Kounios, professor of Psychology at Drexel University and Mark Jung-Beeman of Northwestern University reveals a distinct pattern of brain activity, even at rest, in people who tend to solve problems with a sudden creative insight. The pair say creative solvers exhibit greater activity in several regions of the right hemisphere which is involved in processing �remote� associations between the elements of a problem, an important component of creative thought. Creative and methodical solvers also exhibit different activity in areas of the brain that process visual information. For example, the pattern of �alpha� and �beta� brainwaves in creative solvers was consistent with diffuse rather than focused visual attention. As noted in the Drexel press release, �This may allow creative individuals to broadly sample the environment for experiences that can trigger remote associations to produce an �Aha! Moment.� For example, a glimpse of an advertisement on a billboard or a word spoken in an overheard conversation could spark an association that leads to a solution. In contrast, the more focused attention of methodical solvers reduces their distractibility, allowing them to effectively solve problems for which the solution strategy is already known, as would be the case for balancing a checkbook or baking a cake using a known recipe.�

Nov 03, 2008 Weekly Commentary

The Markets Thank goodness, October is over. Market historians were busy last month rewriting the record books on what seemed like a daily basis. Unfortunately, many of the new records were the type that we'd prefer to have remained unbroken. Here are a few of the new entries: • October was the most volatile month in the S&P 500 index since November 1929, as measured by moves of at least 1% higher or lower, according to MarketWatch. • As of October 28, this bear market represented the fourth largest decline in the S&P 500 index (on a closing basis) without a 20% rally. The only three other periods where we had deeper declines without an intervening 20% rally were in 1931, 1938, and 1974, according to Bespoke Investment Group. • On a positive note, the Dow Jones Industrial Average rose 946 points, or 11.3%, last week. Barron’s said it was the Dow’s biggest one-week point gain on record and its largest percentage rise in 34 years. However, the end of the month heroics couldn’t overcome the early in the month carnage as the Dow still lost 14.1% for the month, according to Barron’s. • Crude oil prices dropped more than 32% in October, the largest one-month drop on record, according to CNBC. That’s good news for those of us who drive because the fall in oil prices has led to a dramatic drop in gas prices. • The Conference Board Consumer Confidence Index™, fell to an all-time low of 38 (1985 = 100) in October, according to data from the Conference Board as reported by MarketWatch. This does not bode well for upcoming holiday sales. • Gold futures prices dropped 18% in October, which was the largest one-month decline since February 1983, according to data from the Comex division of the New York Mercantile Exchange, as reported by MarketWatch. They say records are meant to be broken. Well, we broke our fair share in October. Let’s hope the next broken record is a positive one such as, “The fastest return to an all-time high after experiencing a 40% decline in the S&P 500 index.” All in favor, say “Aye.” HOW DO YOU DETERMINE IF THE STOCK MARKET is overvalued, fairly valued, or undervalued? On the surface, you might think that with the S&P 500 index down 35% over the past year, the market should be undervalued. Whether it is or not, we won’t know until we look back in hindsight. However, it’s helpful to look at history and see if we can place the current market in context. With the caveat that past performance is no guarantee of future results, here are some thoughts: • Market analysts use many different measures to value the market. Some measures are quantitative in nature, while others are rather arcane, such as Kondratieff Waves and astrological cycles. We’ll just stick with the quantitative for now. One common measure is to compare the price of an index to the earnings of the underlying companies in the index. For example, if the price of the S&P 500 index is 1,000 and the underlying 500 companies in the index earned a total of $50 per share over the previous 12 months, then the index would be trading at a price-earnings ratio (P/E ratio) of 20 (1,000/50). By comparing the P/E ratio of today’s market to historical P/E ratios, we can see how this market compares to previous markets. Generally speaking, high P/E ratios are associated with high market valuations, while low P/E ratios are associated with low market valuations. Other factors may affect whether a given P/E ratio represents a high or low market valuation, but for our purposes, the above description is sufficient. • As of last week, the S&P 500 index had a P/E ratio of 21 based on its trailing 12 months earnings, according to data from Birinyi Associates as reported by Barron’s. That’s above the index’s 60-year average P/E ratio of 17.8. So, this means the market is overvalued, right? Not necessarily. • The stock market tends to look to the future and if it expects earnings to rise next year, then that would increase the “E” in the P/E ratio and, all other things being equal, would lower the P/E ratio as future earnings come to fruition. For example, a recent Barron’s survey of five Wall Street market strategists indicated they expect the S&P 500 companies to earn approximately $70 per share in 2009. If we apply the historical average multiple of 17.8 to the $70 earnings number, we end up with a projected S&P 500 index of 1,246 at some point in the future. That’s an increase of nearly 29% from last week’s closing S&P 500 value of 968. So, that would suggest the market may be undervalued, right? Again, not necessarily. • Merrill Lynch’s top down estimate for 2009 S&P 500 earnings is only $60, according to Barron’s. If we apply the historical average multiple of 17.8 to Merrill’s number, then we end up with a projected S&P 500 index of 1068, which is still about 10% higher than last week’s close. So, we’re still potentially undervalued in today’s market, right? Well, you’re seeing a pattern here, so the answer is… not necessarily. In the three examples above, we held the P/E constant at the historical average of 17.8. The bad news is, in some past economic recessions, the P/E ratio of the S&P 500 fell dramatically below the historical average. In fact, in 1975 and in 1980, the P/E ratio on the S&P 500 sank to around 7, according to Barron’s. You probably know where this is heading so, take a deep breath… if we apply a P/E of 7 to the $60 earnings estimate, that would leave us with the S&P 500 index at 420 at some point in the future. Based on last week’s closing price of 968, that means we could be in for a further decline of 56%. Ouch! Now, before you get too worried, we think the likelihood of the S&P 500 dropping to 420 is extremely remote. We’re only showing it to you for educational purposes. And, to be fair, we should show you the other extreme, too. According to the St. Louis Federal Reserve Bank, during the bubble year of 1999, the P/E ratio on the S&P 500 hit 36. If we apply a 36 multiple to Merrill’s $60 earnings estimate, we get an S&P 500 index of 2,160. That’s a 123% increase from last week’s closing value. Have we confused you yet? Here’s the bottom line. Whether you think the market is over, under, or fairly valued depends on many factors, two of which include future expected earnings and the multiple investors put on those earnings. Depending on where you stand, today’s market could be grossly overvalued, fairly valued, or grossly undervalued. There’s data to support pretty much any view you want. The constant tug of war among investors who think we’re overvalued, fairly valued, or undervalued may be one reason why we’re seeing so much volatility in the markets. Weekly Focus – Think About It “To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude, even while offering the greatest reward.” --Sir John Templeton

May 27, 2008 Weekly Commentary

The Markets Oil prices up, stock market down. That just about sums up last week�s market action. After rising 57% in 2007, the price of a barrel of crude oil has risen another 38% so far in 2008�and it�s starting to hurt, according to Barron�s. Oil is a key ingredient in so many different products that many companies are now passing along their cost increase to consumers. For example, Kimberly-Clark Corp. just announced that this summer, prices will rise 6 � 8% on Kleenex facial tissue, Cottonelle and Scott bathroom tissue, Viva paper towels, Huggies diapers and Pull-Ups training pants. That�s on top of a 4 � 7% increase on those same products just three months ago, according to MarketWatch. Airlines are one of the industries most directly affected by high energy prices since a significant percentage of their costs come from jet fuel. Over the past year, jet fuel has risen 86% and the airlines are scrambling to adjust, according to Reuters. American Airlines announced last week it was cutting its capacity by 11 � 12% and instituting a $15 fee for each checked bag, according to Briefing.com. United Airlines announced it was raising round-trip fares by as much as $60, according to Barron�s. It may be too little too late for the airlines. Last week alone, the stock price of United Airlines dropped 46%, American Airlines dropped 31%, and Northwest Airlines dropped 29%, according to data from Yahoo! Finance. It�s expensive to fly. It�s expensive to drive. Maybe video-conferencing will turn out to be �the next best thing to being there.� With Memorial Day behind us and the summer season ahead of us, we�ll closely monitor whether this will be a long, hot summer on Wall Street, or a turning point to a new bull market. IF YOU�RE LIKE MANY AMERICANS, there�s a good chance you saw the new Indiana Jones movie over the Memorial Day weekend. Did you notice the cost of your ticket and the cost of that popcorn and soft drink? Well, thanks to the rising cost of energy, don�t be surprised to see the price of your movie ticket rise by as much as 30% this year, according to Richard Gil, a University of Santa Cruz economist. So what�s the relationship between the price of a movie ticket and rising energy prices? In a word�corn. Those outrageous prices for movie theater popcorn, soft drinks and candy actually subsidize the price of a movie ticket by about 25%, according to a May 19 Advertising Age article. And guess what�s happening to the price of corn? It�s skyrocketing because corn is a key ingredient in ethanol. As much as 35% of this year�s corn crop will go toward ethanol production, thus leaving less for us to munch on at the theater, according to an Agriculture Department report. Without much room to raise the already high popcorn, soft drink and candy prices, theater owners will likely have to raise ticket prices to maintain their margins. And to make matters worse, Advertising Age reported that in the past 18 months, �the cost of coconut oil used for popping corn has risen 24%�and the price of the paper pulp to produce popcorn tubs has jumped 40% in the past 36 months, making the tub more expensive than the corn inside it.� If it�s any consolation, the Motion Picture Association of America said that adjusted for inflation, a movie ticket costs less today than it did 31 years ago. So the moral of the story is, enjoy those �cheap� movie ticket prices while they last. Weekly Focus � Memorial Day �A hero is someone who has given his or her life to something bigger than oneself.� --Joseph Campbell As another Memorial Day gives way to summer, let�s not forget the sacrifices our brave men and women made to secure our freedom. They paid the ultimate price and we are forever grateful.

May 26, 2009 Weekly Commentary

The Markets One key to an economic recovery is a thawing of the credit freeze. Let's look at three indicators that suggest we're making some progress in this area. • First, the LIBOR is coming down. LIBOR stands for London InterBank Offered Rate and it is the interest rate that banks charge to borrow from each other. A high rate indicates banks are nervous about getting repaid while a low rate suggests banks are confident they'll get repaid. The 3-month LIBOR peaked at 4.82%n October 10, 2008 in the throes of the credit crisis. Last Friday, it closed at 0.66%, according to Bloomberg. This dramatic drop is a good sign that banks no longer fear a collapse of the international banking system. • Second, the 3-month TED Spread is coming down, too. This is the difference between 3-month LIBOR and the 3-month Treasury bill rate. A large spread suggests investors are concerned about default risk while a small spread suggests investors are less concerned. The TED Spread peaked at 4.65% on October 10, 2008 and closed last Friday at 0.48%, according to CNBC. • Third, junk bond yields have come down significantly in recent months. The Merrill Lynch High Yield Constrained index, which limits individual issuer concentration to 2%, yielded 14.4% last Friday, according to The Wall Street Journal. While that is still high, it's a big decline from its peak yield of 22.5% in the past 12 months. Other areas of the credit market, such as consumer credit, business credit, and the mortgage market, have shown improvement, but they are still a bit tight. Overall, credit is flowing and interest rates are generally low, so the credit environment is constructive, but there is still room for improvement. "Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes." --Jesse Livermore Jesse Livermore is a famous early 20th century trader and speculator who was immortalized in the 1923 book, Reminiscences of a Stock Operator by Edwin Lefevre. Many of today's top traders consider Livermore one of the greatest traders and speculators who ever lived. Now, we're not mentioning Livermore because we think aggressively trading and speculating in your account is the way to go. Instead, we want to highlight the above quote from Livermore and discuss its relevance to today. "Wall Street never changes." From the standpoint that Wall Street is all about making money, that statement is true. It was as true in "The Roaring 20s" during Livermore's lifetime as it was during the internet bubble of the late 1990s. "The pockets change, the suckers change, the stocks change." Wow, that statement is spot on. Wall Street continues to come out with new products that they think the public will buy even if they make little economic sense. Do you remember all those shaky limited partnerships from the 1980s? How about the dot-com IPOs of companies that had little revenue and no profits? And more recently, we had newfangled mortgages that let you buy a house with no money down or skip payments or just pay the interest only, among other options. "But Wall Street never changes, because human nature never changes." This is the key quote. In particular, as humans, our emotions have a tendency to get the best of us. In good times, we tend to get greedy and make decisions that under normal circumstances would be too risky for us. In scary times, we tend to panic and "get out at all costs." We like to keep up with our neighbors so we behave in a herd-like fashion. We extrapolate the most recent trends and expect that they will continue indefinitely. All these tendencies have the ability to work against us and preclude us from reaching financial security. The "smart" people on Wall Street understand our human frailties and, unfortunately, some of them use it to their advantage. As your advisor, we are also your advocate. We do our best to understand how markets work and, equally important, how human behavior works. Our advice may sometimes go against popular opinion because as history shows, what's popular may not always be what's best for you. Our advice won't always be right, but it will always be given with integrity and with your best interests in mind. Weekly Focus – Memorial Day To the men and women who serve our country and help protect us from danger – thank you. And for those who have given their life in the name of our country, we will never forget the great sacrifice you have made on our behalf.

May 19, 2008 Weekly Commentary

The Markets Do you remember when Jimmy Carter was President? That's how long it's been since consumer confidence was as low as it is now. The Reuters/University of Michigan index of consumer confidence sank to 59.5 in May, according to a Reuters report. That�s the lowest level since June 1980, the waning days of the Carter administration. Back then, �Inflation was roaring at a 14.3% annual rate while the unemployment rate was 7.5%, for a 21.8% �misery index� (the sum of the jobless and inflation rates)�, according to Barron�s. By contrast, the current �misery index� is only 8.9%�a mere fraction of what it was the last time consumer confidence was this low. Something seems a bit out of whack here. Consumer confidence is at a 28-year low yet inflation is not out of control, the unemployment rate is only around 5%, the economy, while slow, is not in dire straits and the Dow Jones Industrial Average is within 9% of an all-time high. Hmm. So, why are consumers so glum? Most likely, it�s a combination of factors including high gas and food prices, declining housing prices, a never-ending political season and the announcement on April 8 by NBC that ER will end its run in February 2009. ER aside, consumers are in a bad mood, but they still snatched up stocks last week as all the major averages posted solid gains. Despite low consumer confidence, affluent investors think this may be a good time to buy stocks. According to the annual Bloomberg/Los Angeles Times poll of investors, �Forty-four percent of those with household incomes of $100,000 or more viewed it as a good time to buy stocks, versus 15% who said it isn't.� Time will tell if they end up putting their money where their mouth is. IT LOOKS LIKE IT�S GETTING HARDER to keep up with the Joneses. Last week, we published some data from the IRS on how income and income taxes are distributed in the U.S. This week, we�d like to share a chart, which shows the minimum level of adjusted gross income (AGI) you need in order to reach certain percentiles. For example, in 2005, you needed an AGI of $103,912 to be in the top 10% of all taxpayers. It�s interesting to note that over the 1995�2005 time period, the minimum AGI needed to be in the top 1% grew nearly twice as fast as the minimum AGI needed to be in the top 50%. Looking at it another way, in 1995, you needed to earn about nine times the 50th percentile AGI in order to reach the top 1% of all tax payers. By contrast, in 2005, you needed to earn about 12 times the 50th percentile AGI in order to reach the top 1%. The inescapable conclusion is the �price� of admission to the top AGI ranks has grown at an increasingly faster rate over the past 10 years. Weekly Focus � Look in the Mirror With graduation season in full swing, it�s an opportune time to sample some wisdom from Steve Jobs, who gave the commencement address at Stanford University in June 2005. Here�s a snippet from what he told the students that day. "For the past 33 years, I have looked in the mirror every morning and asked myself: �If today were the last day of my life, would I want to do what I am about to do today?� And whenever the answer has been "No" for too many days in a row, I know I need to change something." How would you answer Jobs� question? Is there anything you need to change? Is it something we can help you with?

May 18, 2009 Weekly Commentary

The Markets Warren Buffett has said his favorite holding period is forever. Does he follow his own advice? Buffett's Berkshire Hathaway recently posted its worst quarterly loss in more than 20 years and a big chunk of that was due to what Buffett called a "major mistake." Less than a year ago, with oil prices nearing their all-time high, Buffett dramatically upped his stake in oil giant ConocoPhillips and became its largest shareholder. Unfortunately, his timing was horrible. ConocoPhillips stock subsequently plunged along with the price of oil and as of last Friday, the stock was down about 50% from its high of last summer, according to Yahoo! Finance. So, here's your question: You're Warren Buffett, your favorite holding period is forever, and a stock you recently paid billions of dollars for is now down by billions of dollars in just a few months, what do you do? Well, Mr. Buffett hit the sell button. In the first quarter of this year, he sold 13.7 million shares of ConocoPhillips and took a $1.9 billion loss, according to Bloomberg. But, that may not be the end of his losses. As of March 31, Berkshire still held 71.2 million shares. There are two good investing lessons here. First, if you make an investment and the facts change, don't be afraid to cut your losses and move on to a potentially more rewarding opportunity. Remember, you don't have to recover your loss in the same way that you generated your loss. Second, taking a capital loss may offer some tax benefits. In Buffett's case, the $1.9 billion loss may allow Berkshire to recover as much as $690 million in previously paid capital gains, according to Berkshire's quarterly report. Tax benefits shouldn't be the only reason for selling an investment, but they can be part of the equation. Oh, and by the way, Berkshire entered into long-term derivative contracts in recent years that are more than $13 billion in the hole as of March 31, 2009, according to Berkshire’s quarterly report. These contracts have expiration dates between 2019 and 2028 so there is time for them to recover, but $13 billion is a big hole to climb out of. Yes, even the greatest investors make mistakes. However, one thing that makes them great is their willingness to embrace change, cut their losses, and move on. ARE WOMEN BETTER INVESTORS THAN MEN? In a battle of the sexes, finance professors Brad Barber and Terrance Odean crunched the trading data on over 35,000 households from a large discount brokerage firm. They built upon psychological research, which indicates that in the area of finance, men tend to be more overconfident than women. Additional research shows that overconfident investors tend to trade more often than less confident investors. Armed with this data, Barber and Odean went to work. They hypothesized that men traded more frequently than women and that this excessive trading hurt their performance more than it hurt the performance of women. Here's what they found in a 2001 study published in The Quarterly Journal of Economics: 1. Men overall traded stocks 45% more frequently than women. 2. Single men traded stocks 67% more frequently than single women. 3. Women overall earned annual risk-adjusted returns that were 1.0% greater than men. 4. Single women earned annual risk-adjusted returns that were 1.4% greater than single men. So yes, based on this study, women are more successful investors than men because they earn a higher annual return. An interesting sub-point from the study is that the out-performance by women was solely due to their lower trading frequency. Women were no better than men at security selection; instead, their advantage came from making fewer trades. Let the bragging begin! Weekly Focus – Think About It "A man's errors are his portals of discovery." --James Joyce

May 12, 2008 Weekly Commentary

The Markets Soaring crude oil prices helped put the kibosh on a three-week winning streak in the stock market, according to the Wall Street Journal. The Journal reported that for the six trading days ending May 9, crude oil prices surged 11.8% and ended at a record price of just under $126 per barrel. Not helping matters was a May 6 Goldman Sachs report, which said, �The possibility of $150-$200 per barrel seems increasingly likely over the next 6-24 months.� Pundits frequently cite supply constraints, healthy demand, and good old-fashioned speculation as culprits of the rise. Now, if there�s any truth to basic economics, then worldwide demand for oil should start falling at some point because of the huge surge in price. We�ll see. While oil hogged the spotlight last week, there were a few other bright spots worth noting. Barron�s said, �The service sector expanded in April for the first time this year, weekly unemployment claims stayed tame, and retail sales in April, boosted by an extra shopping day this year, were less dire than many had feared.� These reports suggest that the economy, while soft, is not currently falling off a cliff. And, of course, we have corporate earnings. So far, more than 400 companies in the S&P 500 have reported their quarterly earnings and their average earnings are down about 17% from a year ago, according to Thomson Financial. While that�s a big drop, �Most of the problems lie with the ailing financial sector, where results remain crushed by write-downs linked to bad home loans,� according to MarketWatch. Illustrating that some companies are still performing well in this economy, The Walt Disney Company reported last week a 32% increase in quarterly earnings per share, which handily beat analysts� estimates, according to MarketWatch. Looks like kids just can�t enough of the Jonas Brothers and Hannah Montana! HOW ARE INCOME AND INCOME TAXES DISTRIBUTED IN THE UNITED STATES? The Internal Revenue Service recently released some data on the distribution of income and income taxes for tax years 1995 � 2005 and here�s what the data shows: Comparing 1995 to 2005, here are some conclusions we can draw: First, the rich are increasing their share of the country�s total income. For example, from 1995 to 2005, the top 5% of taxpayers increased their share of the total income of all taxpayers from 28.8% to 35.8%. Second, the rich are paying a growing share of the country�s total income taxes. For example, from 1995 to 2005, the top 5% of taxpayers increased their share of the country�s total income taxes paid from 48.9% to 59.7%. Third, the rich pay a proportionately higher percentage of their income in taxes. For example, in 2005, the top 1% of taxpayers accounted for 21.2% of the total income and they paid 39.4% of the country�s total income taxes. By contrast, the bottom 50% of all taxpayers accounted for 12.8% of the total income and they paid 3.1% of the country�s total income taxes. The data shows the progressive nature of our tax system in which wealthier people pay a proportionately higher percentage of their income in taxes. With this being an election year, the country�s tax policies will likely be a key debate item. As a result, don�t be surprised to see some changes over the next four years. Weekly Focus � What�s Your Cookie? During an old episode of Sesame Street, the Cookie Monster participated in a game show. As a prize winner, he got to choose among door #1, which contained $1 million, door #2, which contained a French chateau, and door #3, which contained a cookie. He chose the cookie. We all have a cookie in our life. What�s yours?

May 11, 2009 Weekly Commentary

The Markets Would you agree that the stock market has been volatile in the last six months? As you may have guessed, that's a bit of a trick question. Most people would say that, yes, the stock market has been very volatile since early November 2008. For example, just from November 7, 2008 to November 20, 2008, the S&P 500 index dropped 19%. It then rallied 24% by January 6, 2009. But, that was just a tease. Between January 6 and March 9, the S&P 500 index dropped a frightful 28%. And, just when people thought the financial system was coming to an end, the index turned around and proceeded to rise a whopping 37% from the March 9 low to last Friday, according to Yahoo! Finance. It's enough to make your head spin. But, let's assume for a moment that you went into hibernation for the past six months and slept right through this volatility. Would you wake up happy or sad about your portfolio? Well, if your portfolio performed similar to the S&P 500 index, then you’d wake up essentially the same as you went to bed, meaning, there was no net change in your portfolio. Surprisingly, from November 7, 2008 to May 8, 2009, the S&P 500 index moved less than 1%. That’s right, after netting the 19% drop, the 24% gain, the 28% drop, and the 37% gain, the index is essentially flat. One of the keys to being a successful investor is to get neither too depressed when the market is down nor too euphoric when the market is up. Checking your portfolio on a daily basis can lead to a daily dizzy spell while checking it on a less frequent basis may help keep you on an even keel. Our job is to monitor your portfolio on a regular basis and do the worrying for you so you can “hibernate” from the market and take that extra time to enjoy life. WHICH LETTER OF THE ALPHABET will our economic recovery most resemble? Will it look like a V, U, L, or W? Let’s look at each scenario. A V-shaped recovery would suggest a sharp drop followed by a quick recovery. The July 1990 to March 1991 recession is an example of this. A U-shaped recovery would suggest a drop followed by a slow but steady recovery. The July 1981 to November 1982 recession fits this description. An L-shaped recovery would suggest a drop followed by a long period of subpar growth. Japan’s experience since its 1989 stock market high is the poster child for this unfortunate predicament. And then there’s the W-shaped recovery. This occurs when you have back-to-back recessions. The U.S. experienced this in 1980 to 1982 when we had two recessions that were separated by just 12 months. Veteran money manager Jeremy Grantham thinks we might be in for what he calls a “VL” recovery. He envisions a situation "in which the stimulus causes a fairly quick but superficial recovery, followed by a second decline, followed in turn by a long, drawn-out period of sub-normal growth as the basic underlying economic and financial problems are corrected." The good news is that the collapse of the U.S. financial system, which seemed like a possibility (albeit a small one) a few months ago, now seems to be highly unlikely. The recent recovery of the banking stocks and the stock market as a whole suggests investors are no longer planning for a doomsday scenario. Now we have to wait and see which "letter of the alphabet" recovery unfolds and what that means for the financial markets. Weekly Focus – Think About It "Light tomorrow with today." --Elizabeth Barrett Browning

May 05, 2008 Weekly Commentary

The Markets There is an old saying that 90% of what people worry about never actually happens. Investors seem to fall into that trap, too, as they fretted about all sorts of economic problems over the past few months and as a result, drove down stock prices. However, several key economic reports released last week suggest that the economy may not be in as bad of shape as many people thought. The Federal Reserve kicked things off with another � percent cut in the Fed funds rate last Wednesday. The Fed seemed to signal that it was going to stand pat for a while and investors viewed that as bullish news, according to Associated Press. Reading the tea leaves, some investors viewed the �standing pat� idea to mean that the Fed feels the economy has enough stimulus in place to rev up its engine without further government fuel. This fuel includes the $100 billion in rebate checks that are starting to fill our pockets. Also on Wednesday, the Commerce Department said the GDP grew at an annualized rate of 0.6% in the first quarter, much higher than the 0.2% rate expected by economists surveyed by MarketWatch. While the headline number looked relatively positive, the devil is in the details. Upon closer inspection, some economists pointed out that much of the increase came from inventory growth and exports as opposed to things American households and businesses bought. On Friday, the Labor Department said nonfarm payrolls dropped by a less than expected 20,000 in April. According to MarketWatch that suggests, �The nation's economic downturn may be short and shallow rather than long and severe.� The unemployment rate also dropped to 5.0% in April, down from 5.1% a month earlier. On balance, last week�s news gave bulls reason to cheer and they responded by pushing stocks higher. We�ll need more time to determine if the market�s rise over the past few weeks is the beginning of a new trend or just a head fake. HAVE YOU EVER SEEN A BLACK SWAN? Most likely the answer is no, but there�s a good chance that you�ve been affected by one. For some 1500 years, western civilization believed that all swans were white. In fact, the idea of a black swan was a popular metaphor in Europe, which symbolized something that could not exist. That all changed in 1697 when a Dutch explorer sailed into New Holland and made the first recorded European sighting of this elusive bird. What was once thought to be non-existent � a black swan � turned out to be not only existent, but rather common in a certain part of the world. This is a lesson that we should all take to heart as it relates to investing. Many models used by sophisticated investors are predicated on the idea that by using statistics, we can come up with the odds of certain events occurring. Using a made up example, looking at historical stock market performance, a model might suggest that the odds of the Dow Jones Industrial Average dropping by 10% in one day, is 1 in 6,000. With that data, a sophisticated investor might create a complicated transaction that tries to eke out a predictable return using lots of leverage. What we�re finding is that in reality, the models some investors use may actually misprice the risk of certain events happening. Nassim Taleb, in his 2007 bestselling book titled, The Black Swan: The Impact of the Highly Improbable, lucidly pointed out that on Wall Street, black swan events seem to occur more frequently than most investors expect. As a result, investors may be unprepared for negative events that were once thought to be highly improbable, but actually turn out to happen every few years. In the past 25 years, Taleb pointed out a few �black swans� including the 1982 Latin American debt crisis, the October 1987 stock market crash, and the collapse of hedge fund firm Long-Term Capital Management in 1988. Perhaps the turmoil in the auction-rate securities market qualifies as another example. The emotional nature of human beings makes us unpredictable. Taleb�s insights help us understand that while �black swan� events may be infrequent, they do happen and we would be wise to incorporate their possibility into our investment planning. Weekly Focus � Spend Some Time Thinking You may find it helpful to pause for a moment and think about your life. When you are in the mood, take out a piece of paper and a pen, go to a quiet place, and do the following exercise. Write a letter to yourself and reflect on your life's highs and lows, and joys and regrets. After you finish, take some time to review it. What have you done well so far in your life? What have you done not so well? What do you need to improve? How can you eliminate the regrets before it's too late? By doing this exercise, you'll learn a great deal about yourself and still have some time to improve upon the areas where you are currently falling short.

May 04, 2009 Weekly Commentary

The Markets Set the bar low and then step over it. That idea helps explain why the S&P 500 index has jumped 30% since its March 9 low, according to Barron's Magazine. By early March, investors were quite pessimistic about the outlook for corporate earnings and the economy. In effect, the bar was quite low in terms of near-term expectations. Over the following few weeks, earnings and economic reports came in weak, but they were "less bad" than expected. Relieved investors took this "less bad" as a sign that perhaps the worst is over so they started dipping their toes back in the investing waters and stocks rose. Here are a few of the recent "less bad" numbers that investors warmed up to: • The purchasing managers' index contracted again in April, but showed a significant improvement over March's number, according to the Institute for Supply Management. • The consumer sentiment index – although still at a depressed level – rose in April compared to March, according to MarketWatch. • Initial claims for unemployment insurance for the week ending April 25 were 631,000 – a horrible number – but it was an improvement from 645,000 the previous week, according to the Department of Labor. • The S&P/Case-Shiller Home Price Index for February, which was released last week, showed a slowing in the rate of decline in residential home prices. • First quarter GDP plummeted a worse than expected 6.1%, but the consumer spending portion of GDP rose a pleasantly surprising 2.2%, according to The Wall Street Journal. • Companies such as Caterpillar, Coca-Cola Enterprises, Wells Fargo & Co, Ford, American Express, and Marriott posted earnings that were historically low, but still above expectations, according to Bloomberg. When the stock market can rally on news that is bad, but "less bad" than expected, that may suggest underlying strength. Only time will tell if this move is sustained or if it will falter and lead to a retest of the early March lows. CYCLICAL OR SECULAR? Whether the current economic storm is a traditional cyclical adjustment within a long-term uptrend or a secular turning point into a "new normal" may help explain the course of the economy and the financial markets in the decades to come. One could argue that since the end of World War II, the global economy has been on an upward march with only periodic interruptions by rather shallow localized recessions. The baby boom after the war coupled with business innovation, the growth of emerging countries, and the expansion of credit, helped usher in a six-decade long improvement in our standard of living. In recent years, this growth was turbo-charged by an expansion of credit that helped consumers finance a lifestyle that was not sustainable out of normal cash flow. What we've witnessed over the past 18 months is an unwinding of the recent credit binge to a more sustainable level of consumption. The big question is whether this unwinding is just a temporary adjustment before we jump right back on the credit bandwagon or whether we are adjusting to a new lower level of consumption and a higher level of savings. A recent Gallup poll found that nearly one-third of Americans have reduced their spending lately and intend to make this lower spending level their "new normal" in the years ahead. Twenty-seven percent said they are saving more and intend to make saving more their "new normal." If consumers follow through with what they told the pollsters, we may be witnessing the early stages of a secular change in American's spending and savings patterns. Trends can only be identified after you've been in one for a while. While we definitely have seen consumers pull back and savings start to rise, it's too soon to say if this trend will continue and become a long-term secular change or reverse course after the recession ends and just be another cyclical speed bump along a decades-long growth curve. Trends like this have important implications for the financial markets. If this is a secular change, then it's possible the financial markets will stay in a wide trading range for many years. If it's a traditional cyclical recession, then growth should return and the markets may resume their gallop toward new record highs. Since no one can predict the future, we continue to look at the facts as they appear and make portfolio adjustments accordingly. Regardless of the secular or cyclical outcome, we continue to do our best on your behalf. Weekly Focus – Think About It "Opportunities to find deeper powers within ourselves come when life seems most challenging." --Joseph Campbell

Mar 31, 2008 Weekly Commentary

The Markets Sometimes a loss feels like a win. Several economic indicators released last week suggest the economy is in a funk. Of course, you probably don�t need us to tell you that, but now we have a few more data points to fill in the picture. The Commerce Department said personal spending was flat in February. That does not bode well for the economy since consumer spending accounts for roughly two-thirds of economic activity. The University of Michigan/Reuters U.S. Consumer Sentiment Index fell to 69.5 in March; its lowest level since 1992, according to a March 28 article from Marketwatch.com. Consumers are concerned about a slowing economy, unemployment, and rising prices in products as diverse as eggs and gas. Orders for durable goods declined 1.7% in February, according to the Commerce Department. That�s on top of a 4.7% decline in January. And, in the home department, sales of new homes fell to a 13-year low in February, according to the Commerce Department. Prices are down, too. The S&P/Case-Shiller Home Price Indices released on March 25 showed an annual decline of about 11% in the average sales price of homes in 20 metro areas in January. On the bright side, the average sales price in those 20 metro areas is still up about 80% from January 2000. It�s easy to get caught up in doom and gloom. All we have to do is turn on the TV or open the newspaper and we can get our fill. However, despite last week�s news, the S&P 500 Index was down just slightly more than 1% for the week. Not bad all things considered. Ultimately, Americans seem to be an inherently optimistic bunch. Yes, we�re in a rough patch right now with the economy and the financial system, but we�ll get through it. As the credit market excesses and financial de-leveraging work their way through the system, we�ll likely continue to experience market volatility. At some point though, we�re apt to bottom out and start a new positive trend. While we can�t predict when that will happen, we�re doing our best to be prepared to try to take advantage of it. NO DOUBT ABOUT IT, there�s a �Whole lotta shakin� going on� in the stock market these days. We�ve seen the headlines about big daily advances and declines in the markets and Standard & Poor�s has now confirmed that U.S. stock volatility has climbed to its highest level in 70 years. As reported in a March 20 article from Bloomberg, Standard & Poor�s said the benchmark S&P 500 Stock Index has advanced or declined 1% or more on 28 days in 2008 through mid-March. That came out to 52% of the trading days, which is the highest percentage since 1938. Back in 1938, the comparable number was 57%. Interestingly, despite the volatility in 1938, the S&P 500 actually rose 25% that year. For a little historical perspective, going back to 2002, the S&P 500 had 1% moves 50% of the time. In 2006, that figure dropped to 12%. It rose slightly to 13% in the first half of 2007, then soared to 39% in the second half of the year. While the overall market is experiencing volatility, the daily swings in certain individual stocks is also quite astonishing. For example, on March 17, Merrill Lynch had a high price of $42.42, a low of $37.25, and it closed the day at 41.18, according to data from Yahoo! Finance. That�s a drop of 12% from its high to low and a rise of 11% from its low to its close � all in one day! However, that pales in comparison to the trip that Lehman Brother�s stock took that same day. It had a high price of $34.91, a low of $20.25, and it closed at $31.75. That�s a drop of 42% from its high to low and a rise of 57% from its low to its close � again all in one day! It�s very unlikely that the value of those companies changed by that much in one day. Instead, what we saw on March 17 was an extreme emotional reaction to unfolding events. Fear is a very potent emotion and it was on grand display that day. The significant movements may also suggest that investors (or speculators) still lack strong conviction about the future direction of the market. As it relates to you, the market action on March 17 will likely just be an interesting footnote, if that. These large daily swings make great headlines and are fodder for the talking heads, but to long-term investors, they are just a blip. Volatility can be scary and it tends to shake out the �Nervous Nellies�. For investors who have an historical perspective, and who have an understanding of how emotions can play out in the financial markets, volatility may be an ally. After all, if there was no risk to investing, there�d also be no significant return. As your investment manager, we monitor these types of emotional market gyrations and do our best to help you take advantage of them. Weekly Focus � Brainteaser A certain number consists of two digits. The number is equal to five times the sum of its digits. If you add 9 to the number, the order of its digits is reversed. What is the number? See below for the answer. The answer to the brainteaser is 45.

Mar 30, 2009 Weekly Commentary

The Markets Sometimes, less bad is actually good. Investors are clinging to any signs of hope that the economy, if not actually turning the corner, at least has the corner in view now. A slew of economic reports released last week hinted at some possible good news. Out of 12 reports, seven were better than expected and two were at expectations, while only three were worse than expected, according to Bespoke Investment Group. Wall Street has been anxious to see this type of (relatively) good news and investors responded by sending the stock market to a healthy gain last week. In another sign of good news, the price of a pound of copper rose to $1.86 at one point last week, up from just $1.30 in December 2008. Copper has earned the nickname "Dr. Copper" due to its past ability to predict booms and busts, according to MarketWatch. The fact that copper is heavily used in building and manufacturing helps explain its supposed forecasting ability. Russell Napier, author of the book, Anatomy of the Bear, is also a big believer in copper's predictive powers. He wrote, "Of all the commodities, the change in the trend of the price of copper has been a particularly accurate signal of better equity prices." These initial shards of good news helped underpin the market's recent rocket rise. Since reaching its cyclical closing low of 676 on March 9, the S&P 500 has risen just over 20%, according to data from Yahoo! Finance. That's a remarkable recovery in just 18 days. Technically, it means we're in a new bull market using the traditional definition of a 20% gain from a previous low. Technicalities aside, nobody is ready to uncork the bubbly. We're not kidding ourselves by thinking that all is well on the road to recovery in the economy and the financial markets. It's just nice to see a few of the speed bumps flattening out. RISK AND UNCERTAINTY are two different things and distinguishing between the two may help you be a better investor. We can think of risk as a random outcome that has a known probability distribution while uncertainty has a random outcome with an unknowable probability distribution, according to economist Frank Knight. For example, playing blackjack is risky because the outcome on any single hand is random, but it still has a known probability distribution. Conversely, dropping a bomb on North Korea would create uncertainty because we have no way of applying a probability distribution to the outcome of that action. Investing appears to contain aspects of both risk and uncertainty. From a risk standpoint, we have many decades of historical performance and statisticians can easily develop all kinds of probability distributions for expected returns and standard deviations. From an uncertainty standpoint, we have days like October 19, 1987, when the Dow Jones Industrial Average dropped 22.6%. That record drop was effectively outside the practical bound of any probability distribution. Okay, so what are you supposed to do with the knowledge that investing contains elements of risk and uncertainty? Here are two thoughts. First, don't be overconfident. While you may take some comfort that historical probability distributions can show you what to expect in the future, don't get too confident in that idea. Past performance is no indicator of future results because we have the uncertainty of unexpected events like the October 1987 crash or even the current bear market. Second, like playing poker, use the odds to your advantage. The market is down about 50% from its all-time high. As long as you believe we're not at the end of the world, then one could argue that the market is a lot cheaper today than it was in October 2007. So, your odds of making a profit from today's market level may be greater than they were back then. With the right understanding, we may be able to turn risk and uncertainty into allies instead of enemies. Weekly Focus – Think About It "And the trouble is, if you don't risk anything, you risk even more." -- Erica Jong

Mar 24, 2008 Weekly Commentary

The Markets They say truth is stranger than fiction and last week's mind-boggling activity in the financial markets underscored that point. Investors awoke to the news last Monday morning that investment bank Bear Stearns, which just a few days earlier had been trading for more than $60 per share, was being sold to JP Morgan Chase in a Federal Reserve orchestrated bailout for a mere $2 per share in order to avert a possible meltdown in the financial system. Without the takeover, the Fed and Wall Street analysts figured Bear Stearns would have to file for bankruptcy, and the Fed decided they couldn�t let that happen according to a March 18th, Wall Street Journal article. Despite a scary start, by the end of the day, the Dow Jones Industrial Average had managed a slight gain. By Tuesday, euphoria gripped Wall Street and stocks soared to their fourth largest one-day point gain in history, according to MarketWatch.com. With the Federal Reserve cutting a key interest rate by three-quarters of a percentage point, many investors started to think that the worst was behind us. On Wednesday, investors had a change of heart and the Dow promptly dropped nearly 300 points. As if in sympathy, oil prices, which had recently cracked $110 per barrel, suddenly reversed and took their biggest one-day hit in more than 16 years. And gold, the shiny yellow metal, lost some luster, too, as it dropped more than $60 an ounce � its largest one-day decline in nearly two years, according to MarketWatch. With our heads still spinning, the Dow closed the week on Thursday with a 261-point gain, �as investors snatched up bargains and covered short positions at the end of a chaotic week, buoyed by economic data that wasn't quite as soft as expected,� according to TheStreet.com. So, what�s the final tally? For the week, the Dow ended up with a much-welcomed 3.4%. Are we out of the woods now? Nobody knows for sure, but one thing we may take some comfort in is the willingness of the Federal Reserve and the government to step in and help support the markets. Some people suggest that the government is meddling too much and that it�s trying to circumvent the normal business cycle. Whether that�s true remains to be seen, but for now, investors perceive the Fed and the government�s intervention as comforting, not concerning. AS THE FEDERAL RESERVE CONTINUES TO STIMULATE THE ECONOMY by lowering interest rates and easing lending requirements, we need to keep an eye on inflation. On March 14th, the Labor Department reported that the consumer price index was unchanged in February (that�s good news) and rose 4.0% for the 12 months ending February 2008. The flat inflation reading for February was lower than expected by many economists, according to a survey by Bloomberg News. Surprisingly, the Labor Department said energy prices declined 0.5% in February and the cost of electricity declined by the most since December 2005. That may turn around in March since crude oil prices recently topped $100 per barrel and gas prices are well over $3 per gallon and approaching $4 in some places around the country. When the supply of money increases in the economy (i.e., there�s increased liquidity), Economics 101 says inflation may rise. If the growth of �dollars� in the economy outstrips the supply of goods and services, it may cause consumers to bid up the price of these goods and services, and hence, lead to inflation. A little inflation � and by that we mean 1 to 2% per year � is fine. When inflation starts creeping into the mid single digits area, problems can crop up such as high energy prices and a depreciating dollar. The dramatic rise that we�ve seen over the past few months in energy prices, certain food commodities and precious metals can be partially attributed to the fear that inflation will rise out of the Fed�s comfort zone. The weak dollar is also partially attributable to the fear of U.S. inflation. As investment managers, we have to keep in mind that the Fed�s liquidity moves may keep the economy from falling into a deep recession (a good thing), but it may also keep energy prices in record territory and may make imports more expensive. Due to the complexity of the global economy, it seems as if nothing is neutral. Making a change such as lowering interest rates may help certain parts of the economy, but it may be at the expense of a strong dollar and at the expense of consumers who have to pay more for energy and imports. The Fed is walking a tightrope right now. If they lower interest rates too much (i.e., the short-term rates that the Federal Reserve controls), it could backfire by causing inflation expectations to rise. If investors perceive inflation will be a problem, they�ll push up long-term interest rates that are outside of the Fed�s influence and that could thwart the economic growth that the Fed is trying to engineer. Nonetheless, a quick glance at the headlines shows that even though stocks are down this year, other asset classes are rising. Traditional asset classes like government bonds are up this year through March 20th, according to Morningstar, as are alternative investments such as energy, grains, and precious metals, according to Barron�s. With all the investment options available today, we try our best to have exposure to those asset classes that are working while keeping in mind each of our clients� goals, objectives, and risk tolerance. Weekly Focus � Customer Service Champs If it seems like customer service is on the decline across the country, you�re right. A new report from Business Week, using survey data from J. D. Power & Associates, indicates customer service declined in 2007. All is not lost though. Here are the 2007 customer service champions, according to the report: 1. USAA 2. L.L. Bean 3. Fairmont Hotels & Resorts 4. Lexus 5. Trader Joe�s 6. Starbucks Do you have any great customer service stories that you�d like to share?

Mar 23, 2009 Weekly Commentary

The Markets So now we know where money comes from. The Federal Reserve elevated this financial crisis to an entirely new dimension last week by announcing several initiatives that would expand its balance sheet by more than $1 trillion. Effectively, they’ve decided to fire up the printing presses and create money where there once was none. We’ve been told that money doesn’t grow on trees; now we know where it really comes from – the stroke of the government’s pen. With the federal funds rate already near zero, the Federal Reserve pulled out the big gun and said they would buy up to $300 billion of Treasury securities. This essentially means one arm of the government is issuing bonds and another arm of the government is buying them. By creating this additional demand for the bonds, the Fed hopes interest rates will drop. So far, it’s worked. The yield on 10-year treasuries dropped about one-half of a percent within minutes of the Fed’s announcement. Mortgage rates dropped as well, so if you’re looking to buy or refinance, now may be a good time. The long-term effect of the government buying its own bonds is unknown. Some say it is the right medicine and will help foster an economic recovery by keeping interest rates low. Others say it will lead to a currency crisis and ruinous inflation. Investors reacted by sending hard assets like gold and oil higher, the U.S. dollar lower, and the stock market up for a short period then down the next two days. The kind of money we’re talking about now to fix this mess is almost beyond comprehension. Based on its announced plans, MarketWatch says the Federal Reserve’s balance sheet may now grow to more than $4 trillion, up from less than $1 trillion last fall. And Goldman Sachs economist Jan Hatzious says the Fed may ultimately need to expand its balance sheet to a whopping $10 trillion to restore economic growth. Viewed from a different perspective, Morgan Stanley economists estimate that interest rates should be negative 5% in order to restore growth. Of course, you can’t have negative interest rates so the government is doing the next best thing – it’s using everything in its arsenal to bring them closer to zero all along the yield curve. These are certainly interesting and challenging times, but together we will get through them and ultimately flourish. PETER LYNCH, CONSIDERED BY MANY to be one of the greatest investors of all time, was quoted as follows in the 1997 book, Investment Gurus: “There’s a 100% correlation between what happens to the company and what happens to the stock. The trick is that it doesn’t happen that way over one week, or even over six or nine months, and that’s terrific. Sometimes the fundamentals are getting better and the stock is going down. That’s what you’re looking for. The stock market and the stock price don’t always run in synch.” A corollary to Lynch’s comment is that the stock market and the economy don’t always run in synch. Currently, they’re both in bad shape. However, there’s a reasonable probability that they will eventually decouple. One possible scenario is that the stock market will sniff a whiff of economic recovery and it will start to rise before the economy does. Sometimes these rallies are premature and send a false signal that the economy is ready to roll. We call these occurrences “bear market rallies.” Eventually, one of these bear market rallies may turn into the start of a new bull market. At that point, the economy will need to “confirm” the new bull market by staging its own recovery. This type of cycle has existed in the financial markets for many years and we don’t expect it to be repealed any time soon. Bottom line – expect the markets to continue vacillating between bullish and bearish swings. Weekly Focus – Think About It “Life is the sum of all your choices.” --Albert Camus

Mar 17, 2008 Weekly Commentary

The Markets The Wall Street roller coaster continues... On Monday, we heard the sad news about the fall from grace of former New York Governor Eliot Spitzer. That kept many Wall Streeters (and much of the country) riveted until his resignation announcement on Wednesday, March 12th. Sandwiched in there on Tuesday, the Federal Reserve pleased investors with an unorthodox move that could add up to $200 billion in new liquidity to the banking system, according to a March 11th article at MarketWatch.com. That news helped send stocks into orbit on Tuesday as the Dow Jones Industrial Average soared more than 400 points � its fourth largest point jump in history. With that gain, some market participants dared to whisper that perhaps the market had hit bottom and was ready to start a new bull market. On Wednesday, the market ended slightly lower as crude oil prices broke the $110 per barrel mark and the dollar continued its descent. Thursday began on a grim note as news of a potential hedge collapse left traders in a sour mood, gold topped $1,000 per ounce for the first time and the Dow Jones dropped more than 200 points at one point, according to The New York Times. However, that was replaced by euphoria later in the day as Standard & Poor�s released a report suggesting that the end of subprime write-downs is in sight for financial firms. By the end of the day, the Dow had closed slightly higher. Friday�s stunning announcement from investment bank Bear Stearns that its �liquidity position in the last 24 hours had significantly deteriorated" shocked Wall Street and helped send the Dow Jones Industrial Average to a loss of nearly 200 points for the day, according to The Wall Street Journal. Just four days earlier, Bear Stearns CEO Alan Schwartz proclaimed, �Ridiculous, absolutely ridiculous,� in response to rumors of a liquidity crunch at the firm. Decades ago, Franklin Roosevelt said, �The only thing we have to fear is fear itself.� Unfortunately, that seems to be true for Bear Stearns. The rumors of liquidity problems caused fear among Bear�s clients and lenders and it turned into a self-fulfilling prophecy. Despite all the ups and downs, by the end of the week, the Dow Jones Industrial Average finished in positive territory. Whew! While we cannot predict when the market will turn around and start a new bull market, we have every confidence that it will and we continue to monitor developments very closely. AS THE CREDIT CRUNCH CONTINUES, the Fed keeps adding liquidity to the financial system. However, as quoted in The Wall Street Journal, Bob Eisenbeis, chief monetary economist for Cumberland Advisers, said it�s no longer an issue of liquidity that�s plaguing the markets, �Rather, there is uncertainty about the underlying quality of assets � which is a solvency issue, driven by a breakdown in highly leveraged positions.� This �breakdown in highly leveraged positions� initially stemmed from rising defaults in subprime mortgages. That cascaded into other areas of the financial system and is now reaching into areas that, heretofore, were considered �safe.� The meltdown of Bear Stearns also suggests that we�re moving from a financial crisis to a crisis of confidence. When clients and lenders lose confidence in a firm�s abilities to meet its financial obligations, they can pull the plug quickly. While that may sound rather dire, we need to keep in mind that for the prepared investor, fear may breed opportunity. As nervous investors throw in the towel, seasoned investors with a broad perspective and intestinal fortitude may profit from the tumult. Sir John Templeton, considered by many to be one of the greatest investors of the 20th century, said, �The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell." That contrarian thinking enabled him to build a highly successful investment management company that he eventually sold in 1992 for nearly $1 billion. Of course, nobody rings a bell and says, �Hear ye, hear ye, now is the time of maximum pessimism so back up the truck and start buying.� The chances of identifying the bottom of the market and jumping in at that exact moment are slim to none. However, being a successful investor does not require perfect timing. It requires a strategy of buying low and selling high. Interestingly, when it comes to the financial markets, many investors do just the opposite. They want to sell their securities when prices are relatively low (e.g., 2002 and 2003) and then, buy securities when times are euphoric and prices are historically high (e.g., 1999 and early 2000). That�s a recipe for whiplash and poor returns. The current �confidence breakdown� may eventually lead to a great buying opportunity. As your advisor, we continue to monitor the markets and do what we think is best for our clients based on our experience and based on our clients� goals, objectives, and risk tolerance. Weekly Focus � Bragging Rights If you had a few hundred million dollars of spare cash, how would you spend it? Well, some of the world�s most well-heeled billionaires are spending their spare change on owning the world�s largest yachts. A few years ago, Paul Allen, co-founder of Microsoft, built Octopus, his 417-foot floating palace. Not to be outdone, a short time later, Larry Ellison, co-founder of Oracle, christened Rising Sun, his 454-foot behemoth. But, those pale in comparison to Dubai, the new 525-foot mega-yacht owned by, who else, the ruler of Dubai. Of course, records were meant to be broken. The New York Times reported a German shipbuilder is putting the finishing touches on Eclipse, the 531-foot home away from home that is reportedly being built for a Russian billionaire. So, how much does a 500-foot yacht cost? Well, if you have to ask, that�s right, you probably can�t afford it! But, here�s the number�about $650 million, according to an estimate by Burgess, a company that helps owners build and charter yachts.

Mar 16, 2009 Weekly Commentary

The Markets It's about time. Last week, the stock market, as measured by the S&P 500 index, staged its third-largest weekly gain since World War II, according to Reuters. The gain was partially attributed to the following good news: • Banking behemoths Citigroup, Bank of America Corp., and JPMorgan Chase & Co., all announced that they were profitable in the first two months of 2009, excluding one-time charges. Shares of Citigroup and Bank of America Corp. responded by rising 73% and 83% respectively for the week, according to Associated Press. • General Motors said it wouldn't need the latest $2 billion installment of bailout money because its cost-cutting plan was taking hold, according to Associated Press. • The widely watched Reuters/University of Michigan consumer sentiment poll ticked up slightly in early March, according to MarketWatch. • The Commerce Department reported that February retail sales were not as bad as economists feared and the January numbers were revised substantially upward. • General Electric received a credit rating cut last Thursday, but it was not as deep as some expected and the stock rose 13% that day, according to The Wall Street Journal. • A number of well-known market analysts, who had previously been stock market bears, adopted a more bullish posture last week. This list included Doug Kass, Marc Faber, Steve Leuthold, and Barry Ritholtz, according to Yahoo! Finance. • Prices for copper and scrap steel have risen recently, which suggests there's demand from manufacturers, according to The Wall Street Journal. • Oil prices are up 23% in the last four weeks on signs that demand may be firming, according to The Wall Street Journal. So, if you look hard enough, you can find reasons for optimism even amidst the despair. Well be watching for more clues this week to see if this is just a blip or the start of something big. Let's hope for the latter. HOW DO YOU DETERMINE THE DIFFERENCE BETWEEN a bear market rally and the start of a new bull market? Last week's huge 10% rally still left the S&P 500 index slightly more than 50% below its October 2007 all-time high. Can we confidently say that we're now off to the races and we'll start reeling in that 50% decline? Reasonable people can certainly disagree on whether last week's move is a head fake or the real deal. Let's look at some history to see if it will help us reach a conclusion. Comparisons to the Great Depression seem to abound these days so let's start there and see if there were any head fakes. All data comes from Bespoke Investment Group. The Dow Jones Industrial Average reached a peak of 381 on September 3, 1929. Few people had any idea what was to unfold next. Just 71 days later, the Dow had plummeted 48% and the stock market crash was in full swing. However, the Dow then turned around and by April 17, 1930, it had soared 48%. Case closed – we're now in a new bull market – right? Not quite. By December 16, 1930, the Dow turned around again and dropped 46%. But wait, just 70 days later, the Dow was up 23%. Hold on, 98 days later, it was down 37%. But don't despair, 31 days later it was up 28%. Dizzy yet? Ninety-four days later, it was down 44%. We're far from done, though. Just 35 days later, the Dow was up 35%. And 57 days after that, it was down 39%. No need to worry, though, because 63 days later, it was up 25%. Oops, 122 days later, it was down a whopping 54%. Then we received a huge turnaround. Just 61 days later, the Dow was up 94%. At this point, it's now September 7, 1932, and after all these pops and drops, the Dow is down 79% from its September 3, 1929, all-time high. To prevent boring you with more numbers, over the next two years, the Dow experienced five more swings of 20% or more. Whew! As you may have concluded from just looking at the large number of 20% moves up and down during the Great Depression, there were many head fakes interspersed with substantial rallies. So, back to the question at hand, how do you determine the difference between a bear market rally and the start of a new bull market? Answer: you can't in real-time; instead, you have to wait until substantial time has passed and you can place the market’s moves in historical context. Weekly Focus – Think About It "As your faith is strengthened you will find that there is no longer the need to have a sense of control, that things will flow as they will, and that you will flow with them, to your great delight and benefit." -- Emmanuel Teney

Mar 10, 2008 Weekly Commentary

The Markets The American dream of home ownership is causing some people a lot of nightmares. Stocks took it on the chin again last week as weak housing and credit data helped keep investors in the doldrums. According to data from the Mortgage Bankers Association (MBA) as reported on March 6th by MarketWatch.com, �The rate of mortgages entering foreclosure was at its highest level in the history of the MBA's quarterly national delinquency survey and the percent of loans somewhere in the foreclosure process also hit its highest level.� While homeowners are having trouble making payments, so are the mortgage lenders. Various mortgage companies made headlines last week when they were unable to meet margin calls and that spooked Wall Street. Declining home prices also helped contribute to the fact that, �Last year marked the first time American homeowners, in the aggregate, owned less than half the value of their houses. Their share of home equity -- the market value of a home minus the size of its mortgage -- dropped to 47.9% in the final three months of 2007,� according to data from the Federal Reserve, as reported by The Wall Street Journal on March 7th. By contrast, home equity was more than 80% in 1945. The weak housing market is proving painful to the stock market. And while the Federal Reserve is using its various levers to try to pull the industry out of its slump and add liquidity to the credit markets, it may be a long and winding road before we can take a victory lap. DATELINE MARCH 10, 2000. DO YOU REMEMBER THAT DAY? It was a giddy time in the stock market as that was the day the NASDAQ Composite Index closed at an all-time record high of 5,048.62, according to Yahoo! Finance. To show you just how euphoric that time was, the NASDAQ Composite Index rose at a phenomenal average annualized rate of 44.5% for the preceding five years ending March 10, 2000, according to data from Yahoo! Finance. But, then the bubble burst and the NASDAQ Composite Index began a severe decline. Now let�s fast forward to last Friday, which is eight years later, and we see that the NASDAQ Composite Index is still 56% below its all-time high, according to Yahoo! Finance. Ouch! Aren�t stocks supposed to go up in the long term? Isn�t eight years long enough to recover from a bear market? Those are two good questions and we�ll try to answer them. Yes, historically, stocks have risen in the long term in the United States. According to AIM Investments, the S&P 500 Index (generally considered a broad measure of the U.S. stock market) rose at an average annualized rate of 10.4% between 1926 and 2007. While that�s the average annual total return over a long period, the actual return in any given year could be much different. Stock market returns are generally quite �lumpy.� For example, the S&P 500 rose 37% in 1995 and declined 26% in 1974, according to AIM Investments. While the NASDAQ Composite Index is still down 56% from its March 10, 2000, close, the S&P 500 is actually down �only� 7% from its March 10, 2000, close, according to Yahoo! Finance (although the S&P 500 did hit a new all-time high back on October 9, 2007). Why the big gap? Part of the reason is diversification. Even though the NASDAQ Composite Index contains more than 3,000 securities, many of them are technology related, don�t pay dividends and, on average, they are smaller companies compared to the S&P 500 Index. You see, diversification is not simply achieved by the number of stocks you own, it�s achieved by owning an array of securities with different risk and return profiles that respond differently to economic circumstances. So to answer the first question, yes, stocks have historically gone up, but we need to make sure that we own well diversified portfolios. Concerning the second question, under �normal� circumstances, we would expect eight years to be long enough to get back to even from a bear market. For example, according to a March 7th article by Mark Hulbert at MarketWatch.com, it took about four years for the DJ Wilshire 5000 Index (the broadest index for the U.S. stock market) to reach an all-time high after touching its 2000-2002 bear market low set on October 9, 2002. Hulbert also pointed out that it took only 17 months for the DJ Wilshire 5000 Index to regain its all-time high after the October 1987 stock market crash. So, what�s the problem with the NASDAQ Composite Index? Why is it still so far off its all-time high? In a word � diversification (or more accurately � lack thereof). Generally speaking, the NASDAQ Composite Index is not a well-diversified, broad-based index. It�s heavily weighted toward technology stocks and many of those stocks are still struggling to regain their former, late 1990s glory days. The bottom line is diversification is critical to successful investing. But, not just any old diversification; it has to be intelligent diversification with a variety of asset classes that are carefully constructed. The good news about investing today is that we have a broader range of investment vehicles and asset classes to choose from compared to a few years ago. While no guarantee against loss, we try to build intelligent diversification into our clients� portfolios to help minimize the pain when financial markets are in disarray .. as they seem to be now. Weekly Focus � Reach Out and Call Someone Okay, do you remember what you were doing on March 7, 1876? Not likely! Well, that was the day 29-year old Alexander Graham Bell received a patent for the telephone. Can you imagine going a day without using the phone? As a random act of kindness, why don�t you pick up the phone today and call someone and let them know how much you appreciate them.

Mar 09, 2009 Weekly Commentary

The Markets As it relates to the financial markets, essentially the only positive thing we can say about last week is that it ended. The relentless decline in the stock market continued as investors focused on declining earnings, declining jobs, and lingering unhappiness with some of the administration's proposed economic plans. Talk of limiting some deductions for wealthy taxpayers and a cap-and-trade system on greenhouse gas emissions, in particular, seemed to spook investors. Of course, this year's projected $1.75 trillion deficit doesn't help matters, either. The Dow Jones Industrial Average touched a 12-year low last week, and that's only the third time it's ever happened, according to a MarketWatch article, which cited a J.P. Morgan Chase analyst report. The first time a 12-year low occurred was on April 8, 1932 and the second time was December 6, 1974. MarketWatch pointed out that, "In 1932, the April 8 crossing of a 12-year-old low came three months before the market hit its bottom, while, 42 years later, the December 6 breach marked the exact 1974 low." The good news is, one year after the December 6, 1974 low, the Dow was 42 % higher, according to data from Yahoo! Finance. We would certainly welcome a repeat of that performance! The Dow has now dropped more than 50 % since its all-time high of 14,164 in October 2007, according to Bloomberg. Clearly, this is not your typical bear market. Please be assured that we are monitoring the situation very closely and we are doing our best to opportunistically take advantage of whatever this market throws at us. AS AN ADVISOR, one of the earliest lessons you learn is that historically, over a long period of time, stocks have outperformed bonds. For example, from 1926 – 2007, stocks had an average annual total return of 10.4 %, while bonds had an average annual total return of 5.5 %, according to The Vanguard Group. As you can see, stocks significantly outperformed bonds during this long period. However, over the last 30 years, the situation reversed. According to a March 6, Bloomberg story, the cumulative total return of bonds over the past 30 years was 1,479 %, while the total return for stocks was a bit lower at 1,265 %. This switch of bonds outperforming stocks over the past 30 years occurred because of the tremendous drop in stocks since October 2007. To confuse things, if we took this measurement at the stock market peak in October 2007, it shows stocks returning 2,845 % and bonds returning 1,156 % since 1979. A bear market sure makes a big difference. The point we want to make is that diversification, while not guaranteeing a profit or protecting against loss, is a prudent strategy. Stocks may outperform bonds in the very long term, but in the short term—which in this case is 30 years—bonds may outperform stocks. It makes sense to own both because you never know when one will outperform the other. It's also worth pointing out that there are very few "absolutes" in the investing business. When we have big declines like we've witnessed over the past year, it causes investors to reexamine long-held beliefs about how markets work. This is actually healthy because it forces you to continually upgrade your belief system based on new information. Investors who don't adapt may face major problems. Weekly Focus – Daylight Saving Time While it's debatable how much energy is saved by implementing daylight saving time (DST), it's not debatable that DST has an effect on health. A Finnish study last year concluded that DST can disturb people's sleeping patterns and make them more restless at night. Another study published last year found a spike in heart attacks during the first week of DST. The study also concluded that there's a brief, slight dip in heart attacks when DST ends in the fall. Apparently, the human body does not like a disruption in its sleep pattern.

Mar 03, 2008 Weekly Commentary

The Markets "It is not what is in the news today, it is what is already in the price that matters." Unfortunately, that insightful comment from the March 3rd issue of Barrons magazine leaves unanswered just how much of the current bad news is already priced in the market. Last week's news was not pretty, yet the markets, while down, did not reach panic mode. For the most part, investors seem to realize that the economy has issues and corporate earnings growth is likely to slow down. The fact that stock prices are down this year seems to reflect that understanding. However, going forward, for stock prices to move dramatically to the upside or downside, there would likely need to be a mass shift from the current expectations built into the markets. The only problem is, nobody can predict a) how much bad news is already �built� into the market, and b) whether the next market moving news will be positive or negative. The Federal Reserve seems intent on keeping interest rates low at the possible expense of inflation, according to Fed Chairman Ben Bernanke in testimony to Congress last week. That stance has potential positive and negative ramifications. If he overshoots and rates go too low, that may cause inflation to ramp up and the dollar to keep declining. On the positive side, if he strikes the right balance, it may prevent a deep recession. Investors are not shy in voicing their opinions. Some say Bernanke is nuts and is dropping rates too much while others say he�s on the right track. As long as investors hold opposing opinions, that�s a good thing because it may prevent markets from spinning out of control. If everybody decided at the same time that the markets were under pricing the economic slowdown, then we may have a problem as everybody rushes for the exits. However, we don�t anticipate that happening as there always seems to be investors who are willing to step in and buy when they smell bargains. WHEN IT COMES TO FINANCIAL MATTERS, the adult children of baby boomers defy the traditional Gen-X �slacker� stereotype. According to the �Ameriprise Financial Money Across Generations� study, adult children of boomers are fixated on finances. In fact, 87% of the adult children of boomers said it is very important to them to assure a financially secure life. Other goals: Seventy-two percent of adult children of boomers said it is very important to them to substantially help their children or grandchildren pay for education (compared to 50% of boomers and 38% of boomers� parents). Also, compared to their parents, twice as many adult children of boomers (60%) said that it is very important to them to preserve wealth to leave to their children. In other insights, the study disproved Gen-X�s spendthrift reputation. For example, illustrating frugality in a difficult market, the adult children of boomers expressed the lowest level of confidence that now is a good time to make major purchases. More than one third (36%) said �now is a good time to wait� before buying, compared to 28% of both boomers and parents of boomers. What�s more, the adult children of boomers were the most likely to strongly agree with the statement, �I don't like to be in debt at any time� (80% compared to 68% of baby boomers). However, the survey also found Gen-Xers were not confident in their own money management skills. When asked, �Do you think your generation, your parents� generation, or your grandparents� generation has the best money management skills?,� only 15% of the adult children of boomers said their own generation. Almost a third (31%) of Gen-Xers said their parents� generation had the best money management skills, and 53% said the boomers� parents� generation is the best at handling money. In spite of their perceived lack of money skills, the adult children of boomers are the most optimistic generation about their financial futures. Forty-six percent of the adult children of boomers said they are very optimistic about their personal financial future, compared to 39% of boomers and 28% of the boomers� parents� generation. Additionally, 48% of the adult children of boomers said they are very confident in their ability to reach all of their financial goals over time, while only 36% of boomers and 34% of boomers� parents indicated they feel the same way. This may be an interesting launching pad to talk to your adult children about money. Weekly Focus � Favorite Movies What is your favorite movie of all time? Here�s how American adults responded to a February 21, 2008, Harris survey: 1. Gone with the Wind 2. Star Wars 3. Casablanca 4. Lord of the Rings 5. The Sound of Music 6. Wizard of Oz 7. The Notebook 8. Forrest Gump 9. The Princess Bride* 10. The Godfather* *Indicates a tie.

Mar 02, 2009 Weekly Commentary

The Markets "History does not repeat itself exactly, but behavior does," according to legendary Wall Street veteran Bob Farrell. Institutional Investor magazine ranked Farrell the number one market analyst for 16 years. Elaborating on Farrell's quote, the economy is going through another one of its periodic recessions, but this recession is not exactly the same as the last few. Some economists are likening it to The Great Depression, not so much in magnitude, but rather, in terms of its structural characteristics. While it's always dangerous to use the phrase, "this time is different," to justify an investment stance or economic view that is wildly out of kilter with historical perspective (e.g., buying tech stocks in late 1999), there is usually something different every time we have an unusual market event or an economic crunch. Being able to discern what's truly different from what's merely an excuse for inappropriate decision-making takes skill and helps separate good investors from great investors. So, while we can't count on history repeating itself exactly, Farrell says we can at least count on human behavior remaining the same. And, that makes sense. For example, how easy would it be to change your emotions such as fear, anxiety, greed, desire, hope, or regret? By knowing that behavior doesn't really change, it's understandable that we see investors make the same emotion-based mistakes during this bear market as they did in previous bear markets. How do we overcome this tendency? For starters, be aware that your emotions can block your ability to make reasoned, rationale decisions. With this new awareness, you can process your emotions, separate the "good" information they're telling you from the "bad," and, then, make a more informed investment decision. As your advisor, we do our best to keep our emotions in check and not let them cloud the decisions we make on your behalf. IT'S IRONIC that the information and wisdom that’s necessary to help one be a successful investor is so freely available, yet so few people actually use it. One reason why is that during difficult times, those pesky emotions cloud our judgment. As an example of some great investment wisdom that's freely available, a June 2008 MarketWatch article published the following 10 investment rules developed by Bob Farrell over his many decades in the investment business: 1. Markets tend to return to the mean over time. 2. Excesses in one direction will lead to an opposite excess in the other direction. 3. There are no new eras – excesses are never permanent. 4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. 5. The public buys the most at the top and the least at the bottom. 6. Fear and greed are stronger than long-term resolve. 7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. 8. Bear markets have three stages: sharp down, reflexive rebound, and a drawn-out fundamental downtrend. 9. When all the experts and forecasts agree, something else is going to happen. 10. Bull markets are more fun than bear markets. These are good rules to remember especially during these tumultuous times. Weekly Focus – Think About It "When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion." -- Dale Carnegie

Jun 30, 2008 Weekly Commentary

We are excited to announce that our office has relocated to 580 N. Western Avenue in downtown Lake Forest. Please make a note of our new location for your future mailings. For your convenience, all of our other contact information (phone, email and fax) will remain unchanged. We are excited about our move to Lake Forest's Business District. Our new office will provide us with additional space to support our continued growth while maintaining our warm, intimate atmosphere. Thank you for your continued confidence, trust and support. We look forward to seeing you at our new office in the near future. The Markets The stock market and life seem to have at least one thing in common. Both go through transitions over time. As we age, we move from one stage of life to another such as from infancy, to childhood, to adolescence, to young adulthood, to middle age, and then to senior adulthood. How well we manage these life transitions goes a long way toward our success and fulfillment in life. The stock market is no different as it is in the midst of a wrenching transition. How we deal with this transition�both proactively and reactively�will help determine your ultimate financial results. It�s always dangerous to say �this time is different,� but, the reality is, each time the market experiences difficulty, there�s a unique set of circumstances that leads to the difficulties. In our present situation, unusually low interest rates and easy credit terms in the early to mid-2000s led to an unsustainable speculative housing boom that is now painfully unwinding. The low interest rates also drove down the value of the dollar and that helped cause commodity prices to soar and inflation to rise. The net result is consumers are hurting, corporate earnings growth is slowing, and the stock market is correcting. To deal with this transition, here�s the process we�re following: � First, we�re analyzing the root causes of the problem. � Second, based on our understanding of the causes, we�re developing a working thesis for who we believe will be the winners and losers in this environment. � Third, we�re adjusting our clients� portfolios to try to take advantage of asset classes that may benefit from the current environment and to avoid the asset classes that may be hurt. � Fourth, we remain ever vigilant in incorporating new data into our working thesis and making adjustments that we deem appropriate. Despite our best efforts, there will likely be bumps along the way. As of last week, the decline in the Dow Jones Industrial Average brought it within a whisker of the traditional definition of a bear market, according to Barron�s. In markets like this, there are few places to hide. Over time, we expect the economy and the financial markets to find some stability. Once that happens, the stock market may turn up again and we�ll do our best to take full advantage of it. SINCE WE�RE NEARING BEAR MARKET TERRITORY, it makes sense to review what a bear market is and to discuss what has been done from an historical perspective. While there�s no standard definition of a bear market, The Vanguard Group says one common definition is a decline of 20% or more over at least a two-month period. Using that definition, Vanguard says we�ve had 10 bear markets in the U.S. over the past 50 years. Here are some statistics on what the last 10 looked like (all data is based on the S&P 500 Index): Shortest duration � 2.9 months from July 1990 to October 1990 � Longest duration � 30.5 months from March 2000 to October 2002 � Average duration � 14.1 months � Smallest decline � 19.9% from July 1990 to October 1990 (while this is less than 20%, Vanguard included it in the list) � Largest decline � 49.1% from March 2000 to October 2002 � Average decline � 30.4% � If the current correction should turn into an �official� bear market, the above figures may help us keep perspective on the decline. Since the S&P 500 hit its all-time record high back in October 2007, we would already be eight months into the new bear market should the S&P 500 cross that 20% threshold in the next few days. Of course, we have to let you know that past performance is no guarantee of future results. Markets will do what they want and they don�t necessarily have to follow a script from the past. With that said, it�s important to understand the past. From the above data, here are several key points we�d like you to keep in mind: First, bear markets are normal. Over the past 50 years, we�ve had 10 of them � that�s an average of one every five years. � � Second, the last bear market ended in October 2002, which is more than five years ago. If we enter a new bear market now, that would be in line with the historical average. � Third, every bear market in the past eventually gave way to new record highs in the S&P 500, according to data from Vanguard and Yahoo! Finance. We have no reason to think this time will be different. Fourth, bear markets can be ugly. As equity investors, we may have to endure the pain of the occasional bear market in order to reap the potential long-term attractive returns offered by equity investing. � As always, we�re available if you have any questions. Weekly Focus � Think About It �I can't change the direction of the wind, but I can adjust my sails to always reach my destination.� -- Jimmy Dean

Jun 29, 2009 Weekly Commentary

The Markets Faith that the economy will get significantly better in the near future will soon need to be replaced by the proof that it is getting better or else we may end up with more market volatility. Back on March 9, the S&P 500 index hit a bear market low and investors were very nervous. But, then the stock market turned on a dime and proceeded to rise about 38% as of last Friday. Analysts began to identify "green shoots" in the economy that suggested the recession was ebbing and that helped justify the swift market rise. However, the green shoots are starting to lose their ability to propel the market higher as the S&P 500 is now back to where it traded in early May, according to data from Yahoo! Finance. To jumpstart the market, we may need to see additional evidence that the economy is on the mend. Second quarter earnings announcements will start arriving over the next few weeks and they may provide a catalyst to shake us out of the current trading range. Companies can boost their short-term earnings by cutting costs – which many of them have already done – but, eventually, they have to start growing revenue to maintain momentum. The upcoming earnings might be our first sign of corporate America's ability to show decent revenue growth after the depths of the recession. If the numbers fall short, then investors' recent faith may have been premature and that could cause some market heartburn. If the numbers look good, then the faith may have been justified and that could be good news for stock prices. So, let's just say it's show and tell time for the economy and corporate America! THE WILD SWING IN THE PRICE OF OIL OVER THE PAST YEAR is one example of how the financial markets tend to move from one extreme to another. Back in July 2008, oil soared to $145 per barrel on the idea that the world was running out of oil and that emerging markets like China, Brazil, and India would keep demand high. Then the reality of the recession hit hard and oil prices promptly nose dived. Prices bottomed-out near $33 in December 2008 which represented a decline of more than 75%. But, the low prices did not last long. As of last Friday, oil prices closed at just over $69 per barrel. That's a rise of more than 100% since last December's low. So, here's the recap. Prices soared to $145 per barrel last July, then plunged to $33 per barrel in December, then more than doubled to $69 per barrel last week. And guess what? During that time, there was no major supply disruption or geopolitical event. This is a great example of how the complex interplay of speculation, fear, and greed combine to generate dramatic volatility in the financial markets. Sometimes huge moves like this can be explained by outside events. Other times, they seem to make no sense whatsoever. Yet whether they make sense or not, we do our best to try to be on the "right"” side of the move. Weekly Focus – Think About It "In a world filled with hate, we must still dare to hope. In a world filled with anger, we must still dare to comfort. In a world filled with despair, we must still dare to dream. And, in a world filled with distrust, we must still dare to believe." -- Michael Jackson

Jun 23, 2008 Weekly Commentary

The Markets The three Cs - credit, crude, and consumers - are still impacting the direction of the financial markets. Just when you think the credit markets have reached bottom, another multi-billion dollar write-down seems to pop up. Last week, Citigroup warned that it may take additional markdowns on its subprime portfolio when it announces second quarter earnings in July, according to TheStreet.com. In the first quarter, Citigroup took about $12 billion in pretax write-downs and investors had hoped that would be the end of it. In addition to Citigroup�s problems, two bond insurers lost their Moody�s �AAA� rating and regional bank Fifth Third Bancorp said it needs to raise $2 billion in capital to help stabilize its financial position, according to Associated Press. Until the financial sector stabilizes, it may be difficult for the stock market to find its footing. Crude oil prices continued to grab headlines last week as the price of a barrel of crude closed near $135 per barrel, according to MarketWatch. News of supply disruptions in Nigeria and tough talk between Israel and Iran helped keep prices high. Gas prices are also uncomfortably high as they averaged $4.13 per gallon as of June 16. A year ago, the average nationwide gas price was $3.06 per gallon. No doubt many Americans are reevaluating their travel plans for the summer. Consumers are a wildcard and in this tough environment, the question is, how much will they pullback their spending? If they cutback significantly, that may ripple through the economy and send us into a significant recession. So far, that does not appear to be happening. Consumers may not be as flush as they were a year or two ago, but their spending hasn�t fallen off a cliff. We will continue to monitor the three Cs and make opportunistic portfolio adjustments as appropriate. In the meantime, as the old saying goes, �Patience is a virtue.� We believe that is true when it comes to investing and we believe that our patience will be rewarded. WE ALL KNOW THAT OIL PRICES HAVE RISEN DRAMATICALLY over the past few years, but a recent June 12 research piece from Bespoke Investment Group put it in perspective. The article pointed out that the price of a barrel of oil has risen by 730% from November 19, 2001, to its recent record close on June 6 of about $139 per barrel. By comparison, that looks eerily similar to the NASDAQ Composite Index�s rise of 640% between June 24, 1994, and its record high of 5048 on March 10, 2000. So what happened to the NASDAQ in the years following its 640% rise? It plunged by 78% in less than three years, according to Bespoke. In fact, the NASDAQ still has not surpassed its 2000 high. The big question is, will oil prices follow a similar pattern and drop precipitously? There are heated opinions on both sides of that question. Some people believe that we�ve entered a �new era� in which strong demand from countries such as China and India will outstrip the supply of oil and thus, create a long-term energy problem that will result in high oil prices. Others believe oil prices are in bubble territory and that they�ll eventually �pop� when demand slows and alternative energy sources are developed. One thing we can say with some confidence is that asset prices sometimes reflect human emotions. There seems to be a little bit of fear and greed in all of us and occasionally, it manifests itself in asset prices that go from one extreme to another. We�ve seen it in the NASDAQ. We�ve seen it in the housing market. And, now we�re seeing it in the oil market. Just how high energy prices will rise and how far they�ll fall is anybody�s guess. Fortunately, we�re not in the business of guessing. Instead, we�re in the business of helping grow and protect our clients� assets. To that end, we�re doing everything we can to help you benefit regardless of what happens to the cost of energy. Weekly Focus � Do You Agree With This List? What are the technologies that have changed our life the most? Here�s LiveScience.com�s list of the top 10 disruptive technologies: 10. Magnetic strip card 9. Gun powder 8. Iron smelting 7. Rubber 6. X-rays 5. Microprocessor 4. Electricity 3. Nuclear fission 2. Flight 1. Internet Would your list be any different?

Jun 22, 2009 Weekly Commentary

The Markets Popular wisdom about life says, "It's the journey, not the destination." In successful long-term investing, it's just the opposite. The financial markets contain short-term traders and long-term investors. Short-term traders focus on the day-to-day journey, not the destination. To them, it's all about making money in a quick trade. Long-term investors keep their sights firmly fixed on the destination. They understand that month-to-month fluctuations are normal and expected. Rather than selling during a brief period of turbulence, long-term investors tend to ride out the storm and wait for better weather to return. Interestingly, traders and investors work synergistically in order to create opportunities for the other to make profits. Here’s how. Since traders are short-term focused, they tend to buy and sell frequently. If a large group of traders decides to sell at about the same time, we may end up with a bear market low similar to what we just experienced leading up to March 9, 2009. That type of selling could create an opportunity for longer-term investors to swoop in and buy the potential “bargains.” As the longer-term investors step in to buy, that may lift prices and pull the traders back into the game. Conversely, if traders end up pushing prices to the stratosphere, that may persuade longer-term investors to take some profits, which could push prices down and give the traders an opportunity to profit again by shorting the market. The cycle then starts all over again. Of course, neither traders nor long-term investors can perfectly time their buys and sells. The point is simply that the markets can accommodate both. And the fact that the various market participants have different time horizons helps create profit opportunities for each of them. WILLIAM SHAKESPEARE WROTE, “Neither a borrower nor a lender be.” Money manager Doug Kass took some liberty and used Shakespeare’s cadence to state a new phrase, “Neither a bull nor a bear be.” As a financial advisor, we spend time doing research so we can be as prepared as possible to do a good job managing your financial situation. As part of this research, it’s easy to start forming an opinion about whether we are in a bull market or a bear market. However, having a stubbornly strong bullish or bearish opinion may actually be detrimental to successful investment management. There are two potential problems with taking a strong bullish or bearish stance. First, when you take a strong stand like that, you tend to seek out evidence that corroborates your bias and then discount contrary evidence until it’s too late. For example, if we were really bearish, it’s human nature that the headlines that scream, “S&P 500 Heading to 600” would draw our attention. By reading those stories, it would make us feel good and help “convince” us that our position was “correct.” Bullish stories would get scant attention since they didn’t fit with our pre-existing bias. A second problem with taking a strong stance is your bias could turn out to be wrong. By taking a strong stand, you are effectively trying to predict the future, which is no easy task. If your bias is wrong, stubbornly sticking to an incorrect viewpoint could be very costly as the market runs in the other direction and you are left behind. Is there a better way? Try being a realist. Realists keep an open mind. They may have an opinion about the future but they are not wedded to it if new information suggests something is changing. Instead of trying to predict the future, realists analyze new information as it arrives based on its merits. Instead of just reading stories that support their bias, realists read various viewpoints and get a more balanced view. Ultimately, realists are willing to embrace change as appropriate rather than waste precious time and energy defending a “known” that may no longer be relevant. To summarize, “Let’s be real!” Weekly Focus – Think About It “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” -- William Arthur Ward

Jun 16, 2008 Weekly Commentary

The Markets There was lots of gurgling beneath the surface, but by the end of last week, the Dow Jones Industrial Average eked out a welcome gain. Helping the cause was a report from the Commerce Department, which showed a 1% increase in retail spending in May. It was the fastest increase in six months and due, in part, to consumers trading their stimulus checks for tangible goods. Ironically, in a June 13 article, Reuters reported that the Reuters/University of Michigan survey of consumer confidence dropped to 56.7 in early June, which was a 28-year low. Apparently, consumers tried to shake off their gloom by engaging in one of their favorite activities�shopping. Inflation concerns plagued the bond market last week as the yield on the 2-year Treasury note climbed 60 basis points. That was the largest weekly gain in nearly seven years, according to MarketWatch. Also, according to MarketWatch, yields rose as investors became more convinced that the Federal Reserve may raise interest rates later this year to help combat rising inflation. On the positive side, higher interest rates may cool inflation and help strengthen the dollar, but it could put a damper on a housing recovery. Like just about everything the Federal Reserve does, there�s a tradeoff. A barrel of oil closed last week at about $135, down from a record high of about $139 per barrel on June 6, according to Bloomberg. Airlines, of course, have been hard hit by this rise in energy prices and now some people are calling for the industry to be re-regulated. Bob Crandall, the former CEO of American Airlines, said in a June 10 speech, �Our airlines, once world leaders, are now laggards in every category, including fleet age, service quality, and international reputation.� He said, �a dollop of regulation, along with new government policies and appropriate investment, would help the carriers get back on the right track.� The airline industry was deregulated back in 1978 and according Portfolio.com on June 12, the industry has a net loss of more than $13 billion since that time. The stock prices of some of the major airlines also reflect the dire state of the industry. United, Northwest, Delta, and American all closed at less than $7 per share as of the end of last week, according to Yahoo! Finance. The high cost of energy is creating winners and losers in the stock market. Airlines have been one of the losers. We continue to work hard on your behalf to try to find the winners. IF ATTENDEES of the Federal Reserve Bank of Boston's 52nd Annual Economic Conference held last week in Chatham, Massachusetts, were looking for an inflation sound bite in Federal Reserve Chairman Ben Bernanke�s speech, it�s likely they settled on: �The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an un-anchoring of those expectations would be destabilizing for growth, as well as for inflation.� What the heck does that mean? The Chairman may be setting the stage for an increase in interest rates. Some Fed observers believe we�ve reached the end of the rate-cutting cycle. Yet, Bernanke finds himself in the quintessential Catch 22. Drop rates lower and he delivers another blow to the plummeting global value of the U.S. dollar and opens the door for inflation here at home. Yet, can the weakened U.S. economy grow if he decides to let rates stay put? Bernanke�s speech may signal that inflation worries have begun to offset concerns on how to fuel economic growth. For the consumer, however, the Chairman�s take away message was: Inflation has remained high largely due to sharp increases in the prices of globally-traded commodities, and likely will be accelerated by the latest round of increases in energy prices. Yet, according to Bernanke, the Fed is paying close attention to the extent to which consumers believe prices will rise in the future. That is, if consumers, investors, and business owners become overly concerned about inflation, they might change their purchasing decisions in ways that aggravate inflation, turning their worries into a self-fulfilling prophecy. What does all the attention on inflation mean for the future of interest rates? Economic pros and cons aside, it�s a political factor that may impact the Chairman�s thinking most strongly. Americans head to the polls in November and, historically, Fed chairmen do not like to be seen as influencing the presidential elections. Accordingly, while interest rate increases could be on the horizon, they may not happen until after the new president takes office. Weekly Focus � Financial Capital of the World No, it�s not New York. According to the 2008 MasterCard Worldwide Centers of Commerce Index, London takes the top spot followed by New York, Tokyo, Singapore, and Chicago. Los Angeles slipped to #17 from #10 in 2007. Western Europe led the list regionally by claiming 10 of the top 25 cities. The cities were rated on the following seven key dimensions: legal and political framework, economic stability, ease of doing business, financial flow, business center, knowledge creation, and information flow.

Jun 15, 2009 Weekly Commentary

The Markets The stock market has been on a very nice run over the past three months and there's a divergence of opinion on what's behind it. Most analysts seem to agree on one point – we're out of the "end of the financial system" doomsday scenario. That alone could be a major reason for the big jump in equity prices since the March 9 low. From there, opinions vary. One camp says the "green shoots" are a clear sign that the economy has bottomed and that it's just a matter of time before we are back to steady growth. Supporting this view is the fact that copper, which is traditionally viewed as an early indicator of economic strength, has risen 82% from its December 2008 low of $1.30 per pound, according to data from Seeking Alpha and The Wall Street Journal. Analysts in this camp think, "Happy days are here again." Another camp thinks we're simply passing through the eye of the hurricane. They think this rally is a reprieve from the front end of the storm and that we'll get slapped hard again when we hit the other side of the eye wall. Folks in this group typically coalesce around the idea that government actions to stem the crisis will eventually make the situation worse, not better. A third camp is more middle-of-the-road. They think the rally we've seen is a normal reaction to panic selling in the first quarter and to the massive liquidity added to the financial system. Neither bullish nor bearish, they think we're in a broad trading range and don't expect new all-time highs or new cyclical lows anytime soon. Only time will tell which scenario comes to fruition. In the mean time, we continue to do our best to benefit from whatever the market has to offer us. IS IT NEWS OR NOISE? Theoretically, just about everything that happens in the world has the ability to move markets. For example, the discovery of a large oil field off the coast of Brazil could cause oil prices to drop due to an increase in supply. A late freeze in the Midwest could cause agricultural commodity prices to rise due to crop destruction. The announcement of a $587 billion fiscal stimulus package in China could send stocks soaring as investors speculate it will lead to worldwide growth. A flu epidemic could cause stock prices to drop as it may lead to fewer people traveling and shopping, which could cut corporate profits. The list is endless. But, here's one more potential market moving event that many investors have never heard of. It’s called the "200-day moving average." This is the average closing price of a security or index over the last 200 trading days. When updated daily and graphed, it creates a line that gives you a visual representation of the price trend. When the most current price breaks above this trend line, technical analysts view that as a bullish sign. When it breaks below, it's considered bearish. So, here's the news – or noise – as it relates to the 200-day moving average. On June 1, the S&P 500 index closed above its 200-day moving average for the first time in 523 days, according to Bloomberg. That was the longest stretch of trading below its 200-day moving average since, you guessed it, the Great Depression. Does this mean the market will continue to move up from here? The track record of the 200-day moving average is mixed. According to data from Bespoke Investment Group and Bloomberg, "The gauge rallied an average 21% over 12 months the last five times it crossed the 200-day mean after falling below it for a year or more." That sounds bullish until you realize that investors using the indicator were misled in January 2002. Back then, "when the S&P 500 rose past the 200-day average, ending a 463-day stretch below it, the index slumped 23% in the following year as investors speculated interest-rate cuts by the Fed wouldn't be enough to revive profit growth," according to Bloomberg. One of the fascinating things about investing is, what's noise to one person might be news to another and vice versa. Some investors put great weight on a breakout of the 200-day moving average, while other investors simply shrug their shoulders. This 200-day moving average tug-of-war between opposing viewpoints is a microscopic example of the nearly infinite number of opposing views that buffet the market everyday. This interplay of opinions makes a market between buyers and sellers – and it's healthy. Just like "Beauty is in the eye of the beholder," we can say, "News is in the eye of the investor." So, whether we’re talking news or noise, they each have the ability to move the markets. Weekly Focus – Think About It "The feeling of being hurried is not usually the result of living a full life and having no time. It is on the contrary born of a vague fear that we are wasting our life. When we do not do the one thing we ought to do, we have no time for anything else – we are the busiest people in the world." -- Eric Hoffer

Jun 09, 2008 Weekly Commentary

The Markets Big Brown laid a big goose egg on Saturday at the Belmont Stakes as did the stock market the day before. As the heavy favorite to win the Triple Crown, Big Brown proved once again that there are no sure things in racing. The stock market is no different. In recent weeks, as the stock market rallied from its mid-March lows, many pundits suggested the worst was over. While that may still be true, last Friday�s nearly 400-point drop in the Dow Jones Industrial Average reminded investors that things can change in a hurry. A weak employment report, another record surge in oil prices, and a weaker dollar all combined to send the domestic stock market last Friday to its worst daily loss in more than a year, according to Barron�s. The Labor Department said May payrolls fell by 49,000�a smaller decline than expected, according to a Bloomberg News survey�while the unemployment rate rose by 0.5% to 5.5%. The rise in the unemployment rate is worrisome, however, as reported by MarketWatch.com, and the Labor Department said the big jump may partially reflect �statistical distortion� caused by the difficulty of �seasonally adjusting� the numbers to reflect the big influx of students entering the job market this time of year. In other words, reality may not be as bad as the report suggests. While the stock market was down last week, the bond market was up. The yield on the 10-year Treasury declined from 4.05% on Friday, May 30, to 3.94% on Friday, June 6. Bond prices move inversely to a bond�s yield so that means the value of bonds went up last week, according to data from Yahoo! Finance. This is an example of how diversification may help temper volatile movements in the stock market. Thomas J. Lee, chief U.S. equity strategist at JPMorgan, took an optimistic view on the jump in unemployment. He said, �The Dow Industrials posted a 30% average gain in the 12 months following a jump in the unemployment rate by half a point or more since 1950,� according to Bloomberg. Let�s hope the current jump continues that positive 30% average gain. WHILE OVERALL DOMESTIC STOCK PRICES ARE DOWN OVER THE PAST YEAR, other various asset classes have performed well. With the low returns in the U.S., some investors have pulled money out of domestic stocks and put it to work elsewhere. This �money in motion� has helped prop up other asset classes. With so many investment choices these days, we�re not limited to just what�s happening in the domestic market. Frequently, even if the U.S. equity market is down, one or more other asset classes somewhere in the world is performing well. Because of globalization and innovation, it�s relatively easy for investors to move money from one asset class to another. Consequently, we can see big moves in the financial markets in short time periods as investors readjust their portfolios to try to take advantage of changing market conditions. As always, we remain on alert for the best investment opportunities and, as we deem appropriate, we�ll try to take advantage of them on your behalf. Weekly Focus � Do You Want to Live Longer and Healthier? If you answered �Yes� then, play more golf. Playing golf may reduce your death rate by 40%. A new study published in the Scandinavian Journal of Medicine & Science in Sports made that startling conclusion even after controlling for sex, age, and socioeconomic status. In more understandable terms, golf may add five years to your life expectancy, according to the study as reported by Bloomberg. And, if you�re a low handicap golfer, you�re even better protected, according to the study. So, if your loved one is complaining about you spending too much time on the links, just say, �Honey, I�m doing it for you so I can live longer and spend more time with you.� Yeah, right!

Jun 08, 2009 Weekly Commentary

The Markets This week marks the two-year anniversary of the financial meltdown. What lessons have we learned? On June 12, 2007, news broke that a 10-month old Bear Stearns hedge fund that speculated in mortgage-backed securities was melting down. The fund used leverage and bet heavily on bonds tied to subprime mortgages. As the market for subprime mortgages began to implode in early 2007, so did the Bear Stearns fund. This was the first major piece of information that all was not well in the land of finance, and, of course, you know what happened over the next two years. Interestingly, this news made major headlines at the time, yet the stock market continued to rise for four more months until the S&P 500 index hit its all-time high on October 9, 2007. Though the history books are still in process, here are a few meltdown lessons worth contemplating: • Market meltdowns don't happen all of a sudden – they leave clues. But, being able to accurately decipher those clues is very difficult. • Stock prices can rise much further and much longer than you ever expect. • Stock prices can fall much further and much longer than you ever expect. • When investors panic, fundamentals go out the window and securities may drop to levels that, in hindsight, appear to be ridiculously low. • When prices get ridiculously low, they can soar very quickly on a snapback rebound. For example, witness the nearly 40% rise in the S&P 500 index in the past three months. • The unimaginable can happen. For example, GM and Chrysler are in bankruptcy, Lehman Brothers and Bear Stearns are gone, the government owns AIG, Fannie and Freddie, and the government has spent trillions of dollars propping up the economy and the financial system. • No matter how dark and desperate it seems in the financial markets, the sun will still rise in the east, children will play in the park, and life will go on. As George Santayana wrote, "Those who do not learn from history are doomed to repeat it." We realize that history does not repeat itself exactly, but it is close enough that we do all we can to learn from it. SINCE WE ARE TALKING ABOUT HISTORY, let's go back to January 2008. If you recall, the economy was doing fine, the stock market was just coming off all-time record highs, and consumers were still spending freely. Few people had any inkling of what would transpire over the next 18 months... except for Gary Shilling, a longtime Wall Street economist and part-time beekeeper. In January 2008, Shilling recommended the following 13 "investment strategies" in his subscription-based newsletter Insights as reported on May 31, 2009, in New York Magazine: 1. Sell or sell short homebuilder stocks and bonds. 2. If you plan to sell your home, second home, or investment houses anytime soon, do so yesterday. 3. Sell short subprime mortgages. 4. Sell or sell short housing-related stocks. 5. Sell or sell short consumer discretionary-spending companies. 6. Sell low-grade fixed-income securities. 7. Sell or avoid most commercial real estate. 8. Short commodities. 9. Sell or sell short emerging-market equities. 10. Sell emerging country bonds. 11. Buy the dollar before long. 12. Sell or sell short U.S. stocks in general. 13. Buy long Treasury bonds. Amazingly, Shilling was 13 for 13. So what is he thinking now? Here are a few of his current thoughts according to the New York Magazine article, a recent interview with Bloomberg and an article in The Globe and Mail. • Consumers will start saving more and spending less, which will slow economic growth over the next 5-10 years. • Government involvement will slow us down further because of inefficiencies and protectionism. • The recession will last another year. • Housing prices will continue to drop. • Loan demand will be weak and lenders will be tight. • The biggest risk is deflation, not inflation. Shilling was right back in January 2008 and it's possible he could be right again this year. However, while it's worth listening to various points of view, we don't blindly follow any market forecaster because you never know ahead of time which of them will be accurate or when their forecasting skill will expire. Instead, we research, we monitor, and we make adjustments along the way. Ultimately, we use multiple sources, including our own experience, to do the best job we possibly can for you. Weekly Focus – Think About It "Fear not for the future, weep not for the past." --Percy Bysshe Shelley

Jun 02, 2008 Weekly Commentary

The Markets How do you succeed as an investor? According to legendary bond manager Bill Gross of PIMCO, "Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world." Essentially, Gross is saying, "find a trend and throw yourself in front of it." The trick is to spot the trend early then move out of it before it fades away or, worse yet, crashes. Over the past 10 years, we�ve seen a few trends. For example, we had the tech stock boom of the late 1990s, the real estate boom of the early 2000s, and, now, the commodities boom over the past couple years. The first two trends ended badly, while the jury is still out on how the commodities boom will end. As a financial advisor, we�re constantly scanning the horizon to try to identify trends and turning points in trends. When we identify a trend, we try to position your portfolio to take advantage of it. When we suspect a trend is starting to end, we try to adjust accordingly. Of course, no financial advisor will ever be 100% accurate, but, the good news is, we don�t have to be. You can still have a very successful financial result even with the occasional bad investment. The key is to construct a portfolio that is diversified and that offers a chance of at least several components going up in value at any given time. Innovation in the financial sector now allows us to invest in areas that previously were difficult to access. That�s good news because we now have more asset classes from which to choose. With greater choice, we have more opportunities to find an asset class that may be starting an upward trend. While the innovation is great, it does carry a price. Wall Street financial engineers got fancy and created sophisticated derivative products, such as collateralized debt obligations (CDOs), that are now coming back to haunt them. As a result, they discovered the hard way that if you don�t know what you�re doing, Wall Street can be an expensive place to learn. It may not feel like it, but the trend in the stock market is up. Since reaching a recent low of 1273 on March 10, the S&P 500 has risen to 1400 as of last Friday, according to data from Yahoo! Finance. That�s a gain of about 10% in less than three months. While impressive, we�re not getting complacent. Like an airplane flying at 35,000 feet, we could hit unexpected turbulence at any time so we�re trying to stay vigilant on your behalf. AS YOU WELL KNOW, GAS PRICES HAVE RISEN DRAMATICALLY LATELY. Where�s the cost increase coming from? In mid-May, crude oil, which accounts for 55% of the price of gasoline, surged to an all-time trading high of $135 a barrel. Accordingly, gasoline prices, which for months lagged the big run-up in oil, accelerated upward, fueled by the summer travel season. High gas prices are just the tip of the iceberg. The rising price of oil, up 25% in the first quarter of 2008, negatively impacts macroeconomic variables from real GDP growth, inflation, and employment to exports/imports and interest rates. In fact, the Energy Information Administration (EIA) estimates that every $10 per barrel increase in the price of oil will reduce U.S. GDP by approximately $6.9 to $13.8 billion in current dollars. What�s causing high oil prices? According to, High Oil Prices Have Significant Effects on Consumers and the U.S. Economy, published by Congress� Joint Economic Committee, rising oil prices are the result of �decisions made by OPEC and other oil-producing countries, stagnant production in Iraq, and ongoing concerns about political and supply stability in a number of oil-producing countries.� What�s more, since oil is denominated in U.S. dollars, the dollar�s 40% decline in the last six years has put additional upward pressure on oil prices. And, because oil prices are affected by oil futures which are traded on the commodities futures exchange, prices also have been driven up by the increased speculative buying by institutional investors from pension funds to university endowments that own the largest share of outstanding commodities futures contracts. Yet, the most significant, long-term factor driving oil prices higher may be the greatly increased demand for oil in developing countries such as China and India. While experts believe the combination of our nation�s increased energy efficiency and the changing composition of output means that the U.S. economy is less vulnerable to high oil prices than it was during the oil crisis of the 1970s, high prices still can have a negative impact on economic growth because of their effects on producer costs. For example, as the price of oil drives the cost of gasoline higher, transportation costs rise, increasing the prices of goods and services. If those costs can�t be passed along to the consumer, unemployment and subsequent decreases in production may result. As Raymond L. Orbach, Under Secretary for Science at the U.S. Department of Energy, noted in a recent keynote address, that because global energy consumption is expected to double, perhaps triple, by the end of the century, we should find ways to supply new energy. To adequately meet the energy demands of the future, Orbach says �transformational breakthroughs� are needed to provide a foundation for novel, alternative technologies. He believes major advances could be on the horizon because of the emergence of nanotechnology, which could lead to revolutionizing the way energy is used, stored, and transmitted. Just as the rise in oil prices in the 1970s led to significant breakthroughs in energy efficiency and alternative fuel production, so, too, will today�s oil spikes foster scientific exploration and innovation. In fact, because the supply and demand curve may drive prices higher throughout the 21st century, we likely will see significant developments in the field of alternative energy sources, many of them driven by the cyclical nature of the oil industry. Weekly Focus � �Staycation� Anyone? With high energy prices and people strapped for time, some folks are now opting for �staycations.� Instead of traveling to a far away destination, they�re opting to stay close to home. It could be as simple as spending a few days at home in the hammock or going to a local resort for a romantic escape. If you have any exciting �staycation� ideas, let us know!

Jun 01, 2009 Weekly Commentary

The Markets How do you spell higher stock market prices? J-O-B-S! We all know that stock prices generally reflect the underlying growth of earnings, but companies cannot grow much unless consumers have jobs that allow them to spend money on stuff created and delivered by companies. So, how do we stand on the metric of job creation? Unfortunately, it's ugly. Since the recession started in December 2007, our country has lost 5.7 million jobs, according to the Department of Labor. Economists surveyed by MarketWatch predict another 500,000 were lost in May 2009. If May comes in as projected, that would mean the number of employed Americans would be the same as it was in August 2000. In other words, we would have a net change of zero new jobs created in roughly the past nine years, according to MarketWatch. Is it any surprise that the major U.S. stock market indexes are lower now than they were nine years ago? When you put it in that perspective, the government's urgency to turbo-charge the economy and generate jobs makes more sense. The presently unanswerable question is, will the medicine to fix the economy in the short-term (e.g., massive budget deficits), stunt its growth in the long-term? Reasonable people can argue both sides of that presently unanswerable question, but based on the recent surge in the stock market, those who think we can handle the debt seem to have the upper hand. Sunk costs and mental accounting can be hazardous to your wealth. Let's pretend that you just arrived at a theater and as you reach into your pocket to pull out the $10 ticket that you purchased in advance, you discover that it's missing. Would you fork over another $10 to see the movie? Compare that to a second scenario in which you did not buy the ticket in advance, but when you arrive at the theater, you discover you lost a $10 bill. Would you still buy a movie ticket? In these two scenarios, you effectively lost $10, but here's where it gets interesting. Psychologists Amos Tversky and Daniel Kahneman of Princeton University conducted the above study in 1984. They discovered that only 46% of the study participants in scenario one said they would spend another $10 to buy another movie ticket. However, a whopping 88% of the subjects in scenario two said they would still spend $10 to buy a theater ticket. Here's what happened. More than half of the subjects in scenario one created a "mental account" for the theater ticket. They equated the $10 they spent on buying the ticket in advance with the additional $10 they would have to spend to replace that ticket and concluded that the theater ticket actually would cost them $20. Paying $20 for a $10 ticket was a non-starter for 54% of the study participants. Conversely, in scenario two, 88% of the study participants did not create a "mental account" that equated the $10 theater ticket with the $10 bill they lost on the way to the theater. But, as you can see, in both scenarios, the study participants still lost $10. So, are humans completely irrational? Sort of. The participants who lost the theater ticket succumbed to the "sunk cost" trap. They let the price they paid for the lost ticket affect their decision to buy a new ticket even though the two are technically unrelated. Investors frequently do the same thing. They buy a security, watch it go down, and then tell themselves, "as soon as it gets back to breakeven, I'll sell it." But, the fact is, a losing security is a sunk cost and there should be no commingled "mental accounting." Instead, each investment decision should stand on its own and be made based on the most current information. Remember, you don't have to recoup a loss in the same way that you generated it. Sometimes it's best to take a loss and move on to a more promising investment. Weekly Focus – Think About It "When you let go of trying to get more of what you don't really need, it frees up oceans of energy to make a difference with what you have. When you make a difference with what you have, it expands." --Lynne Twist

Jul 30, 2007 Market Commentary 7/30/07

The Markets Ping-pong anyone? The topsy-turvy market last week ended with major declines in the broad market averages. While the headlines looked scary, we have to keep in mind that the Dow Jones Industrial Average was coming off its all-time high set just the week before. Wall Street investors can be fickle! On the bright side, for the month of July, the Dow is only down 1.1% and for the year, it�s still up a respectable 6.4%, according to Yahoo! Finance. It�s no surprise that tightening credit conditions, housing worries and inconsistent corporate earnings from some blue chip companies were touted as last week�s scapegoats, according to MarketWatch. Of the three, tightening credit might be the most worrisome. The bull market that we�ve experienced the past few years was partially fed by low interest rates and easy access to credit, according to some analysts. As lending institutions become more stringent in loaning money, it could reduce liquidity and stifle the volume of corporate buyouts. Up to this point, corporate buyouts have been one source of support for the stock market and if that dries up, we may need to find another catalyst to pick up the slack. As in ping-pong, knowing the score during the game is important. However, what matters the most is the score at the end of the game and as long as you�re investing for the long term, then your game is still being played. And as your advisor, we continue to do our best to try to make sure the final score shows a �W� in your column. POTTERMANIA As the magic of Harry Potter reached its frenzied climax on Friday, July 20th, stock market investors were digesting another run in record territory. Since both the stock market and Pottermania reached new peaks in the last weeks, we thought it�d be fun to see how closely the Harry Potter books and the stock market performed over the course of those seven books. According to Amazon.com, the first Harry Potter book published in the United States was Harry Potter and the Sorcerer�s Stone, and it dates to September, 1998. Let�s just assume the book was released on September 1 so we can use the Dow Jones Industrial Average�s closing price of 7,539 on August 31 of that year as our starting point. Fast forward to Friday, July 20, and we see that the Dow closed at 13,851, according to Yahoo! Finance. Using our handy dandy HP 12c calculator, the Dow has compounded at an annual rate of approximately 7.1% over that nearly nine-year period, excluding reinvested dividends. So what can we say about a 7.1% average annual return before dividends? By comparison, for the 30 years ending August 31, 1998, the Dow rose at an annualized average rate of about 7.4% before dividends, according to data from Yahoo! Finance. The conclusion? The Dow had an average return while Harry Potter�s 9-year run, with 325 million books sold and billions in box office receipts, was extraordinary and unlikely to be repeated in our lifetime. Yes, the Potter saga is over but the stock market continues and as always, we will do our best to master it, while it does its best to beguile us. BOLSTERED BY A FEW MEGA-GIFTS FROM MAJOR FOUNDATIONS, U.S. charitable giving reached a record $295.02 billion in 2006, according to Giving USA 2007, the yearbook of philanthropy published by Giving USA Foundation�. Specifically, Americans gave an estimated $11.97 billion more than in 2005, a 4.2 percent increase (or 1.0 percent adjusted for inflation) over 2005�s $283.05 billion. This was the third straight year with an increase in giving. Richard T. Jolly, chair of Giving USA Foundation, notes that the increase in giving in 2006 is especially impressive given 2005�s previous record included nearly $7.4 billion in what he calls �extraordinary disaster relief giving.� Now, if you guessed the Oracle of Omaha was one of the mega-donors, you�re correct. According to Giving USA, Warren Buffett gave away $1.9 billion in 2006, the first installment on his 20-year pledge of more than $30 billion to four foundations. While gifts of Buffett�s magnitude garner a lot of attention in the press, according to George C. Ruotolo, Jr., CFRE, chair of Giving Institute: Leading Consultants to Non-Profits, parent organization of the Foundation, Buffett-sized gifts accounted for just 1.3 percent of total giving nationwide. In fact, according to Ruotolo, about 65% of families with incomes lower than $100,000 give to charity, a greater percentage, he says, than Americans who vote or read a Sunday newspaper. Collectively, these large and small gifts fund what Giving USA estimates to be America�s 1.4 million charitable and religious organizations. To ensure your own gifts have the maximum impact on causes you care about, we�d be happy to talk to you about planned giving. YOU�VE PROBABLY HEARD OF THE INVESTMENT MAXIM, �Invest in what you know.� You may even be able to attribute it correctly to Peter Lynch, the legendary investment manager at Fidelity Investments. While Lynch�s assertion that it�s important to understand what you invest in is true, a recent study published by the University of California, Berkeley�s Haas School of Business calls into question whether �local knowledge� benefits individual investors. That is, researchers set out to discover whether what investors believe to be superior information on local companies translates into superior investment performance. Analyzing almost 1 million transactions from more than 43,000 households, Haas Assistant Professor Mark Seasholes found that local stocks bought by individuals fail to outperform the stock market, suggesting that these investors had no superior information about the companies. Interestingly, the working paper �Individual Investors and Information Diffusion� that Seasholes co-authored with Ning Zhu of the University of California, Davis, also reveals that the typical individual�s portfolio holds roughly 30 percent in stocks of companies located within a 250-mile radius of his home. According to Seasholes, that represents a significant over-weighting of local holdings given that, on average, only 12 percent of companies on the stock market are headquartered within the same radius. Yet, local knowledge is a myth that may be difficult to debunk. Just think about how many corporate executives are overly invested in their company�s stock. Minimally, however, thinking about this behavioral aspect to investing can help encourage you to adopt a potentially beneficial broader worldview. Weekly Focus � Don�t Touch That Bird�Or Egg As a child, you likely heard someone tell you that if you touch a baby bird or a bird egg, its parents will abandon them. That�s an old myth, according to Frank B. Gill, former president of the American Ornithologists' Union as reported by Scientific American. So how did this myth get started? According to the article, �The myth derives from the belief that birds can detect human scent.� The fact is they can�t detect human scent. Like humans, birds are protective of their young so it takes much more than a simple touch by a human for them to give up. However, petting the youngsters or playing egg toss is still not advised! * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. * The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Consult your financial professional before making any investment decision. * Past performance does not guarantee future results. Securities offered through NorthStar Financial Partners- Member NASD/SIPC. Advisory Services offered through NorthStar Financial Partners-Registered Investment Advisor. Confidential, proprietary or time-sensitive communications should not be transmitted via the Internet, as there can be no assurance of actual or timely delivery, receipt and/or confidentiality. This is not an offer, or solicitation of any offer to buy or sell any security, investment or other product.

Jul 28, 2008 Weekly Commentary

The Markets Despite a 15.2% drop in the price of a barrel of oil last week, the stock market finished mixed as weak jobs and housing data took center stage, according to MSN Money. The Labor Department helped sour the market last Thursday by reporting another rise in first-time claims for state unemployment benefits. That kept fears of a slowing economy top of mind with investors. Shortly after that release, the National Association of Realtors delivered the dour news that sales of existing homes in the United States fell to a 10-year low in June. By the end of the day, the Dow Jones Industrial Average had lost 283 points. In order for this market to begin a sustained rally, we may need to see some stability in the housing market. Currently, falling home sales combined with decreasing home prices (a 15.3% decline for the 12 months ending April 2008, according to the S&P/Case-Shiller Home Price Index), is a not a good recipe for a bull market. When prices drop, that’s bad news for financial institutions because it may cause them to take write-offs and raise additional capital that may dilute existing shareholders. On top of the declining home sales and falling prices, mortgage rates hit their highest level in nearly a year last week, according to data from Freddie Mac. Thirty-year mortgage rates averaged 6.63% last week, which is a sharp increase of more than a third of a percentage point from the week before. Freddie Mac’s chief economist said rising inflation concerns and a greater probability that the Federal Reserve will start raising short-term interest rates later this year were factors in last week’s mortgage rate increase. The good news is the housing sector should eventually turn around. At some point, we expect the current glut of homes on the market to be chipped away and prices to firm. That will likely occur when the economy strengthens and jobs become plentiful again. While we don’t take any pleasure in weak financial markets, we try to make the best of the situation by acting on any opportunities that they may present. BRETT FAVRE’S ON AGAIN, OFF AGAIN RETIREMENT SAGA is causing heartbreak for many Green Bay Packers fans, but in his struggle, we can all learn an important lesson. As you may know, for several years, legendary quarterback Brett Favre wrestled with the issue of retiring. After last season, he finally decided to pull the plug and retire… or so we thought. Favre recently told the Packers he wants to play football again and, if it’s not with the Packers, then he’d like to be traded to a team of his choice. Ouch! Seeing Brett Favre suiting up in a non-Packers uniform would be just too much to bear for some fanatical cheeseheads. The Packers organization has said Favre can come back, but he would not begin the season as the number one quarterback. Here’s the key point in this drama that most of the media is missing – Brett Favre was totally unprepared for life after football. As the quintessential quarterback, Favre gave his heart and soul to the gridiron. Unfortunately, he didn’t prepare himself emotionally for the day when he’d have to hang up the cleats. Having enough money to retire with dignity is one thing, but having the emotional wherewithal to handle stepping out of the job, career, or calling that you’ve worked so hard at could be a completely different thing. If you’re nearing retirement, it’s time to ask yourself some tough questions. Here are a few to consider: How will you and your spouse interact now that you may be spending a lot more time together? Do you have a hobby to keep you busy in retirement? Do you want to find a part-time job in an area that you are passionate about? Do you want to volunteer and give back to your community? Do you want to travel more and, if so, where do you want to go? Will you relocate and, if so, where will you move to? How will you replace the intellectual stimulation and satisfaction you received from paid work? Some people are able to quit working and never look back. But, many people struggle with how to redefine their lives after their main working period ends. While athletes such as Brett Favre, Michael Jordan, and Joe Montana all publicly struggled with letting go of their athletic careers, the change can be just as tough for the unsung average American who worked hard for many years to be a good family provider. The key is to understand that with some thoughtful advance planning, retirement can be one of the happiest periods of your life. We’re here to help make that happen in any way we can. Weekly Focus – Retirement Thoughts Here are a few quotes about retirement that are worth pondering: “Retire from work, but not from life.” – M.K. Soni “Don't simply retire from something; have something to retire to.” – Harry Emerson Fosdick “A retired husband is often a wife's full-time job.” – Ella Harris “Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money.” – Jonathan Clements

Jul 21, 2008 Weekly Commentary

The Markets It was a market of extremes last week. First, the extreme bad news. On Tuesday, the Dow Jones Industrial Average closed below 10,000 for the first time in two years, according to Bloomberg. That same day, Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, lost more than a quarter of their market value, according to Bloomberg. Also, the S&P 500 Financials Index dropped 3%, closing at a level not seen since 1998 and capping its steepest-ever five-day retreat. And, to add insult to injury, Bloomberg reported that the global stock market decline has erased more than $13 trillion in market value since last October. Now, the good news—investors’ memories can be short! Starting on Wednesday of last week, the Dow rose a total of 4.9% over three days, which was its biggest three-day gain since March 2003, according to Barron’s. Better than expected earnings from Wells Fargo, JP Morgan, and Citigroup helped fuel the rally, according to MarketWatch. And, speaking of fuel, oil prices declined more than $16 per barrel last week and that helped give support to the markets, according to MarketWatch. The midweek rally was also boosted by news from the Securities and Exchange Commission on Tuesday that it was placing new temporary restrictions on short-selling the stock of 19 financial companies. This new rule is designed to relieve some of the downward pressure on companies such as Fannie Mae, Freddie Mac, Bank of America, Merrill Lynch, Citigroup, and Lehman Brothers, according to MarketWatch. This is not a recommendation to buy or sell any of these stocks, but it is worth noting that all 19 of the stocks on this list rose in value from Tuesday through the close of trading last Friday, according to the Wall Street Journal. When the dust settled last week, the Dow was up a much welcome 3.6%. With all the extreme action last week, it will be interesting to look back six months to a year from now and see if last week was a turning point or just another crazy week in this unpredictable market. SO WHAT ARE YOUR THOUGHTS on the concept of retirement? A recent study by Charles Schwab and AgeWave titled, “Rethinking Retirement: Four American Generations Share Their Views on Life’s Third Act,” reached the following conclusions: Fifty-two percent of respondents see retirement as an opportunity for a new, exciting chapter in life. Seventy-one percent of pre-retirees said they want to work in retirement and the most popular reason for working in retirement was to stay mentally active. Three in five said they would like to move to a completely different line of work when they retire. Slightly more than half of the respondents said they want to focus on their own needs and interests in retirement while 45% said they want to focus on giving back to family and community. Forty percent said they anticipate providing financial support to their parents at some point in the future and 25% think they’ll have to support a sibling. It appears that the very concept of retirement is changing. With people’s lifespan increasing, the idea of working for 40 years then retiring to golf and a rocking chair is pretty much gone. Today, many retirees are relatively young and in good health. Rather than relaxing, they want to pursue dormant passions and engage in more meaningful work—even if it means receiving little pay. Whether you’re approaching retirement or in retirement, we’re happy to talk to you about how to make your golden years truly “golden.” Weekly Focus – The Pursuit of Happiness The Declaration of Independence says the pursuit of happiness is an inalienable right. Well, the writers of that document are on to something. Science is now telling us that instead of our happiness being stuck at some inborn level, we can actually take actions that will positively affect our happiness level and keep it at a high level for a long time. In her new book, The How of Happiness: A Scientific Approach to Getting the Life You Want, professor Sonja Lyubomirsky says about 50% of our happiness is genetically set and 10% is based on our life circumstances. That means a significant 40% is up for grabs. All we have to do is adopt the behaviors of happy people. And, without further suspense, here are some of those behaviors: Practice gratitude Be optimistic Nurture relationships Commit to goals Develop coping strategies Learn to forgive Be physically active Happiness may take work, but the results will outweigh the effort.

Jul 14, 2008 Weekly Commentary

The Markets Investing can be a bit like the weather on Mount Rainier in June - very unpredictable. You could have a horrendous blizzard one day and then a glorious, warm sunny day the next. That just about sums up the recent action on Wall Street. The daily mood swings on Wall Street were evident last week as the Dow Jones Industrial Average closed down on Monday, then was up, down, up, down for the remaining four days of the week, according to Barron’s. In fact, for the 50 trading days ending July 8, the S&P 500 had 15 days when it went up only to be followed the next day by an even greater decline. That’s the highest number of times over a 50-day period that we’ve had “up one day and down even more the next day” since 1940, according to Bespoke Investment Group. It looks as though the blizzard is prevailing right now. No matter how you slice it, the overall performance of the broad market averages is weak. As of last Friday, all three of the domestic stock market indices listed in the chart below, were at least 20% below their all-time highs, according to Bloomberg. That’s the conventional definition of a bear market. Financial stocks once again took center stage last week as continued concerns about the health of banks, brokers, and Fannie Mae and Freddie Mac weighed on investors, according to Bloomberg. Of course, it didn’t help that crude oil and gasoline futures hit record highs last week and the dollar continued to drop in value against many major currencies. While the financial markets may look bleak at the present moment, we have to put emotion aside and look at this as an opportunity in the making. At the Berkshire Hathaway annual shareholder meeting this past May, Warren Buffet made a comment that bears repeating. As published in a July 12, Wall Street Journal article, he said, “If a stock [I own] goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.” Hmm. Maybe declining stock prices is not such a bad thing after all? Okay, so how is the current bear market an opportunity for us? Well, we have to carefully analyze the investment opportunities and then selectively make investments that we believe are poised for a turnaround. Eventually, this market should reverse course and start a new bull market and we’ll try to take advantage of that. SIR JOHN TEMPLETON, ONE OF THE GREATEST INVESTORS OF ALL TIME, and later in his life, a generous philanthropist, passed away last week at the age of 95. In honor of his passing, here are a few of his investing insights that we’ll remember long after he’s gone: • Be a contrarian. In a 1995 Forbes interview, Templeton said, “People are always asking me where the outlook is good, but that's the wrong question. The right question is: ‘Where is the outlook most miserable?’” He was a firm believer in investing at the point of “maximum pessimism.” An avowed value investor, Templeton liked to buy when everybody else was selling and sell when everybody else was buying. It was his way of “buying low and selling high.” • Don’t be afraid of big bets. When he felt confident, Templeton was not afraid to put a significant amount of his money in one area. For example, back in the 1960s, he was highly concentrated in Japanese companies because he felt they were extremely cheap. Of course, big bets can turn into big risks if you make a bad decision. Fortunately, for Templeton, his bad bets were few and far between. By buying stocks that were low priced and out of favor, he had a built-in “margin of safety.” • Don’t worry about the direction of the markets. According to a 1978 Forbes cover story, Templeton said, “I never ask if the market is going to go up or down because I don't know, and besides it doesn't matter. I search nation after nation for stocks, asking: ‘Where is the one that is lowest-priced in relation to what I believe it is worth?’ Forty years of experience have taught me you can make money without ever knowing which way the market is going.” For Templeton, it all boiled down to finding stocks that had value and could go up regardless of what is happening to the broad market. • Remain humble. From humble roots, Templeton never let success go to his head. He said, “An investor who has all the answers doesn't even understand all the questions. The wise investor recognizes that success is a process of continually seeking answers to new questions.” We’ll never bat 1,000%—nor do we have to. We do our best and then try to learn from our mistakes. • Don’t panic or be too negative. Templeton’s advice here is quite timely. He said, “There will, of course, be corrections, perhaps even crashes. But over time our studies indicate, stocks do go up and up. In this century or the next, it’s ‘buy low, sell high.’” Like wise grandparents, we can learn from our elders. Templeton is certainly one of the all-time greats and his words are worth listening to. Weekly Focus – Whom Do You Trust? Here’s a simple test to determine if you can trust someone. Ask them if they drink coffee. It turns out that the five countries whose citizens trust each other the most are also the five countries with the highest per capita coffee consumption, according to NationMaster.com. Is this a simple case of data mining or is there something special about coffee drinkers?

Jul 07, 2008 Weekly Commentary

The Markets With the second quarter in the history books, we'll take a brief look back at what affected the markets over the first half of this year. COMMODITY PRICES CONTINUED TO MAKE HEADLINES The unrelenting rise in oil prices continued in the second quarter as a barrel of crude rose 37.8% in the second quarter and nearly 46% so far this year, according to MarketWatch. Gas prices rose in tandem as the average U.S. retail price for a gallon of regular gasoline climbed to a record $4.086 on June 30, according to MarketWatch. The AAA Daily Fuel Gauge Report says that's a 40% increase from a year ago. Ouch! Precious metals were on a tear, too. Gold prices rose about 1% for the quarter and are up about 11% this year. Silver prices are up more than 17% this year while platinum is up more than 35%. Even copper prices are up more than 27% this year, according to MarketWatch. These steep increases have kept pressure on stock prices. INFLATION REMAINED TOP OF MIND WITH INVESTORS The consumer price index rose 4.2% for the 12 months ending May 2008, according to the Labor Department. That�s uncomfortably above the Federal Reserve�s presumed comfort zone of 1-2%, according to Pacific Investment Management Company (PIMCO). Of course, rising commodity prices are a big factor in the inflation number. The Federal Reserve is in a tight spot because under normal circumstances, they might raise interest rates to help squash inflation. Unfortunately, we�re in the midst of an economic slowdown with tight credit conditions, so raising interest rates would run the risk of throwing the economy into even greater turmoil. The Fed seems to be trying to walk a fine line between keeping rates low to help the economy, but not too low that it fosters out of control inflation and a plunging dollar. The way the markets have reacted so far this year, it appears that the Fed has some fine-tuning to do. THE CREDIT MARKETS ARE STILL HAVING PROBLEMS By now, everyone�s familiar with the subprime problems and the havoc they�ve caused. The new concern is that the subprime problems may migrate into problems with home equity lines of credit and other forms of credit, according to Barron�s. With the value of homes dropping, homeowners have less equity and lenders are starting to get stingy with credit. This could ripple through the economy and create additional strain. Surprisingly, even though the Federal Reserve has cut the Fed Funds rate from 4.25% at the end of 2007 to 2.0% by the end of April 2008, the average rate on a 30-year mortgage has hardly budged. During that time, it went from about 6.2% to about 6.0%, according to Freddie Mac. However, by early July 2008, the average rate on a 30-year mortgage had risen to more than 6.3%. Stubborn mortgage rates coupled with tight credit conditions are not helping the housing recovery. HOUSING WOES CONTINUE The 20-City Composite index published by S&P/Case-Shiller showed a 15.3% year-over-year decline in housing prices as of April 2008. All 20 cities in the index showed a decline, ten of which are in double-digits. Las Vegas, NV, Miami, FL, and Phoenix, AZ, took the top three spots with declines of 25% or greater, while Charlotte, NC, showed the most resilience with just a miniscule decline of 0.1%. One key to the economy is to get housing prices to stabilize. As it stands now, many would-be homebuyers are sitting on their thumbs rather than buying a home that may depreciate further. If prices level off, it might encourage them to jump into the market � which would be a good thing! THE JOB MARKET IS WEAKENING The U.S. economy has shed jobs each month this year for a total loss of 438,000 jobs. The unemployment rate stayed stuck at a four-year high of 5.5% at the end of June, according to the Labor Department. As quoted in MarketWatch, Joel Naroff, president of Naroff Economic Advisers, said the June employment report doesn't �point to an economy that is crashing and burning,� but �it is consistent with an economy that is in a deep funk.� Not all industries are suffering. The upside to high commodity prices is that it�s keeping many energy-related companies in a hiring mood. Also, the weak dollar is helping the manufacturing sector � or at least keeping it from getting worse than it would be otherwise. WINNERS AND LOSERS By broadening our horizon, we find that there are winners and losers throughout the world�s stock markets. The Dow Jones World index, which excludes U.S. stocks, fell 2.5% in dollar terms in the second quarter, according to the Wall Street Journal. For the one-year ending June 30, 2008, the Dow Jones World Index is down 10.3%. The one-year decline is somewhat better than the nearly 15% decline over that same period in the S&P 500. While we do believe it is appropriate to diversify your investments, there are times when stock markets around the world will act somewhat in unison � to the downside. This seems to be one of those times. Weekly Focus � Be Positive Yes, there�s been a dearth of good financial news over the past few months, but we strongly believe that things will eventually turn around. Once the economy works through the excesses of the housing bubble and commodity prices begin to stabilize, we may see a powerful new rally. As always, we continue to work hard on your behalf to try to meet your goals and objectives. We very much appreciate the opportunity to work with you.

Jan 28, 2008 Weekly Commentary

The Markets It could have been much worse. When the markets opened last Tuesday morning after the Martin Luther King, Jr. Day break, all signs pointed to a potential market meltdown. Overseas markets had dropped precipitously and futures prices were signaling a very large decline for the U.S. markets. But then the Federal Reserve Board swung into action and made a rare emergency interest rate cut prior to the opening of the U.S. markets (see below) and that helped calm the jitters. The Dow did open with a several hundred-point drop but by the end of the day, cooler heads prevailed and the Dow closed with �just� a 128-point loss. The volatility continued the next day with the Dow dropping more than 325 points before staging a dramatic comeback to end the day up nearly 300 points, according to MarketWatch. For the week, the Dow even ended with a gain. While this type of volatility can be nerve-wracking, it may also create opportunities. Mark Boyar, who heads Mark Boyar & Co., a New York investment firm, was quoted in Barron�s as saying, �These are some of the best opportunities that I've seen in the past seven years.� Will it be smooth sailing ahead? Probably not. We still have multiple cross-currents buffeting the markets including credit market issues, a slowing economy, and problems in the banking sector. As always, we try to keep an appropriate perspective and stay focused on the goals and objectives of our clients. ALTHOUGH JUST A WHISPER A FEW MONTHS AGO, in the last week prominent economists from former Federal Reserve Chairman Alan Greenspan to former Treasury Secretary Lawrence Summers have spoken the word out loud: Recession. These cautionary voices undoubtedly were bolstered when, during a telephone conference on January 22, 2008, the Federal Reserve slashed the federal funds rate by three-quarters of a percentage point, from 4.25 to 3.5 percent. The move came a week in advance of the Fed�s regularly scheduled meeting and was the biggest one-day cut since the central bank cut its discount rate by a full percentage point in December 1991, a period when the U.S. was, you guessed it, struggling to climb out of a recession. So, are we staring a recession in the face? There�s been no word yet from the National Bureau of Economic Research, a non-profit group based in Cambridge, Mass., the generally accepted arbiter of when U.S. recessions begin and end. The NBER defines a recession as a �significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.� Notably absent from that definition is the commonly-held public opinion that a recession is marked by two consecutive quarters of decline in real GDP. Of course, silence from the NBER cannot be read as proof that the U.S. is not treading in recessionary waters. For example, it wasn�t until November 2001 that the NBER declared that a recession had begun earlier that year in March. Let�s look at some key economic factors: Although the GDP has yet to shrink, stock market volatility, long-term interest rates below short-term rates, higher unemployment, and a persistent decline in housing all signal a recession. What�s more, the Commerce Department reported a 0.4 percent drop in retail sales in December that wrapped up the weakest sales year since 2002 -- and continued purse-tightening could be problematic. However, even in a bleak economic picture, there are some positive signs that point away from a recession. Employers have not trimmed employee work weeks, indicating that product demand hasn�t swooned. More importantly, because inventories are not unusually high, it�s doubtful manufacturers will scale back production. Of course, the wildcard in the economic fortune deck may well be the extent to which fallout from last year�s subprime collapse continues to spread. The recession debate seems destined to see-saw back and forth. Some experts peg the odds of a recession this year at 50 percent, others target the end of the second quarter. Some economists insist recession could be averted by rate cuts and an economic stimulus package, others say we�re in a recession already. Interestingly, while there�s little agreement on the topic of recession, most experts do agree on one thing: that the Fed will continue to cut rates. Accordingly, it�s important to evaluate how aggressive rate cuts impact stocks. According to analysis from Standard & Poor�s, the S&P 500 index gained 12 percent, on average, in the first six months of the past 11 Fed rate-cutting cycles, although those cycles don�t match-up 100% with recessions. Measured from recession lows, rebounds are more compelling. According to Ned Davis Research, during the last 10 recessions, stocks rose an average of 24 percent in the six months following their recession lows. Another point of agreement comes on the question of whether a recession, current or hypothetical, will be mild or protracted. In fact, many expect the downturn to be modest with growth resuming by yearend. Historical data supports that assumption. According to the NBER, there have been 32 recessions since 1854, lasting an average of 17 months. However, since 1945, recessions have averaged just 10 months, while the duration of the two last relatively mild recessions, 1990-1991 and 2001, was just eight months. You can review the data in detail at www.nber.org/cycles.html. Weekly Focus � Turning to the Internet A recent Pew Research report, �Information Searches That Solve Problems,� found that for help with a variety of common problems, from illness to finances, more people turn to the internet than consult experts or family members to provide information and resources. Specifically, 58 percent said they used the internet to get help; 53 percent said they turned to professionals such as doctors, lawyers, or financial experts; and 45 percent said they sought out friends and family members for advice. The study also surprisingly revealed that members of Gen Y are the leading users of libraries for help solving problems and in more general patronage.

Jan 26, 2009 Weekly Commentary

The Markets The government is furiously at work trying to find the right balance between managing the economy from Washington and letting capitalism run its course. Most economists agree that government intervention to help stem the severe recession is a necessary evil. The big question is, "How much?" If it's too little, the recession might turn into a depression. If it's too much, an economic slowdown might linger for years or inflation might spin out of control. Perhaps the easiest way to help determine if the government is getting the mix right is to watch the S&P 500 index. If the index rises, it might suggest investors feel good about the government's moves. If it continues to decline, it might suggest the government has the wrong formula. Of course, it's ultimately more complicated than simply tracking what the stock market does, but the stock market indicator is helpful for a quick read on things. In addition to the market, we also have to monitor interest rates, the value of the dollar, federal budget deficits, unemployment, inflation/deflation, and various other indicators. And, let's not forget that in our global economy, we're all in this together, so, what happens overseas affects us and vice versa. The new administration is now in place and they're moving as quickly as they can to craft a comprehensive financial rescue package for the economy, according to CNN. Unfortunately, investors are notoriously impatient and each day of delay in announcing a new package seems to turn into another day of decay in the stock market. Last week, for example, was the third week in a row that the S&P 500 index declined, according to MSN Money. We realize that down stock markets are unpleasant, but in a capitalistic society, short-term pain may be the price we have to pay for the potential to generate long-term capital gains. HOW CAN A $100 TRILLION BILL be worth only about $300 U.S. dollars? It happens when your country experiences hyperinflation. In this case, we’re talking about Zimbabwe. According to a CNN report, the Reserve Bank of Zimbabwe will soon introduce a $100 trillion bill. But, don't expect it to buy much because in local currency, a loaf of bread in Zimbabwe now costs about $300 billion Zimbabwean dollars. Hyperinflation is not just a theoretical idea that economists contemplate between cups of coffee at Starbucks. As Zimbabwe illustrates, it can happen today. In fact, as of last July, Zimbabwe's official annual inflation rate was 231 million percent – but, it's probably risen since then. A December 8th Washington Post article said independent economists think the actual rate is closer to 1 quadrillion percent (that's a 1 followed by 15 zeroes). By comparison, in the U.S. inflation rose a miniscule 0.1% in 2008, according to the Department of Labor. The Washington Post said the hyperinflation was, "driven by the insolvent government's penchant for printing money to meet demand for scarce cash." Hmm, what’s the U.S. government doing right now? They're printing money. Maybe that's why even with inflation essentially non-existent in the U.S., there’s a small group of vocal financial folks sounding the inflation alarm. Now, don't get us wrong. We're not suggesting that hyperinflation, or even 5% inflation, is on its way anytime soon in the U.S. The point we want to make is that government intervention in the economy may result in unintended consequences. As it relates to the various programs implemented by the government, they're pretty much flying blindly. They don't know exactly what the consequences will be of all their guarantee programs and deficit spending. Ultimately, there's no free lunch. The government's multi-trillion dollar bag of tricks, may save the economy from collapse, but at what future cost? Weekly Focus – Diamonds are Forever In this week back in 1905, Frederick Wells discovered the world's largest diamond in Pretoria, South Africa. The 1.33-pound colorless behemoth checked in at 3,106 carats. It would sure take a big finger to hold that gem! The diamond, christened the "Cullinan," was sold to the Transvaal provincial government, which later gave it to Britain's King Edward VII as a birthday gift. Ultimately, it was cut into nine large stones and about 100 smaller stones. Today, the largest stones are on display in the Tower of London as part of Britain's crown jewels.

Jan 22, 2008 Weekly Commentary

The Markets Fasten your seat belts. There are times when market sentiment shifts and investors (speculators?) start functioning as a monolithic block and they either head for the exits all at once or they pile into the markets all at once. We may be at one of those times when investors start heading for the exits. Let�s take a brief look at history. On October 9, 2002, the Standard & Poor�s 500 Index closed at 776. Five years later, on October 11, 2007, the index reached an intra-day high of 1576. So, in five years, the stock market doubled, according to data from Yahoo! Finance. That�s a very respectable 15% average annual return. Well, just like a helium balloon, what goes up, must come down. Stocks have been experiencing a rough time lately as investors became concerned about credit market issues and a slowing economy. As interconnected as the world markets are these days, once a trend gets started, people tend to pile on and possibly exaggerate the reaction to economic events. The government is not blind to what is happening. They try to do what they can through economic stimulus plans and cutting interest rates. Those activities may help cushion the blow but ultimately, we�ll need a change in sentiment from one of fear to one of, dare we say, greed. While we don�t like a down market, we do our best to try to soften the blow for you. We also realize that down markets tend to create value opportunities and they may set the stage for the next leg up in the markets. We continue to closely monitor the situation. ARE INVESTORS WORKING THROUGH THE FIVE STAGES OF GRIEF MODEL introduced by Elisabeth K�bler-Ross in her 1969 book, On Death and Dying? It�s an interesting idea that was posed by Barry Ritholtz, CEO and Director for Equity Research for Fusion IQ, in a January 7 blog. As you may know, the five stages of grief in the model are: 1. Denial (�This isn�t happening�) 2. Anger (�It�s not fair�) 3. Bargaining (�Just let me live until my grandchild is born�) 4. Depression (�I don�t care, just let me go�) 5. Acceptance (�I�m at peace with what happens�) According to Ritholtz, here�s how investors are working their way through the five stages: 1. Denial: Initially, investors felt like the housing and subprime problem was just a blip that would be over in a few months. 2. Anger: Probably best personified by investor and media personality Jim Cramer�s now infamous �market meltdown� tirade on CNBC on August 3. If you�re curious, go to www.YouTube.com and search for �Jim Cramer market meltdown.� 3. Bargaining: Pundits and politicians alike are now calling for big interest rate cuts and federal stimulus packages, figuring that will likely stave off a recession. Ritholtz believes stages four and five have yet to occur. After the week we�ve just had though, some investors might think we�re heading toward stage four. Of course, we�re not alarmists and we�re not predicting a depression. However, in the way we�re applying the model to the financial markets, we�d define a depression as an emotional state, as opposed to an economic depression. Emotionally, investors could reach a �depressed� state and simply throw in the towel on their investments. When that happens, it could be a sign that a turnaround is near. Remember the old saw, �It�s always darkest before the dawn.� When the markets look bleakest, that may be the time to dip your toes in the water. Successful investing takes more than just doing good research. It also takes strong emotional control and the ability to swim against the tide. We do our best to embody those skills on your behalf. Weekly Focus � Think About This �Patience and fortitude conquer all things.� � Ralph Waldo Emerson That quote is great advice for the market we are experiencing. First, we need patience. We need to understand that markets go through periodic ups and downs and that this is normal and expected. Second, we need fortitude. Dictionary.com defines fortitude as �strength of mind that enables one to endure adversity with courage.� It does take strong emotional control in these types of markets to keep a cool head and make well thought out, rational decisions that take advantage of the circumstances. That�s why you hire us and that�s what we try to do.

Jan 20, 2009 Weekly Commentary

The Markets Despite another harrowing decline in the banking sector last week, the overall stock market has been holding up rather well, considering the circumstances. Many analysts thought the worst of the banking crisis was behind us, but Citigroup and Bank of America reminded us last week that all is not well in the land of lending. Both firms reported earnings last week that were nothing short of ugly. This latest rupture in the banking sector has government officials looking at fresh approaches to contain the problem. One idea being floated around is to create a government bank to buy up bad assets. Officials think that ridding banks of bad assets will enable them to open the lending spigot again. So, how can we say the overall market is holding up reasonably well? Two measures show some optimism. First, as of last Friday, the percentage of stocks in the S&P 500 index trading above their 50-day moving average was 40%, according to Bespoke Investment Group. By contrast, during the October and November lows in the market, this figure was near 0%. This suggests the recent new leg down in the market is not as broad-based as last quarter’s drop. Second, during panic selling on October 10, 2008, more than 2,400 stocks on the New York Stock Exchange closed at new 52-week lows. By contrast, last Friday, less than 100 stocks closed at a new 52-week low price, according to StockCharts.com. Again, this suggests that even though the market averages are nearing the November price lows, the decline is not as broad-based as it was late last year. In short, sellers appear to be a little more discriminating in what they’re selling. This may be an early sign of “reason” returning to the markets. HOW WOULD YOU LIKE A GOVERNMENT GUARANTEED RETURN of 13.25% per year for 25 years? Sound too good to be true? In today’s environment, that’s absolutely too good to be true. However, if we turn the hands of time back about 25 years, that’s exactly what the U.S. government was offering. On May 15, 1984, the Treasury department auctioned $5 billion of 30-year bonds (callable after 25 years) with a fixed coupon rate of 13.25%. This means you could have purchased bonds with the backing of the U.S. government and been guaranteed a double-digit return for a minimum of 25 years. In the context of today’s environment, with 30-year Treasury bonds yielding less than 3%, that is absolutely incredible. Why were government bond yields so high back in May 1984? Well, if you recall, the memory of the 1970s energy crisis, double-digit inflation, stagflation, recessions, and a general malaise were part of the national psyche. That, coupled with the failure of Continental Illinois National Bank and Trust that same month, made people reluctant to lock up their money at a fixed rate. In order to entice money out of the mattress, the government had to offer a very high interest rate. With the benefit of hindsight, buying and holding that 30-year government bond would have been a brilliant investment for many investors. Ironically, today, we face almost the exact opposite situation with the 30-year bond. The yield is below 3%, yet investors are clamoring to buy it. Are investors who buy 30-year bonds at today’s low yields making the same mistake as investors who were too scared to buy 30-year bonds at a 13.25% yield 25 years ago? In other words, are they doing the wrong thing at the wrong time? As advisors, we find it instructive how times change and how fear plays a role in the value of investments. Back in 1984, people were fearful of locking their money up at an historically high interest rate with the memory of the previous decade’s bad news still fresh in their minds. Today, the fear of losing money has driven down the yields of 30-year bonds to near historic lows as investors seek out the safest investments. All this leads us to the stock market. It’s possible that the declines we’ve seen in the stock market over the past year have led us to a situation similar to the May 1984 bond market. Specifically, fear and legitimate economic woes have caused the stock market to drop dramatically, but will we – perhaps 10 years from now – look back and say, “Oh my gosh, it would have been a brilliant investment to go long in the stock market back in 2009.”? It may take years before we know the answer to that question, but at a minimum, it’s important to put the current maelstrom in historical context. As George Santayana said, “Those who cannot learn from history are doomed to repeat it.” Weekly Focus – Think About It “The ultimate measure of a man is not where he stands in moments of comfort, but where he stands at times of challenge and controversy.” -- Martin Luther King, Jr.

Jan 14, 2008 Weekly Commentary

The Markets Well, this is not exactly how we like to start the year. With the Dow Jones Industrial Average off 5.0 percent, it�s the worst opening eight days since 1991. We shouldn�t lose hope though. Despite its rocky start in 1991, the Dow ended that year up 20 percent and the Nasdaq rose 56 percent, according to MSN Money. We�re not predicting that will happen here, but it does suggest that a poor start doesn�t necessarily mean we�ll end the year that way. Additional economic data and corporate writedowns are making investors increasingly nervous that we may be heading toward a recession. Last Thursday, American Express announced that it was, �seeing more delinquencies and less activity from consumers and was reserving $400 million to cover potential losses,� according to MSN Money. At the high end of the consumer market, Tiffany, �cut the top end of its profit forecast because of weak holiday sales,� according to The Wall Street Journal. And The New York Times reported that, �Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.� In our capitalistic society, we can expect the economy to ebb and flow. We will have periods of strong growth and periods of slower growth or even contraction. It�s human nature to toggle between unbridled optimism at one extreme (e.g., the late 1990s) and unwarranted pessimism at the other extreme (e.g., the early 2000s.) The government does its best to help smooth these extremes and now there�s talk about some type of governmental stimulus plan, which investors may welcome. As advisors, it�s our job to monitor the situation, make adjustments as we deem necessary, and always try to maintain the appropriate perspective. We try to do that through thick and thin markets. ARE WE HEADED TOWARD A RECESSION? According to the Associated Press, an increasing number of economists now say the odds of slipping into a recession are near 50-50. Investment bank Goldman Sachs boldly predicted that we�ll enter into a recession in the second quarter of this year, according to a Reuters report. Whether we enter a recession or not this year, the reality is, economic ups and downs are a natural part of the business cycle. When optimism reigns and the economy is heating up, we typically see rapid growth with demand outpacing supply, prices increasing, and inflation rising. Conversely, when pessimism reigns and the economy is slowing, we typically see a pullback in consumer spending, rising unemployment, and lower corporate profits. If there�s an upside to recessions, it�s that they may help eliminate excessive exuberance, establish reasonable valuations, and often create opportunities to purchase sound companies at a reasonable price. Technically, an organization called The National Bureau of Economic Research (NBER) is responsible for dating business cycle turning points and determining recessions. According to the NBER, the current expansion began in November of 2001. That means we�ve enjoyed more than six years of expansion. The prior expansion lasted from March 1991 to March 2001, a 10-year period, which was the longest on record. On a positive note, contractions tend to be far shorter than expansions. According to the NBER, the average contraction since 1945 has been about 10 months long, while the average expansion has been about 57 months. Only time will tell where we land this year. Weekly Focus � New Habits Take Time If you�ve made some health-related New Year�s resolutions, keep in mind that, according to Dr. Mao, an anti-aging expert and the author of Secrets of Longevity, �It takes 14 to 21 days of repetitive behavior to form a new pattern in your brain. Once the pattern is formed, it becomes an automatic behavioral response.� So allow some time for your new healthy habits to replace old ones.

Jan 12, 2009 Weekly Commentary

The Markets While stock markets are down, there may be one market where you can actually make some money. Collapsing real estate prices helped lead us into the current recession and the government realizes that stabilizing real estate prices may be one key to pulling us out of the recession. Accordingly, the government is doing what it can to influence mortgage rates and help them move lower. Lower mortgage rates improve housing affordability and may lead to higher demand. Higher demand may help put a floor on housing prices and end the current downward spiral. That, of course, would be a good thing. Lower mortgage rates also offer another potentially huge benefit for consumers and the economy. As rates drop, homeowners have an opportunity to refinance their mortgage and lower their monthly payment. Like the recent drop in gas prices, a lower mortgage payment puts more money in your pocket. As of last Friday, some banks, such as U.S. Bank, were offering conventional 30-year fixed mortgages for less than 5% and that was with no discount points and no origination fee. So, while you can't control what happens in the stock market, you can make some common sense moves such as refinancing a mortgage to take advantage of lower rates. Now may be a good time to look into it. BAILOUTS AND STIMULUS PACKAGES have a long history in the United States. From Alexander Hamilton's solution to the Panic of 1792, to the federal response to the Savings and Loan Crisis in the 1990s, when there's a financial meltdown, Uncle Sam comes to the rescue. This time, the federal government is charged with creating a stimulus package of historic proportion to save an economy rocked by the ongoing effects of the subprime mortgage crisis, falling home prices, increasing unemployment, plummeting consumer confidence, and dismal stock market returns. Next month, a record-breaking $800 billion to $1 trillion multi-year stimulus package may land on the President's desk. Among other items, the package may include tax reductions for individuals and businesses, plus increased spending on infrastructure. Will it work? Importantly, the package is being planned with an eye to the recent past. For example, because many taxpayers used recent tax rebates to pay down debt, thereby muting the positive impact of infusing new dollars into the economy, the new administration is considering tax cuts for businesses and individuals in the form of lower payroll taxes. While giving consumers a bit more cash in each paycheck will get money into the economy more slowly, it may be more effective than rebates in increasing consumer confidence and stimulating spending. Naturally, tax cuts for businesses will bolster the economy only if companies use the money they save to hire or invest in new technology. Conscious that falling demand for goods and services could cause companies to balk at expansion, President-elect Obama has proposed a $3,000 tax credit for each new hire. The key to the success of increasing spending on infrastructure projects will be to ensure the unemployed are put to work. What’s more, state governments need to be cautious that the likely "use it or lose it" rule that will accompany infrastructure grants doesn't prompt them to plan major projects hastily and fail to ensure that federal money, and that it doesn't benefit those hardest hit by the recession. Of course, additional drops in interest rates, one of the most effective economic recovery levers the government can pull, will also be on the table. Here, the obvious beneficiaries are banks and major businesses that borrow large sums at or near the prime rate. Lower rates will also benefit consumers in the market for mortgages, as mentioned earlier, or car loans, and could result in companies being more likely to hire new workers. The timing of a government stimulus package is also important. For example, some say federal intervention during the recessions of the 1960s and 1970s came too late and did more harm than good. It's also imperative to realize that in our increasingly global economy, the federal government has little control over a number of factors that impact the domestic economy – from oil prices, to the value of the dollar, to world demand for American goods. Finally, even if the spending plan pulls us out of recession, it's important to understand that overspending contributed to this financial crisis and perhaps more saving is in order, too. Weekly Focus – Word of the Week – "Frigorific" Now that it's freezing in some parts of the country, "frigorific" seems like an appropriate word for this week. It's an adjective that means "causing cold" or "chilling." It comes from the word, "frigus," which is Latin for "cold" or "frost." For example, "Without proper clothing, the frigorific blast of air would turn your skin purple in a heartbeat." Just for fun, see if you can use "frigorific" in a sentence this week.

Jan 07, 2008 Weekly Commentary

The Markets With 2007 in the history books, we will use this weeks commentary to review some of the key stories over the past quarter and year. STOCKS SLIDE ON LAST DAY OF 2007, BUT INDEXES POST ANNUAL GAINS Wall Street closed out a bumpy 2007 on a down note as the Dow Jones Industrial Average fell 101 points on the last day of the year. However, solid first-half advances enabled the Dow to post a respectable 6.4% annual gain. Significantly, the Dow recorded the increase in spite of its worst fourth-quarter drop in two decades. The Standard & Poor�s 500 Index and the Nasdaq Composite Index also took hits on December 31, but still managed to post annual gains. The S&P 500 fell 10.13 points to close the year with a gain of 3.5%. The Nasdaq fell 22.18 points to post a 9.8% annual gain, its best since 2003. HOUSING WOES CONTINUE New-home sales remained mired in a downturn in the fourth quarter. A Commerce Department report released on December 28 showed U.S. new-home sales plunged 9% in November. In fact, over the last 12 months, tougher to come by credit and increasing home inventories have caused new-home sales nationwide to decline by 34.4%, the biggest annual slide since early 1991. One bright note: the National Association of Realtors said existing home sales rose 0.4% in November, the first increase in nine months. However, sales remain 20% below last year�s level, and the median existing home price has dropped 3.3% over the past 12 months. CONSUMER CONFIDENCE UP SLIGHTLY The Conference Board Consumer Confidence Index, which has been declining since the summer, posted a slight increase in December. The Index now stands at 88.6, up from 87.8 in November. The Present Situation Index, however, decreased to 108.3 from 115.7 in November, indicating our economy is losing momentum. Specifically, consumers claiming conditions are "good" decreased to 20.3% from 22.5%. Those saying conditions are "bad" increased to 20.0% from 18.9%. Consumers� assessment of the job market was also less positive than it was last month. Those saying jobs are "hard to get" rose to 23.5% from 21.4%, while those claiming jobs are "plentiful" declined to 22.7% from 23.3% in November. CEOs SEE STEADY ECONOMIC CONDITIONS The leaders of America's top companies showed a slight uptick in their expectations for the economy over the next six months, according to Business Roundtable's fourth quarter 2007 CEO Economic Outlook Survey. The CEO Economic Outlook Index, which indicates how CEOs believe the economy will perform in the six months ahead, improved moderately, rising more than two points from last quarter's 77.4 to 79.5. Interestingly, in response to the annual question regarding cost pressures facing their businesses, a majority of CEOs cited energy and health care expenditures as their greatest fiscal pressures. Business Roundtable, an association of chief executive officers of leading corporations, represents a combined workforce of more than 10 million employees and $4.5 trillion in annual revenues. IS THERE RELIEF IN SIGHT FOR INITIAL PUBLIC OFFERINGS? (IPOS) The subprime mortgage meltdown took its toll on the IPO market in the 4th quarter. According to a recent article in the Wall Street Journal, the last three months of 2007 featured steadily deteriorating prices for initial public offerings of stock and a growing list of cancellations. Specifically, in December, 47% of the IPOs that came to market in the U.S. had to cut their proposed price ranges, and in some cases, the amount of shares they sold, to attract investors. In October, just 23% of the offerings trimmed their prices before making their debuts. The number of deals that were withdrawn or postponed during the 4th quarter of 2007 hit 34, compared with just 24 in the same period of 2006, according to Dealogic. WHAT IS AHEAD FOR 2008? Well, things didn�t start out too well the first week of this year. On the first trading day, the Dow had its largest opening day of the year drop since 1983. It should be noted, however, that the Dow went on to rise more than 20% in 1983�will we see a repeat? Weak employment news from the Labor Department and a contraction in manufacturing from the Institute for Supply Management sent the major indexes down for the week. Of course, three trading days does not make a trend. We have more than 200 to go before the books will be closed on 2008. Weekly Focus � A Poem for the New Year A happy New Year! Grant that I May bring no tear to any eye When this New Year in time shall end Let it be said I've played the friend, Have lived and loved and labored here, And made of it a happy year. --Edgar Guest

Jan 05, 2009 Weekly Commentary

The Markets With 2008 in the history books, we'll use this week's commentary to review some of the key stories over the past year. As you well know, it was not one of the market's finest performances. STOCKS SUFFERED MIGHTILY Global stock markets shed about $30 trillion dollars in market value over the past 12 months. Of that, about $7 trillion came from losses in the U.S. market, according to Bloomberg.com. In fact, the drop in the S&P 500 index was the worst annual loss since The Great Depression. Also according to Bloomberg.com, Tunisia was the only country out of 69 monitored by MSCI Inc. that saw a stock market gain in 2008. When it came to stocks, there was virtually no place to hide. INTEREST RATES DIVERGED WILDLY It was a tale of two markets when it came to interest rates. The flight to safety turned U.S. government securities into the investment of choice for many investors and the resulting demand sent yields plunging. The Federal Reserve helped lead the way by cutting its key interest rate seven times in 2008. The Fed Funds rate went from 4.25% at the start of the year to a target rate of 0% to 0.25% by the end of the year. Conversely, investors fled corporate bonds and municipals, which helped drive a spike in their yields, according to The Wall Street Journal. THE COMMODITY BOOM WENT BUST We’ve heard for years that countries such as Brazil, Russia, India, and China will drive worldwide growth and keep demand high for commodities such as oil, copper, and food staples. Well, it worked for a while. By mid 2008, commodity prices were flying high. But, then, sentiment changed and investors began to realize that economic growth was slowing and there may be a limit to the world’s demand for goods. Commodity prices quickly tumbled. Oil is a good example as it surged from around $100 per barrel at the start of 2008 to over $145 by July. It then plunged and ended the year near $45 per barrel, according to Bloomberg. And, you don’t need us to tell you about the dizzying trip of gasoline prices this past year. HOUSING PRICES CONTINUED TO FALL In hindsight, a crack in housing prices in late 2006 was one of the first signs that our economy was headed for trouble. Since its July 2006 peak, housing prices have fallen 23% through October 2008, according to the S&P/Case-Shiller Home Price index as reported by The Wall Street Journal. The decline in home prices removed one of the economy’s growth engines and, when that stalled, it helped take the rest of the economy with it. On the bright side, mortgage rates continue to drop. Thirty-year fixed rates are near record lows at 5%, according to the Mortgage Bankers Association. And, if the government gets its way, those rates should head toward 4.5%, according to The Wall Street Journal. UNEMPLOYMENT CONTINUED TO RISE Since this recession started in December 2007, the U.S. economy has added 2.7 million people to the unemployment rolls, according to the Labor Department. President-elect Obama has stated that he’d like to create 3 million new jobs as part of his administration’s plan to help the economy, according to MarketWatch. While that may seem like a big number, by the time his plans get rolling, we may have lost much more than 3 million jobs. That just gives you an idea of the magnitude of the problem we’re dealing with. WHERE DO WE GO FROM HERE? Our country is facing a near perfect storm of economic headwinds that most of us have not seen in our lifetime. Years of easy money and a conspicuous consumption lifestyle have finally caught up with us. In 2008, the financial markets woke up to the fact that we can’t indefinitely spend money we don’t have. Now that consumers and businesses are de-leveraging, the resulting effect on the economy can be summed up in one word: contraction. The government is trying to counteract this consumer and business freeze by spending money it doesn’t have. So far, the government is successfully walking a fine line between being the “spender of last resort” and being called out as the “wizard behind the curtain.” As evidenced by the decline in Treasury yields and the stable dollar, investors worldwide are putting their faith in that wizard. Don’t be surprised, though, if that faith is tested at some point in 2009. Weekly Focus – A Thought for the New Year “Year's end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us.” -- Hal Borland

Jan 02, 2007 Welcome!

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Feb 25, 2008 Weekly Commentary

The Markets This up and down stock market may suggest that many investors have weak convictions about which direction they think the stock market will head over the near term. There seems to be a cross current between investors who are tempted to snap up perceived bargains and other investors who are willing to sell stocks due to inflation fears and credit jitters. This tug of war has resulted in large daily swings and makes for good headlines. So, what could get stock prices out of this pattern and into a new bull market? How about rising corporate earnings. According to a February 17th New York Times article, analysts expect corporate earnings to drop 21.1% for the 4th quarter of 2007 compared to the year earlier quarter. In the first quarter of 2008, they expect earnings to drop a modest 0.1% from the year earlier period. However, analysts expect the picture to brighten significantly in the second half of the year and they anticipate corporate earnings will grow 15.3% in 2008 compared to 2007. This projected rapid growth is what some people in the business world would call a �hockey stick� projection. Like all forecasts, nobody knows in advance how accurate it will be. Yet, despite the unknown accuracy of the forecast, making a forecast does serve a purpose. It gives money managers a frame of reference to make investment decisions. Depending on how much credence a money manager places in the forecast, they may adjust their investment decisions accordingly. And just how well they make that adjustment may help determine their success as a money manager. PROVIDING THE ECONOMY WITH WHAT HE CALLS a �booster shot,� President Bush signed the income tax rebate into law last week. The $168 billion stimulus package of personal tax rebates and business tax cuts could bolster consumer spending later this year, economists say, and minimize the pain of a possible recession. Your 2007 tax return will determine your eligibility and your rebate amount. In most cases, individuals will receive a maximum of $600, $1,200 for taxpayers who file a joint return. Expected minimums? $300 for individuals and $600 for taxpayers filing jointly. Parents also will receive an additional $300 for each qualifying child. Eligibility for the stimulus payment is subject to income limits. The payments will be reduced for individuals earning $75,000 or more and for married couples earning $150,000 and up. You�re likely to receive two notices from the IRS. The first will explain the stimulus payment program. The second notice will confirm your eligibility, the payment amount, and the approximate time table for your payment. Save this notice for your 2008 tax return. Although surveys show many consumers say they�ll save the tax-rebate money, Mark Zandi, chief economist for Moody�s Economy.com, notes in a recent article on MarketWatch that it�s likely that most of rebates will be spent. He bases his opinion on a recent study that showed Americans spent the bulk of their tax rebates in 2001 and 2003. Also in the MarketWatch article, �Tax Rebates Really Will Boost Economy, for a While,� economist Mike Englund of Action Economics says the rebate, which amounts to a one-time 18% increase in monthly pay, may translate into a �second holiday shopping season� later this summer, even if Americans spend only half of what they receive. However, in a January 31st press release, Mark Johannessen, CFP�, president of the Financial Planning Association� (FPA�), says its �ironic that Washington is telling Americans to go out and spend to help save our troubled economy.� Labeling the package �anti-savings and anti debt-reduction,� he says it might help the economy, but it won�t help Americans dig out of their debt. He notes, �The problem is that the average American household credit card debt is $8,400, the national savings rate is minus 1/2 percent and bankruptcies are on the increase. So, spending the rebate may not be in the best interest of many Americans. Not setting up a household budget is how many Americans got into financial trouble in the first place.� That�s something to think about before you hit the mall. Weekly Focus � What will they think of next? Nature magazine recently ran an article about what it bills as a unique new �power suit.� Scientists at Georgia Tech have developed a microfiber fabric that generates its own electricity. If made into a shirt, the fabric could harness power from the movement of its wearer enough to recharge a cell phone or ensure that a small MP3 music player never runs out of power.

Feb 23, 2009 Weekly Commentary

The Markets Despite the broad market averages approaching their recent bear market lows, there's some surprising strength below the surface. Last Tuesday, the S&P 500 index closed within about 5% of its November 20, 2008, bear market low, according to data from Yahoo! Finance. Yet, according to data from Bespoke Investment Group, as of last Tuesday, the average stock in the S&P 500 was up about 14% from November 20, 2008. That seems a bit confusing, doesn't it? Here's what's going on. The S&P 500 index is a capitalization-weighted index, which means the largest companies in the index have a greater weight in the performance of the index compared to the smaller-size companies. For example, as of December 31, 2008, the top 10 stocks in the index – which accounted for just 2% of the total stocks in the index – actually accounted for a whopping 22.4% of the weighting in the index. So, when you see a gap between the performance of the overall index and the performance of the average stock in the index, then you know something is happening with the largest companies in the index. In this case, it shows the largest companies in the index are performing worse compared to the smaller companies in the index. As an investor, this is important because it offers clues about the health of the overall market. Since the average stock in the index is performing much better than the largest stocks in the index, it may suggest that investors are focusing their selling on a relatively small number of large companies. In other words, the weak performance of some of the largest stocks in the S&P 500 index may mask a glimmer of strength in the overall market. BAD ECONOMIC NEWS CAN ACTUALLY BE GOOD NEWS in disguise. For example, last week, the Commerce Department reported that January 2009 housing starts dropped to a seasonally adjusted annual rate of just 466,000 units. That’s an incredible decline of 79% from the peak three years ago, according to MarketWatch. It’s also by far the lowest number of starts in the post-World War II era. Short-term, that’s bad news, but long-term, it’s very good for our economy. Here’s why: One of the outcomes of our economic crisis is a substantial oversupply of homes. The Wall Street Journal reported on February 9 that at the current sales rate, there’s about a nine-month supply of homes nationwide, while a six-month supply is considered normal. This abundance of homes for sale is partially why nationwide housing prices have declined 25.1% since their mid-2006 peak, according to the S&P/Case-Shiller Home Price Index. Basic economics tells us that when there’s more supply than demand, prices fall. And, that’s exactly what’s happening. To eliminate this predicament, you can either increase demand or reduce supply or do both. The government is doing what it can to drum up demand through its various bailout programs and now the building industry is doing what it can to cut supply. When it comes to pumping up demand, demographics is also in our favor. According to the Congressional Budget Office, population growth from 2000 to 2007 added an average of about 1.3 million new households in the United States. If that trend continues, many of these new households may buy houses, which, in turn, may stoke demand. Now, here’s why the decline in housing starts is actually good news. By cutting the construction of new homes, we help reduce the inventory of homes for sale. As the inventory declines, we move closer to a balance between supply and demand. When we reach that balance, prices may level off, or, actually start to rise. As that happens, bank balance sheets will improve and that may help end the financial crisis. This cycle of housing supply and demand is a great example of the free market in action. When things get out of whack, the market adjusts. Unfortunately, this adjustment period, as we are witnessing, takes time and can be very painful. The big question is, are we better off with massive government intervention to try to reduce the pain of this process or are we better off letting the free market do its job? Currently, the government is trying to do both. How effective they are at managing this process will go a long way toward determining the future of our economy. Weekly Focus – How to Become a Genius Is there a simple formula for becoming a genius? Two leading theories contradict each other. One theory, promoted by scientist Sir Francis Galton in the 1800s, is that genius is inherited (nature). Another theory, prominent in the 1920s and 1930s, is that genius is shaped by our environment and social class (nurture). Today, many scientists promote a third theory, which is simply a combination of both nature and nurture. And, if that’s not satisfying enough, we have author Malcom Gladwell promoting a theory first proposed back in 1899. That theory says if you want to become world-class at something, you have to practice for 10 years or 10,000 hours. Bottom line, if you want to be a genius, you’ll probably need good parents, a good environment, and you’ll have to work at it.

Feb 19, 2008 Weekly Commentary

The Markets There is not always a direct correlation between what is going on in the economy and what is happening in the stock market. For example, right now, many people are talking about the U.S. either being in or about to start a recession. Just look at some of the bad news. -Last week, the Reuters/University of Michigan consumer sentiment index dropped to 69.6, its lowest reading since February 1992, according to Reuters. -The latest monthly Merrill Lynch survey of fund managers worldwide said, �Fund managers and asset allocators are the most risk averse in more than seven years.� -Fed Chairman Ben Bernanke told the Senate Banking Committee that �The outlook for the economy has worsened recently and that the risks to growth remain to the downside,� according to CNN Money. -Former Fed chief Alan Greenspan added his two cents last week and said, �There's at least a 50% chance the economy will fall into a recession,� as reported by CNN Money. -From a corporate standpoint, General Motors posted a record loss of $38.7 billion for 2007. That was GM�s third straight annual loss, according to MarketWatch. Even electronics retailer Best Buy said fewer people are ponying up for tech toys and that their "post-holiday results are not going to be what we originally expected," according to Forbes. This is not a recommendation to either buy or sell those two securities. With all the bad news that�s out there, you�d think our economy was kaput and the stock market would be in tatters. The reality is, the economy appears to have slowed down, it may or may not decline to a recession, and the stock market seems to be holding up reasonably well, all things considered. We need to keep in mind that the stock market tends to be a forward-looking entity. Most investors realize that recessions tend to be temporary and that economic activity ebbs and flows. However, investors with a short time horizon may throw in the towel and temporarily depress stock prices. As famed investor Peter Lynch wrote in Worth magazine, �Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.� Patient investors may use dips in the market to try to snap up bargains. At the end of the day, patient, but opportunistic, investors may beat impatient, panicky investors. One of the keys is to try to wait for the �fat pitches� and, as your advisor, we�re always on the lookout for them. MAYBE YOU�VE WATCHED THE �MOMENT OF TRUTH� on TV where contestants are asked embarrassing questions and a lie detector determines whether they respond truthfully. Now, researchers say they have a way to test the honesty of companies. Preliminary findings from research conducted by Patrick Fan and Greg Jenkins, associate professors of accounting and information systems in the Pamplin College of Business, suggest that text analysis can be used to identify language patterns in management communications that are inconsistent with either the company�s financial performance or with the communications of other companies in the same industry. Patterns of inconsistencies in corporate communications may indicate fraud. For example, a company�s financial performance may be similar to that of its competitors, but the language used in an annual report to describe its prospects could be overly optimistic, overly specific, or vague relative to others in the industry. The researchers note that Enron�s annual reports from the late 1990s exuded an �unlimited optimism� at a time when other companies were starting to admit struggles. Also, the company�s descriptions of related-party transactions were incomplete and overly vague. Just how valuable might this analysis be? Professor Jenkins notes that a report by Glass Lewis & Co. recently estimated that high-profile frauds resulted in the loss of almost $900 billion in market capitalization from 1997 to 2004. The professors, experts in auditing and information systems, hope to develop their methodology into a more precise new tool to help auditors and regulators detect fraud. They have received a grant of about $196,000 from PricewaterhouseCoopers for their two-year project, expected to be completed in 2009. They envision their software serving as a decision-support tool that would improve the efficiency of the auditing process, help auditors gain additional sources of evidence, and, ultimately, enable detection of financial fraud. Sounds like a good idea to us. Weekly Focus � First-Born Children Have Parents Attention Several years ago, UCLA economist Sandra Black found that older siblings get more education and make more money than their younger brothers and sisters. Now, new research from Brigham Young University suggest why. Economics professor Joseph Price conducted a study, which appears in The Journal of Human Resources, that shows that first-born children get about 3,000 more hours of quality time with their parents between ages 4 and 13 than the next sibling gets when they pass through the same age range. He suggests the extra attention may explain why older children tend to get more education, make more money, and score higher on IQ tests.

Feb 17, 2009 Weekly Commentary

The Markets Thanks a trillion, Secretary Geithner. After weeks of heightened anticipation, Treasury Secretary Tim Geithner unveiled the administration's comprehensive plan to restore confidence in the financial markets. Unfortunately, it landed with a big ol' thud. Many analysts felt the plan lacked details and investors responded by dumping stocks. The market's reaction to Geithner's plan highlights an important point about today's financial markets. The markets, to some extent, seem to be trading based on pronouncements from Washington, as opposed to expected earnings. Now, one could argue that the actions by Washington will affect earnings and there’s some truth to that. But, for the long-term health of the markets, it's important that they trade based on business results, not government intervention. While most people expect the economy to get worse before it gets better, optimists are hoping that the recently approved stimulus package will prevent the economy from turning dramatically worse. Along with the stimulus jolt, we need to remember that, "time and price are the only arbiters of our financial fate," according to Todd Harrison of Minyanville.com. It will take time to work out our economic imbalances and it will take low prices to entice buyers back into the marketplace. Those items, coupled with the stimulus package, are what many investors are banking on to turn this economy around. Between now and then, we need to be prepared for a little more darkness before the dawn. DOES THE STOCK MARKET start recovering well before a recession ends? There's a common perception that the stock market starts advancing about five to six months before a recession officially ends. If true, then we need to understand that it's possible for the stock market to advance even if the economy is continuing to deteriorate. According to data from Bloomberg, "The S&P 500 began recovering on average five months before recessions ended in 1975, 1982, and 1991." Money manager John Hussman has a little different conclusion to this question. In his analysis, he reviewed stock market performance in the two years before and the two years after every recession since World War II. Instead of discovering the "five to six month" figure, he reached the following conclusions: 1. "Major gains reliably begin only about three months prior to the end of a recession and continue into the recovery." 2. "Regardless of how stocks perform during a recession, the market is nearly always advancing strongly by the time that the recession has three months to go." Based on Hussman's analysis, all we have to do is determine when this recession will end, then backup three months and start investing heavily. That's the golden ticket. As true as that may be, its practicality is rather limited since none of us know when this recession will end. Darn! The Hussman and Bloomberg reports do add support to the idea that the stock market is a "forward projecting" mechanism. Stock prices tend to move based on projected earnings so it's very possible to see prices move up even if current earnings are poor. In today's environment, one of the biggest hurdles investors face is projecting the near-term earnings picture. On Wall Street, they call it "earnings visibility" and right now, it's quite foggy. Eventually, we expect the fog to clear and, as always, we will continue to monitor what's happening and make portfolio adjustments that we believe are in our clients' best interests. Weekly Focus – A Scientific Post-Valentine's Day Thought Throughout the ages, poets and romanticists have portrayed love as coming from the heart, not the head. Well, neuroscientists beg to differ. Using a functional magnetic resonance imaging machine, scientists have put love to the test and concluded that, "Love mostly can be understood through brain images, hormones, and genetics," according to Associated Press writer Seth Borenstein. Some scientists have concluded there are four tiny areas of the brain that form a "love circuit" and that "romantic love is an addiction." How unromantic! One of the researchers, Larry Young, Ph.D., said that romantic love theoretically can be simulated with chemicals, but "if you really want, you know, to get the relationship spark back, then engage in the behavior that stimulates the release of these molecules and allow them to stimulate the emotions." We'll let you figure out what those behaviors are.

Feb 11, 2008 Weekly Commentary

The Markets Whether you call it news or noise, it sure moved the markets last week. The Institute of Supply Management (ISM) released its services sector index last Tuesday and the figure was well below what economists were expecting. The figure indicated that the services sector of our economy, which accounts for about two-thirds of economic activity, is contracting, according to FOX Business Network. In plain English that suggests the odds of a recession are rising. The announcement sent the stock market into a tailspin on Tuesday and by the end of the week, the major averages endured losses that pretty much wiped out the previous week�s gains. Should we be worried about the weak ISM number? According to JPMorgan equities analyst Thomas J. Lee, as reported by the Associated Press, �The three worst readings on record in the ISM�s service sector index are associated with stocks rising in the ensuing three months�on average, by 6 percent.� As always, past performance is no guarantee of future results. Just a week earlier, the ISM released its manufacturing sector index and, according to The Wall Street Journal, it rose more than expected in December. This conflicting data on the economy may indicate that we are in a transition phase. Specifically, we could be heading toward a recession, or, we could be experiencing the pause that refreshes. Of course, only time will tell where we land. On the positive side, the Commerce Department said last week that orders for durable goods (i.e., big-ticket items) rose 5.2 percent in December. That was well above expectations, according to MarketWatch. Yes, we have lots of news and noise each week and part of our job is to distinguish between the two and try to position your investments appropriately. And we do our best in that regard. WHAT WAS YOUR FAVORITE SUPER BOWL COMMERCIAL? Do you think your preferences might impact the advertising companies� stock price? According to researchers from the University at Buffalo School of Management and Cornell University, when TV viewers like a company�s Super Bowl commercial, the company�s stock price goes up. Using ratings gathered by USA Today�s Ad Meter, a real-time consumer likeability ranking of Super Bowl commercials, researchers examined 529 commercials that aired during 17 Super Bowls from 1989-2005. They found that firms with the most likeable commercials had higher than normal stock purchases on the days following the Super Bowl, which increased the firms' stock price. Commenting on the irrationality of deciding to buy stocks based on a TV commercial instead of an analysis of a firm's long-term value, Kenneth A. Kim, associate professor of finance in the UB School of Management, said, �If the likeability of the commercials caused a subsequent increase in company sales, a stock increase would make sense, but we did not find this to be the case.� Further, Kim stresses his findings demonstrate the phenomena of how investors are prone to taking mental shortcuts rather than complete thorough analysis. He says the commercial viewers he studied used a mental short cut known as �representativeness bias� because they irrationally related one aspect of a firm, its commercial, to its expected stock returns. That�s the kind of irrational leap we make everyday if we assume that a clean car is a mechanically sound car or that a tall person is a good basketball player. Interestingly, this year�s Super Bowl can be used to illustrate another behavioral bias that�s prevalent in our investment decision-making. Often, investors mistakenly believe that recent past returns are representative of what they can expect in the future. Of course, you need look only as far as the media expecting the 18-0 New England Patriots to continue their winning ways and defeat the New York Giants to understand the folly of that approach. SHOULD PUBLIC COMPANIES STOP THE LONG-STANDING PROCESS of providing quarterly earnings guidance to Wall Street? That idea has drawn widespread support from the nation�s chief financial officers (CFOs). A recent survey conducted by Financial Executives International (FEI) and Baruch College�s Zicklin School of Business found that 81 percent of the responding CFOs backed the proposed end to the quarterly guidance. The press release noted that financial executives complained that the current system forces companies to manage Wall Street�s expectations on a short-term basis and takes up too much management time. According to the announcement, six in ten CFOs also backed a proposal to go to a semi-annual financial reporting system. The CFO Outlook Survey interviewed 361 corporate CFOs electronically the week of January 7. Of course, there are other initiatives that could cultivate a longer-term view. For example, compensation plans for top executives could be more closely aligned with long-term shareholder interests and companies could be encouraged to provide clear communication describing their long-term strategy. In addition, education must continue for both institutional and individual investors on the value of taking a long-term approach to the market. As an aside, the CFO survey�s latest Optimism Index for the U.S. economy was 56.26, dropping significantly to fall even further past last quarter's three-year low of 62.85. What�s more, CFOs� outlook for their own companies decreased again, as the Optimism Index of CFOs' own companies registered 70.26, 1.4 points lower than last quarter's 71.68, itself a three-year low. More than 47 percent of those CFOs surveyed said they consider economic growth to be the biggest economic worry. Weekly Focus � Test Your Brain Looking for a diversion? Visit http://thinks.com/daily_crossword.htm for a free daily crossword puzzle that you can solve online in your browser. If you wish, you can even time your progress. Also at www.thinks.com: daily sudoku and jigsaw puzzles, brainteasers, and trivia games.

Feb 09, 2009 Weekly Commentary

The Markets We've moved from "drill, baby, drill" to "spend, baby, spend." As consumers have reduced their spending, the government is stepping in to fill the breach. The idea is that when the economy experiences one of its periodic contractions, it's the government's job to step up to the plate and become the spender of last resort. By replacing consumer spending with government spending, the recession should be shorter and shallower, or so the theory goes. This theory is based on Keynesian Economics. Keynesian Economics was named after John Maynard Keynes, who was one of the most influential economists of the 20th century. His popularity grew enormously starting around World War II, which was shortly after the publication of his masterpiece, General Theory of Employment, Interest and Money, in 1936. Keynes argued that it was appropriate for governments to spend money and run big deficits during recessions (and depressions) in order to avert a potentially bigger problem in the absence of big government spending. Today, many of our elected government officials are invoking Keynesian Economics as justification for the current Congressional stimulus bill. Reasonable people can disagree on whether or not the current stimulus bill is the right medicine in the right dosage, and experts still debate whether Keynesian Economics makes sense. What's sorely missing in this entire debate, though, is how do we dig ourselves out of the big deficit hole that we’re creating? Are we simply passing the buck to our children and grandchildren? The second part of Keynesian Economics is that the government should run surpluses during boom times to refill the hole dug during recessionary periods. That sounds good in theory, but, in reality, our government has run a surplus only six times in the past 50 years, according to the Federal Reserve Bank of St. Louis. With a potential trillion dollar annual deficit coming this year, does anyone really think that our country will be running a profit anytime soon? Perhaps the people on Wall Street do as investors sent the S&P 500 index up more than 5% last week in anticipation of passing the stimulus bill. It's nice to see that even in these trying economic times, investors can still find a ray of hope. THERE IS NO SHORTAGE OF METRICS that we can analyze to help us determine if the stock market is undervalued, fairly valued, or overvalued. One of the more popular metrics that's making the rounds these days is a chart, which shows the total market value of U.S. stocks as a percentage of Gross National Product (GNP). In March 2000, this ratio peaked at 190%, according to a February 4, 2009, Fortune Magazine article. And, what a peak it was. Between 1924 and 2000, that ratio had never exceeded 100%. As the ratio rises above historical norms, it may signal the market is overvalued. Truly, in March 2000, we were in uncharted waters. In late 2001, super investor Warren Buffett wrote an article in Fortune Magazine in which he referred to this market value to GNP ratio as "probably the best single measure of where valuations stand at any given moment." At that time, the ratio had fallen from the peak of 190% to 133% – still quite high by historical standards. Buffett went on to say that, "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you." Well, guess what? In late January, that metric fell to 75% – right smack in the middle of Buffett’s range. And, as if on cue, the S&P 500 index rallied a whopping 5.2% in the first week of February. How prescient! Of course, one metric used in isolation is a dangerous way to try to make a profit in the stock market. There are many crosscurrents in our global economy that simply cannot be captured by one ratio. However, this ratio may suggest that valuations are nearing a point where patient investors have the potential for attractive long-term returns. Weekly Focus – Want to Improve Your Mood? If you're having a bad day, here's a simple remedy – think fast. Researchers at Princeton and Harvard discovered that accelerated thinking could improve your mood, according to an article in Scientific American Mind. Thinking fast made the study participants, "feel more elated, creative and, to a lesser degree, energetic and powerful." So, if you want to feel better, try to whip through an easy crossword puzzle, watch a funny show on fast forward, or brainstorm quickly about an idea. Ah, if it were only that easy!

Feb 04, 2008 Weekly Commentary

The Markets If there is an upside to a down market, it is that stock prices might get low enough to encourage strong companies to swoop in and make takeover offers. That�s exactly what happened last Friday when Microsoft made a surprisingly aggressive bid for troubled Yahoo! The news helped send the Dow Jones Industrial Average up 92 points for that day and up a dramatic 4.4 percent for the week. Economic news was mixed last week with the nonfarm payroll numbers coming in below expectations while the Institute of Supply Management said its index of manufacturing activity rose more than expected in January, according to The Wall Street Journal. And just to make us all feel good, oil company Exxon Mobil announced last week that they set a record for the highest annual profit ever recorded in U.S. corporate history. They earned $40.6 billion in net income in 2007. To put that in perspective, if Exxon Mobil distributed all their profit, each of the 109.9 million households in the U.S. could receive $369. Imagine how many tanks of gas that would fill! ACCORDING TO A RECENT INVESTMENT COMPANY INSTITUTE (ICI) REPORT, The Role of IRAs in U.S. Households Saving for Retirement,� by mid-2007, Americans had $4.6 trillion stashed in individual retirement accounts (IRAs). According to the report, that total represents more than one-quarter of U.S. total retirement market assets, compared with just 14 percent two decades ago. The report also notes that IRAs have risen in importance on households� balance sheets. In June 2007, IRA assets accounted for 10 percent of all household financial assets, up from 3 percent two decades ago. Among the 40 percent of U.S. households reporting they have IRAs, about three-quarters also participate in employer-sponsored retirement plans. The report also found: Traditional IRAs are the most common type of IRA owned, followed by Roth IRAs and employer-sponsored IRAs. Specifically, 37.7 million households have traditional IRAs, 9.2 million have company-sponsored IRAs like SIMPLE IRAs, and 17.3 million have Roth IRAs. IRA growth has been fueled by assets rolled over from employer-sponsored retirement plans. Almost six out of 10 traditional IRA-owning households indicate their IRAs contain rollovers from an employer-sponsored retirement plan. IRA-owning households tend to preserve their IRA assets as long as possible. Less than one in five households with traditional IRAs took withdrawals in tax-year 2006. The most frequently cited reason for withdrawals was the legal requirement to begin taking minimum distributions at age 70 1/2. And there�s more good news: Most households owning traditional IRAs today have a strategy for managing income and assets in retirement. For example, eight out of ten traditional IRA-owning households indicate they have a plan, and among those with a plan, seven out of ten indicate their strategy is to preserve their IRA assets for as long as possible into retirement by not taking withdrawals prior to age 70 1/2. IRA contribution limits are $4,000 for 2007 (the deadline is April 15, 2008 for tax year 2007) and $5,000 for 2008. However, if you are over age 50 you can sock away an extra $1,000, a benefit the ICI report found only 5 percent of new IRA investors and 11 percent of those contributing to an existing IRA take advantage of. THE INCREASE IN HEALTHCARE COSTS IS ALL OVER THE NEWS, but have employers reached the �tipping point� where they will stop offering health benefits? Not according to the Employee Benefits Research Institute (EBRI). A recent EBRI report found that employment-based health coverage has fallen, but not as sharply as headlines might suggest. For example, between 1994 and 2000, the percentage of workers with health benefits through an employer held steady at between 73 percent and 75 percent. Since 2000, the percentage of workers with health benefits has fallen to about 71 percent. The report also notes that while employers still see a business case for offering health benefits to their workers and continue to invest in improving their health programs, most associations representing employers believe the existing employment-based system must be reformed. What�s more, employers interviewed for this study agree that if one major employer were to drop health benefits, others would follow. That�s something to keep in mind with the annual Fidelity Investments survey of healthcare costs estimating the average retirement healthcare costs for a couple retiring at age 65 at $215,000, up 7.5 percent from $200,000 last year. This estimate assumes they will not have health coverage provided by a former employer and Fidelity stresses the figure is an average. Fidelity expects total healthcare costs will rise 7 percent a year for the foreseeable future. Weekly Focus � Pasta Amore American consumers are experiencing the biggest jump in food prices in 17 years. However, pasta, at an average price of $1.20 per pound, remains among the most economical and versatile foods available, according to the National Pasta Association (NPA). According to the NPA, the price per pound of pasta has increased only $0.07 since 2003, a fraction of the increases of other foods. Visit www.ilovepasta.org for hundreds of pasta meal recipes, as well nutritional information. Who would have thought there was a national association for pasta?

Feb 02, 2009 Weekly Commentary

The Markets Our economy has moved from an inflationary environment to a deflationary environment in a remarkably short period. Is that good or bad? Let's go back to July of last year. Remember that? Oil prices soared to more than $145 per barrel and unleaded gasoline averaged $4.11 per gallon across the country, according to AAA. In some places, gas peaked above $5 per gallon. Even though the economy was slowing down, inflation seemed to be problematic. In fact, inflation, as measured by the consumer price index, had risen 5.6% for the 12 months ending July 2008, according to a report from Principal Global Investors. Let's fast forward to today. Oil costs less than $45 per barrel, gasoline averages less than two bucks per gallon across the country, and inflation is effectively non-existent. For the year ending December 2008, inflation rose a barely perceptible 0.1%, according to the Department of Labor. Notice that, in just five months, the annual inflation rate dropped from 5.6% to essentially zero. Initially, we might think this is a good thing for consumers. We all love lower prices, right? Short term, it might mean a little more money in our pocket as goods and services cost less. But, if it continues, deflation will likely translate into lower wages, less spending (as consumers delay purchases waiting for prices to drop even further), and a continued deterioration in the economy. The government is clearly aware of the potential problems caused by deflation. That's one reason why they are trying to print our way to prosperity. By stuffing the economy with trillions of dollars, they hope to stimulate spending and stop deflation cold. Will it work? Only time will tell. As money manager Bill Fleckenstein wrote in his January 28 Daily Rap, "In the late 1990s, we tried to speculate our way to prosperity via the stock bubble. And, when that didn't work, we attempted to borrow our way to prosperity during the real-estate bubble." We know both of those strategies failed. Now we're trying a third strategy to "print" our way to prosperity. Now more than ever we need the old saying, "The third time is the charm" to actually work! ONE REASON WHY IT'S SO HARD TO BE A GOOD INVESTOR is that the typical investor tends to limit his investing horizon to the recent past, or, at best, to what has occurred in his lifetime. He tends to assume that past performance is a decent predictor of future results, even though our industry plasters the phrase, "Past performance is no guarantee of future results" all over the place. Perhaps it's human nature to simply extrapolate the most recent results and expect that they'll continue. If fact, physics has taught us that a body in motion stays in motion until acted upon by an outside force. Well, our stock market has no doubt been, "acted upon by an outside force" lately. When times are good, we tend to think they'll continue to be good. And, the reverse is true, too. When things are bad, we tend to think they'll stay bad. Of course, we know that the economy (and life, for that matter) ebbs and flows. Nothing goes up or down continuously. Things ultimately turn around and balance out. Even though when we're in the midst of a trend, it may be hard to acknowledge that. So, how do we overcome this natural tendency to extrapolate recent results? How do we gain a larger perspective so we can place unusual events in an historical context and profit from them? Ray Dalio, founder of money management firm Bridgewater Associates and one of the 100 richest Americans, has a good answer to those questions. Dalio says, "Have a timeless and universal investment perspective, which means to broaden your perspective to understand what happened in long ago times (e.g., in the 1930s) and faraway places (like Japan and Latin America)." He goes on to say that you need an investment process that has, "Worked well in all countries and all time frames in order to continue to work as things change, because it must be based on essential truths that include understanding of how things change over time." And, in one more telling quote from a recent client letter, Dalio wrote, "People are prone to do those things that worked in the past without thinking hard about why they worked or whether they will work in the future." In other words, the typical (unsuccessful) investor gets a little soft and just keeps on doing what worked well in the recent past even if the current environment is different from the recent past. Remember, there are no shortcuts to successful investing. To be a successful investor, we can't limit our research to what happened during our lifetime, nor can we limit it to what has happened in the U.S. What happened during the Great Depression, and even during the Panic of 1907, may be instructive for us today. Likewise, Japan's 20-year bear market and Latin America's bouts of hyperinflation in the late 1980s and early 1990s may also teach us a few lessons. Weekly Focus – Think About It "There is a mysterious cycle in human events. To some generations much is given. Of other generations much is expected. This generation of Americans has a rendezvous with destiny." -- Franklin D. Roosevelt

Dec 31, 2007 Weekly Commentary

The Markets With the year drawing to a close, there was no letup in market moving news. World events grabbed center stage as the assassination of Benazir Bhutto caused concern around the world. Financial markets in the U.S. reacted negatively to the news, but regained their composure the following day as the Dow Jones Industrial Average finished down just modestly for the week. The housing market took it on the chin again, according to new data released last week by Standard & Poor�s. The Case-Shiller price index showed home prices in 20 major U.S. cities were down 6.1% on average in the past year as of October 2007. In addition, the Commerce Department reported that new U.S. home sales dropped to a seasonally adjusted annual rate of 647,000 in November. That was the lowest rate in more than 12 years, according to MarketWatch. But, all is not gloomy. Investor Warren Buffett cheered Wall Street when Berkshire Hathaway announced it was buying a 60% stake in the industrial conglomerate Marmon Holdings, Inc., according to an Associated Press report. Marmon owns more than 125 manufacturing and service businesses and the purchase by Berkshire may signal a vote of confidence by Buffett in America�s manufacturing sector. For the year, it appears the major stock market indexes could end with modest gains, so despite the turmoil around us, the economy and stocks keep chugging along. ASSETS IN INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) GREW 16.5% in 2006, reaching a record $4.23 trillion, according to a recent study by the Employee Benefit Research Institute (EBRI). As noted by the EBRI, the increase from $3.63 trillion in 2005 solidified the position of IRAs as the largest repository of retirement funds in the United States. Compared with IRAs, private-sector defined contribution plans, like 401(k)s, held assets of $3.27 trillion in 2006, and private-sector defined benefit plans (or pension plans) held assets of $2.26 trillion. EBRI also points out that assets in IRAs have exceeded those in private-sector defined contribution and defined benefit plans each year since 2001. Rollovers from employment-based tax-qualified plans continued to fuel IRA growth to the tune of about $200 billion annually. Citing the most recent Internal Revenue Service data, for 2002, the EBRI study notes that 90% of the assets in IRAs were in Traditional IRAs, compared with 3% for Roth IRAs and just over 5% in other types of IRAs. Remember the deadline to make a 2007 contribution to either a Traditional or Roth IRA is April 15, 2008. We�d be happy to discuss your options. THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION (EEOC) ruled on December 26, 2007, that employers could reduce or eliminate health benefits for retirees when they turn 65 and become eligible for Medicare. Effectively, the EEOC�s policy permits employers to establish two classes of retirees: comprehensive benefits for those under age 65 and limited benefits (or no benefits) for those older than 65. According to the EEOC, the rule allows employers that provide retiree health benefits to continue their longstanding practice of coordinating those benefits with Medicare (or comparable state health benefits) without violating the Age Discrimination in Employment Act (ADEA). According to EEOC Commission Chair Naomi C. Earp, �Implementation of this rule is welcome news for America�s retirees, whether young or old. By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits, which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.� The EEOC�s rule has the support of the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, and the American Benefits Council. Yet, while the EEOC stresses that if employers could not coordinate their benefits with Medicare, it�s unlikely they�d be able to afford the cost of providing health coverage to retirees, the AARP and other advocates for older Americans have attacked the rule. In a recent New York Times article, Christopher G. Mackaronis, a lawyer for AARP, said the ruling �gives employers free reign to use age as a basis for reducing or eliminating health care benefits for retirees 65 and older.� Wherever you stand on the EEOC ruling, it underscores an inescapable truth of retirement planning. Because healthcare costs (and longevity!) continue to increase and your benefits may decrease, it�s important to save as much as you can during your working years. Weekly Focus � New Year�s Resolutions Happy New Year! By now, you�ve probably made a few New Year�s resolutions. According to a recent survey by Country Insurance & Financial Services, more people resolved to lose weight and exercise more (24%) or to spend more time with friends and family (23%) than plan to focus on improving money matters in 2008 (17%). Interestingly, however, the same study found a resounding 75% plan on making �necessary adjustments� to their finances in the year ahead. Do you have anything on your mind that you�d like to discuss?

Dec 25, 2006 Chicago Tribune Recognizes Fisher Financial Partners, Inc.

Chicago Tribune Recognizes Fisher Financial Partners, Inc. Many companies focus on causes close to them personally. Besides donating about 1,000 of its children's art kits to hospitals, schools and charitable organizations, Chicago-based Made By Hands Inc. gives about 10 percent of the proceeds from its popular Make Your Own Valentines kits to the Juvenile Diabetes Research Foundation, said co-President Dena Hirschberg. The company, started by Hirschberg and Ava Berry, picked that cause because of its connection to children, said Hirschberg, whose 11-year-old daughter, Marlee, was diagnosed with the disease two years ago. The company's retail customers also like the concept of giving, she said. "It's such a feel-good thing." Throughout the year, the company works with Chicago not-for-profit Enterprising Kitchen to hire disadvantaged women to assemble its sample products and cards. "Philanthropy is a big chunk of our corporate mission," Hirschberg said. "It's embedded in what we do." Linking a business with a related cause can bring home the importance of the charitable work, Clark noted. "When a company can connect its social responsibility to its business, it has a particularly compelling model," she said. The social work takes on more relevance and often is more inspiring as a result, she said. Inspired by his own daughter's recovery from chronic asthma after switching to organic foods, Chicago caterer Greg Christian, president of GoGo Organics, has spent about $50,000 and half his time this year getting the Organic School Project up and running in three Chicago public schools. Christian aims to teach students "mindful eating" by involving them in growing and consuming organic foods at school. By changing their diet, he said, the students' well-being will improve. "We need a demonstration project to raise the consciousness in this arena," Christian said Meantime, even the servers at Nick's Pizza & Pub in Crystal Lake have embraced philanthropy, with many donating their wages or tips during fundraiser days held at the restaurant. "It's their choice," said owner Nick Sarillo, who recognizes employees who donate wages or tips with special stickers to wear during an event. "Even the high school students in the kitchen give back. It helps the whole energy and environment of our restaurant." The business holds a major fundraiser each quarter, donating its profit for the day to charities that publicize the event. In April it gave more than $20,000 to the Children's Center for Autism in McHenry County, Sarillo said. "Our goal is to give back 5 percent of our profits every year," he said, noting that last year the business donated about $37,000 to various charities. The payback that Sarillo sees in engaged workers and admiring customers is not unusual, said Clark, of Winning Workplaces. Employees and customers alike increasingly are looking at whether a business is a good corporate citizen. "We see a real strong interest among employees in adding value to their larger world," Clark said. "There is this sense that what they do at work needs to be about more than just making money." Chris Fisher, president of Fisher Financial Partners in Lake Forest, and his three employees understand that sentiment. Fisher, who has stressed the importance of community commitment since he started the firm in September 2004, routinely gives employees time during the work day to do charitable work at the Allendale Association, a Lake Villa not-for-profit for troubled youth, said Katie Crites, director of client relations. The employees are mentors for the kids of one cottage, teaching them the basics of personal finance, hanging out with them and filling in as parent advocates where needed. Fisher said he gets as much from mentoring as the kids do. "I really enjoy it," he said. "A lot of times people get caught up in the race of making a living. You can make a lot of money and not find fulfillment. It's service to others that brings joy." Copyright 2007, Chicago Tribune

Dec 22, 2008 Weekly Commentary

The Markets It's "Helicopter Ben" to the rescue. For people who follow the financial markets, last Tuesday's announcement by the Federal Reserve was a watershed event that historians, pundits, and investors will talk about for years to come. The Fed essentially opened the floodgates to help the economy and signaled more help is on the way. Here are the key points from the Fed’s announcement. • It established a new target range for the federal funds rate of 0 to ¼%—effectively it’s as low as it can go. • It expects to keep the federal funds rate at an exceptionally low rate, “for some time.” • It will use, “All available tools to promote the resumption of sustainable economic growth and to preserve price stability.” • It is evaluating the benefits of purchasing longer-term Treasury securities as a way to lower long-term interest rates. • Going forward, it will, “Support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level.” Money manager Bill Fleckenstein summed it up nicely by saying, “The Fed went for it, corroborating the view that many of us have held for some time: that when push came to shove, the central bank would let nothing stand in the way of printing any amount of money, and monetizing anything required to fend off the ill effects of the collapsing bubble.” Wall Street’s reaction to all this was mixed. On the day of the announcement, the Dow Jones Industrial Average soared 359 points. Over the next three days, though, it gave back most of those gains. For homeowners, the Fed’s action was positive. Long-term interest dropped significantly after the announcement and that may translate into lower mortgage rates. If this causes the housing market to perk up, it may give the economy the jolt it needs to begin stabilizing. You probably remember the old saying, “We’re from the government and we’re here to help.” No doubt about it, the Fed, the Treasury, the White House, and even Congress are now “here to help.” The question is, do they know what they’re doing? As James Grant, editor of Grant's Interest Rate Observer, so wryly pointed out in a recent Wall Street Journal essay, “Prescience is rare enough in the private sector. It is almost unheard of in Washington.” Despite this historical lack of foresight, we’re all putting faith in the government that they can correctly diagnose our current problems and prescribe the right dose of medicine to get the economy moving again. So far, the medicine may have moved us out of the emergency room, but we’re still in intensive care. THE SPEED AT WHICH the economy and the financial markets have moved this year is astonishing. Here’s a brief look at some of the most amazing changes. • The S&P 500 index dropped nearly 47% in just six months between May 20 and November 20, according to data from Yahoo! Finance. By contrast, during the severe 1973 – 1974 bear market, it took the S&P 500 more than one year and eight months to drop that amount (January 11, 1973 to September 27, 1974). • Crude oil prices started the year at $95.98 a barrel and just over seven months later, it peaked at $145.29 per barrel on July 3—a 51% increase, according to data from MSN. This helped stoke fears of runaway inflation. But wait, crude prices then plunged 76% in less than six months between July 3 and December 19. Now the talk is about deflation. Vertigo, anyone? • The yield on the 10-year Treasury bond dropped from 4.02% on October 14 to 2.07% on December 18, according to data from Yahoo! Finance. That’s a 48% decline and nearly two full percentage points in just over two months. By contrast, for the six years ending October 14, 2008, the yield on the 10-year bond changed by less than one quarter of one percent, according to Yahoo! Finance data. • Nonfarm payroll employment rose by 94,000 in November 2007. Just a year later, in November 2008, nonfarm payroll employment fell by 533,000, according to the Department of Labor. And sadly, from December 2007—the start of this recession—to November 2008, the number of unemployed persons in the U.S. rose by 2.7 million. • The auto industry, as we all know, is hurting. Parts supplier Johnson Controls issued an outlook on October 14 of this year and forecasted North American auto sales would reach 12.3 million units in 2009. Just two months later, on December 16, they revised their forecast downward to only 9.3 million units. Is it any surprise that two of the Big 3 auto manufacturers are on the brink of bankruptcy? We’re not sharing this information to depress you. We’re simply pointing out that changes are happening with lightening speed. So far, many of these changes have been detrimental to people’s wealth. But, on the positive side, let’s keep in mind that if things turned this quickly on the downside, perhaps they could also turn that quickly on the upside. A return of confidence may be one key to making that happen. WE WANT TO TAKE A MOMENT and comment on the Bernard Madoff scandal. As you probably know, Madoff allegedly engaged in a giant Ponzi scheme that bilked investors around the world out of $50 billion. In this industry and in human relation in general, trust is of utmost importance. When that trust is shattered, people are understandably enraged and dispirited. As it relates to Madoff, it’s doubly frustrating because we rely on government regulators, such as the Securities and Exchange Commission, to monitor money managers and brokerage firms and prevent this type of fraud. Clearly, the regulators failed us. Madoff is the latest in a line of swindlers who put their own interests ahead of their clients. Yes, there are bad apples in the financial services industry just like there are bad apples in government or any other line of work. Yet we don’t want a small number of bad apples to deter investors from seeking investment counsel. We work extremely hard to earn your trust and we do all we can to ensure that your assets are invested wisely and housed with secure and trustworthy custodians. If you have any questions or concerns about this, please let us know. Weekly Focus – Happy Holidays As we wrap up one year and begin a new one, we wish you and your family peace, health and happiness. It’s our privilege to serve you and we look forward to working hard on your behalf in the years to come.

Dec 17, 2007 Weekly Commentary

The Markets Another interest rate cut from the Federal Reserve was not enough to stop a downdraft in the stock market last week. Mixed economic reports left some investors perplexed about the future direction of stock prices. Robert Dye, senior economist at PNC Financial Services Group, nicely summarized the current situation. He said, "If you take the stronger-than-expected economic data we saw (last) week in the form of retail sales and add to that the inflation data and then combine that with a somewhat ambiguous statement from the Fed, you get a picture as clear as mud." Of course, anybody who has been investing for a long time understands that uncertainty comes with the territory. Within the same day, for example, we could get two economic reports with completely different implications. One report might suggest the economy looks great, while the other might suggest a recession is looming. That�s why we look at a variety of reports and try to determine if there are any trends in place, or, more importantly, any trends that may be stalling or reversing. Investing is a bit like architecture in that there�s both an art and a science to it. Architects use their artistry to design a beautiful structure but they also have to work within known principles of physics to make sure the building doesn�t collapse. Since investing inherently involves uncertainty, there is some artistry involved in discerning ambiguous information, yet we also have historical information that may help us put new information in context. MAYBE IT�S THE ROCKY HOUSING MARKET, but American retirees plan to hang onto one of their biggest assets -- their homes -- rather than sell or downsize. According to the September 12, 2007 Principal Financial Well-Being IndexSM, the majority of American retirees (73%) plan to stay put in retirement. The survey also shows that 21% of working Americans who are five years from retirement plan to keep their homes, at least at first. The survey, conducted in the Summer of 2007 by Harris Interactive, also indicates that of the nearly two-thirds of workers (65 %) who own their primary residences, 36% have less than 20% equity built up in their homes. However, the majority of retirees (60%) have their homes completely paid off. It�s reassuring that most workers and retirees do not foresee the need to downsize in order to tap their home equity to help fund retirement. What�s more, the majority of retirees and working American homeowners surveyed (78% of retirees and 76 % of workers) say they have not considered taking out a reverse mortgage. Interestingly, however, the Index also revealed that more than two-thirds of workers (67%) and more than half of retirees (52%) are concerned about their long-term financial future. Asked what financial concerns keep them up at night, American workers and retirees differed on the issues. More than one-third of workers (3%) lose sleep worrying about their ability to enjoy the same quality of life during retirement, another 39% fret about whether they will be able to afford good medical care, and 32% worry about outliving their savings. As for retirees, the ability to afford good medical care (29%) also was their chief concern, followed by outliving savings (24%), and ability to pay for basic necessities (21%). One issue that�s underscored by these types of studies is that it�s crucial to develop and implement an adequate retirement savings plan so that, whatever the market�s gyrations, you�ll be able to lead the life you want during retirement. MOST OF US WOULD AGREE THAT WE SHOULD SAVE MORE MONEY, reduce our gas consumption, or even lose weight, but few of us look forward to the work involved in implementing these changes in our daily life. In psychology, this tension between what we know is good for us and the work involved to get it done is referred to as the �want/should conflict.� In December 2006 research by Max Bazerman, a professor of business administration at Harvard Business School, examines what it takes to get us beyond balking at the work or sacrifice involved in making positive life changes. Significantly, Bazerman found through four experiments that people are more likely to choose what they believe they should choose (for instance, save more) when the choice will be implemented in the future rather than in the present. What�s the rationale behind the phenomena Bazerman refers to as the �future lock-in?� He surmises that individuals tend to think that their �future selves� will behave more virtuously than their �present selves,� making good-for-you changes easier to live with. Bazerman points out that his research has implications for public policy, where citizens are often asked to consider binding policies that trade short-term interests for long-term benefits. He stresses that if policymakers advocate for reforms that would be decided upon in the present, but go into effect in the future, the �future lock-in� might encourage citizens to weigh a policy�s abstract merits more than its concrete costs. Of course, there are personal finance implications, too. Let�s say, you know you need to sock more away for college. Rather than make a portfolio change today, put it on your calendar for next week. Weekly Focus � New Year�s Resolutions? If you want to increase the odds of following through on your New Year�s resolutions, identify the emotions and values that will drive your actions toward achieving them. If you cannot tie any emotions and values to your resolutions, that�s an indication that they are not very meaningful to you and your chances of following through are slim. Creating resolutions that are backed with strong emotions and connected to deeply-held values will help increase your success rate.

Dec 15, 2008 Weekly Commentary

The Markets The following comment might shock you, so prepare yourself. Here it is... last Monday's closing price on the S&P 500 index confirmed that we have been in a new bull market since November 20th. Yes, it seems rather ludicrous to say we're now in a bull market since the S&P 500 index is still down about 40% this year. But, according to the standard definition of a bull market as reported by Bloomberg, the bull is alive. The bull is here because the S&P 500 closed last Monday about 21% above its November 20th closing low of 752. That meets the definition of a bull market, which is a 20% rise from a previous 20% or greater decline. The bear market we just exited, which lasted from October 9, 2007 to November 20, 2008, drove the S&P 500 down 51.9%, which is its third worst decline on record without an intervening 20% increase, according to Bespoke Investment Group. Semantics aside, we're not kidding ourselves into thinking that all is now well in the financial markets. Statisticians and market technicians may have fun playing with these numbers, but in the real world of managing money, we know that bull and bear markets don’t neatly conform to standard definitions. Clearly, even within the context of a negative market environment, we may see significant rallies. These rallies could simply be "head fakes," or bull runs within an ongoing bear market. For example, during the Great Depression between 1929 and 1932, the Dow Jones Industrial Average experienced nine bear markets and eight bull markets, according to Bespoke Investment Group. Each one lasted an average of just 105 days. Even though there were eight bull markets during this period, overall, the Dow dropped dramatically between 1929 and 1932, so we shouldn't necessarily get too comfortable with the current bull market. The point of this history lesson is we may experience a series of bull and bear markets within the context of a longer-term "secular" bear market. When we see big rallies, pundits will be quick to say the worst is over and it's time to get aggressive. At some point, they may be right. In the meantime, we want you to be aware that big rallies may be followed by big declines. This yo-yo action can be very frustrating, but it’s a plausible scenario as the market and economy painstakingly work through the challenges we face. HOW MUCH IS ENOUGH? The new administration is reportedly considering a two-year fiscal stimulus package worth up to $1 trillion, according to The Wall Street Journal. They have to walk a fine line though, because just like households, the government cannot spend beyond its means or else it will face negative consequences. Since households are not in the mood to spend money, the government is turning into the "spender of last resort." Political leaders on both sides of the aisle are arguing that it’s the government’s role to step in and prop up the economy if consumers are tapped out. This is not new. Our country has a long history of federal stimulus packages including one earlier this year. The plan now under consideration is massive in scope. According to the Journal, it may include, "Funds for roads, bridges, water systems, school repair, spreading broadband access, promoting health-care information technology, improving energy efficiency in buildings, renewable-energy projects, and assisting struggling state and local governments." It sure sounds nice, but economically speaking, there's no free lunch. Spending of this size has the potential to be both wasteful and excessively inflationary. Imagine if we gave you a budget of $1 trillion. Do you think you could effectively and efficiently spend it within two years? Okay, it would be fun trying, right! As it relates to supporting the economy, we don't know whether $1 trillion is the right number or not. Keep in mind, the government has already provided hundreds of billions of dollars in various backstops, facilities, bailouts, and guarantees. Combined, we're talking serious money. Ultimately, this intervention may pose substantial long-term risks to our economy if not handled properly. • One long-term risk is the possibility of uncontrollable inflation. Currently, few people are worried about inflation because economic growth is weak and commodity prices are plunging. But, with all this stimulus, the possibility exists that the economy could inflate beyond the government’s ability to corral it. • A second risk is the possibility of an extremely weak dollar. If we print too many dollars and nobody wants to own them, then the value goes down. This would make our exports more competitive (a good thing), but our imports more expensive (a bad thing). It could also lead to a rise in commodity prices, higher inflation, and higher interest rates. • A third risk is how effective will the government be in extricating itself from the economy after it’s outlived its usefulness. Many people, including some diehard free marketers, are willing to accept some level of government intervention right now to help prevent a devastating economic collapse. However, if things turn around, will the government be able to exit the economy gracefully without causing a relapse? When the government intervenes in our economy at a level that is way above historical norms, there may be unintended consequences. As an advisor, we can’t control what the government does with all of our tax dollars. However, we can monitor the government’s actions and do our best to try and benefit on your behalf from whatever unintended consequences may result. Weekly Focus – Think About It “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And, if it stops moving, subsidize it.” --Ronald Reagan

Dec 10, 2007 Weekly Commentary

The Markets Productivity grew strongly last quarter and that may bode well for our standard of living. Last week, the Labor Department reported U.S. non-farm business sector productivity grew at a revised seasonally adjusted annual rate of 6.3% in the third quarter. That was the highest rate in four years. Although not likely, if that trend were to continue, our country�s standard of living would double in just 12 years. By contrast, between 1948 and 1970, productivity growth averaged about 2.7% annually, according to MarketWatch. It then slowed dramatically between 1971 and 1995, as growth averaged just 1.6%. Since 1995, the rate has accelerated and it�s averaged about 2.5% per year for the 11 years ending 2006. Solid productivity growth is important to us because it allows us to raise our standard of living. As MarketWatch states in a December 5 article, �High productivity growth means the economy can grow rapidly without inflation, raising living standards and theoretically allowing workers to get big raises without hurting the boss�s profits.� And we all like big raises! In addition to the productivity number, the Labor Department reported that unit labor costs, a key measure of inflationary pressures, actually declined at a 2.0% annual rate in the third quarter. While not sustainable over the long term, this gave bulls some comfort, at least temporarily, that inflation was under control. These two reports may have helped push the stock market, as measured by the Dow Jones Industrial Average, up a respectable 1.9% last week�and we all like that too! 2007 HAS BEEN A YEAR FULL OF stock market volatility. However, a November 19, 2007 Pew study finds that these gyrations have a direct impact on only a limited number of Americans. Nearly half of adults nationwide (46%) say they don�t invest in the stock market. Among investors, 43% say they have long-term investments like retirement accounts, but don�t trade stocks regularly. Only 7% of Americans say they trade stocks and other funds regularly. Just who are these active traders? Not surprisingly, the November 19, 2007 survey found household income is a major factor driving market participation. Thirty eight percent of regular traders report an annual, pre-tax, household income of $100,000 or more -- an income level reached by only 15% of the general public. Pew researchers also found younger Americans are generally less likely than older Americans to trade on a regular basis. The Pew press release notes that while roughly one-fifth (21%) of adults nationwide are between the ages of 18 and 29, only 12% of Americans who report trading investments regularly fall within this age range according to the U.S. Census Bureau.. Nearly one third of this age group (31%) has no money in the stock market. According to Pew survey, half (48%) of regular traders and four in ten long-term investors (42%) are college graduates and that men outnumber women as regular traders 56% to 44%. THE INTERNAL REVENUE SERVICE IS LOOKING FOR 115,478 TAXPAYERS who are due refund checks worth about $110 million. The refund checks, averaging about $953, were returned as undeliverable as taxpayers moved without updating their address with either the U.S. Postal Service or the IRS. If you are still waiting for a refund, you can use the �Where�s My Refund?� tool on www.IRS.gov if you know your Social Security number, filing status, and amount of refund for your 2006 return. Alternatively, you can access a telephone version of �Where�s My Refund?� by calling 1-800-829-1954. Although the list of taxpayers due undeliverable refunds rose about 21% from last year, according to the IRS, undeliverable refunds account for less than 1/10 of 1% of all refunds, or about one in a thousand. If you�re moving this year, you can ensure the IRS has YOUR correct address by filing Form 8822, Change of Address. It�s available for download at www.IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). Weekly Focus � A Fun Gift For the person who has everything�.Discover Your Inner Economist: Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist by Tyler Cowen. Published this summer, Publishers Weekly praises the pop-economics book as a �charming guide on how to get more of the good stuff in life.� According to their review, �Cowen offers idiosyncratic strategies for appreciating museum art, for building family trust and cooperation, for writing a personal ad, for reading classic novels that seem boring on first inspection�and explains how, with planning and tactics, we can eat much better meals at home and in restaurants, here and abroad.� Sounds like it offers something for everyone.

Dec 09, 2008 Weekly Commentary

The Markets Ugly headlines sometimes translate into positive results in the stock market. Last Friday morning's headline economic number was the November unemployment report. In a word, it was "ugly." The Labor Department said U.S. employers cut 533,000 jobs from payrolls last month. To compound the dreary news, the September and October job loss numbers were revised to reflect significantly more job losses than originally reported. So, how did the stock market respond? It took a relatively mild dip as the market opened, but then it rallied near the close and the Dow Jones Industrial Average ended the day with a healthy 3% gain, although it still lost a couple percent for the week. While the headline number was bad, we did a little more digging and concluded that it wasn’t quite as weak as it first appeared. Here’s what we dug up: The loss of 533,000 jobs in November was the sixth largest monthly decline on record and the largest decline since December 1974, according to Bespoke Investment Group. However, when we measure the number of jobs lost as a percent of the workforce, it comes in as only the 41st worst monthly job loss on record. For example, back in December 1974, the economy lost 602,000 jobs out of a total workforce of 77.7 million people. That translates to a 0.78% loss of jobs in one month (602,000/77.7 million). By contrast, the 533,000 jobs lost last month were out of a workforce of 136.2 million people. That translates to a much lower 0.39% loss of jobs in one month (533,000/136.2 million). So, yes, the November job loss number was disappointing, but put in context, it’s not nearly as bad – on a percentage basis – as the headline would suggest. The takeaway is that dramatic headlines may be deceiving. A little more work may reveal a truth that some investors miss and that truth might be part of the difference between a successful investor and an unsuccessful one. And, by the way, in the 12 months following the December 1974 loss of 602,000 jobs (January – December 1975), the S&P 500 index rose 31% excluding reinvested dividends, according to data from Yahoo! Finance. Could history repeat itself? “IRRATIONAL EXUBERANCE” works in reverse, too. Twelve years ago, on December 5, 1996, Federal Reserve chairman Alan Greenspan gave a lecture at The American Enterprise Institute for Public Policy Research. During an otherwise dry speech, Greenspan uttered the following sentence, “But, how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?” Some investors took his “irrational exuberance” phrase as a warning that perhaps stocks prices had become a little frothy. Backing up that possibility was the fact that for the 12 years prior to December 5, 1996, the S&P 500 index had risen a very healthy 359%, excluding reinvested dividends, according to data from Yahoo! Finance. But, human nature being what it is, Greenspan’s comment was quickly brushed aside and the market roared ahead anyway. It didn’t stop until the S&P 500 index reached 1,527 in March 2000, a full 105% higher than when Greenspan made his now famous comment. In hindsight, it appears that “irrational exuberance” did indeed take place, since the S&P 500 proceeded to drop about 50% between March 2000 and October 2002, according to data from Yahoo! Finance. What we may be seeing now is the inverse of irrational exuberance. Let’s call it “irrational gloom.” As of last Friday, this gloom has helped propel the S&P 500 index to a 44% decline from its October 9, 2007, all-time high, according to data from Yahoo! Finance. Prophetically, in the 12 years between Greenspan’s comment on December 5, 1996 and December 5, 2008, the S&P 500 index rose a total of only 18%, excluding reinvested dividends, according to data from Yahoo! Finance. That’s a meager average annual return of 1.4%. Just like the market kept surging higher for about three years after Greenspan’s comment 12 years ago, this market could go lower even though “irrational gloom” may have set in. That’s not a prediction; it’s an observation that humans are – surprise, surprise – emotional creatures! We sometimes let emotions get in the way of good judgment. The extreme volatility we’ve seen in the markets the last few months may be the result of investors’ emotions overwhelming their rationale thinking. So, what’s an investor to do? Well, the first step is to admit that emotions may cloud an investor’s judgment. That step alone may help you be a better investor. As your advisor, we try to keep our emotions in check, while profiting on your behalf from other investors who let their emotions get the best of them. Weekly Focus – Think About It “He who knows others is wise. He who knows himself is enlightened.” --Lao Tzu

Dec 03, 2007 Weekly Commentary

The Markets Sometimes bad news is good news for the stock market. Last week, Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn both made comments to the effect that additional recent turbulence in the credit markets may require the Federal Reserve to lower interest again, according to reports from MarketWatch. Those comments helped spark a significant stock market rally that carried the Dow Jones Industrial Average to a 3.0 percent gain last week. In this case, bad news is good news for the market because to some extent, the market tends to look to the future for directional cues. For example, lower interest rates may lead to higher corporate profits in the future. Knowing that, stock market investors may �stock up early� in anticipation of higher future profits. So even though corporate profits may not look great right now, some investors will overlook that and start making investments now, thus bidding up prices. You may have heard the old Wall Street adage, �Buy on the rumor, sell on the news.� In this case, the �rumor� is that lower interest rates may lead to higher future profits. The �news� may come a year or two from now if profits do indeed rise. At that time, stocks may stagnate even though earnings could be rising significantly. In the end, stock prices tend to be driven by earnings. The tricky part is that there could be a significant gap in timing between changes in stock prices and changes in earnings. A RECENT ARTICLE TITLED �SHOCK TREATMENT,� published in The Economist discusses reasons why our economy has rather easily absorbed high oil prices that in the 1970s sent the economy into recession. Allowing that higher oil prices hurt the economy because they act like a tax increase and result in consumers having less to spend elsewhere, the article seeks to understand how consumers can adjust from a period six years ago when a barrel of crude oil cost as little as $20 to today�s prices that hover in the $90 range. Why, the article asks, has the �oil bogeyman become less scary?� The article points out that two new papers by three well-known economists come to similar conclusions: �Oil shocks do not hurt as much because oil is used less intensively than before, because the economy is more flexible, and because central banks are better at controlling inflation.� The papers referred to in the article are: The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s So Different From the 1970s, by Olivier Blanchard and Jordi Gal�, Massachusetts Institute of Technology Working Paper 07-21 (August 2007) and Who's Afraid of a Big Bad Oil Shock, by William Nordhaus, Preliminary draft (September 2007) prepared for Brookings Panel on Economic Activity. Our global economy also appears to play a role in our ability to adjust to higher oil prices. Globalization has made U.S. companies more competitive and that�s helped drive down the prices of various consumer goods. Lower prices for some commonly used consumer items may have cushioned the blow of higher energy costs. IF YOU�RE CONTEMPLATING A MAJOR HOME RENOVATION, you may be wondering how much of your project costs you will get back when you sell your home. To help industrious homeowners answer that question, Remodeling magazine has for two decades produced an annual �Cost vs. Value� report. You can view it at www.costvsvalue.com. Based on nearly 3,000 responses to a web-based survey conducted with Specpan and the National Association of Realtors, this year�s report found that due to the housing market slump, the percentage of construction costs recovered is down across all projects compared with last year. That said, however, remodeling is still a pretty good investment. Specifically, two-thirds of this year�s projects are projected to return between 65% and 80% at resale. That means you�ll pay just 20 cents to 35 cents on the dollar for most improvements you make to your home. As you might expect, what you get back at sale time varies depending on your location, location, location. While the percentage of costs returned in New England and Mid-Atlantic cities has remained fairly constant year to year, in the Pacific region (California, Oregon, and Washington), remodeling costs recouped at resale are 14% higher than the national average. Interestingly, cities in the southeast and southwest that are experiencing a building boom fall below the national average when it comes to recouping home improvement costs. This could be a function of the fact that because these areas have plenty of new homes lingering on the market and falling in price, buyers are turning their backs on even the most beautifully renovated older homes. As the subprime crisis unfolds and continues to impact the housing market, it�s worth staying up-to-date on factors that impact your home�s value. Remember, as with investing, your decision of whether to remodel your home begins with a careful evaluation of your current circumstances and future goals. Weekly Focus � So You Want to be an Entrepreneur? A recent survey of small business owners conducted by online payroll service SurePayroll reveals that oldest, middle, youngest, and only children are equally likely to have entrepreneurial aspirations. The survey found that the career paths of an entrepreneur�s parents, not birth order, had the greatest impact on a child�s decision to start a business.

Dec 01, 2008 Weekly Commentary

The Markets We typically think of stock market volatility as a "bad" thing, but last week, we saw the "upside" of volatility. As the chart indicates below, the broad-based S&P 500 index rose a stunning 12% for the week. Barron's said it was the largest one-week gain in that index since 1974. In the holiday-shortened week, the S&P 500 index rose all four days that the market was open for trading. So, yes, last week was volatile, but it was all "good" volatility. By contrast, Bespoke Investment Group said for the 50 trading days ending November 23, the S&P 500 averaged nearly a 4% daily move up or down – the majority of which were down (i.e., bad volatility). Bespoke says that was the most volatile period in the history of the S&P 500 index. Thanks to last week, the S&P 500 has now risen 19% since its November 20 closing low, according to data from Yahoo! Finance. We’d call that a very powerful rally! The ironic part of last week’s rally is that the economic news is still terrible. Data from the Commerce Department showed orders for U.S. made durable goods fell 6.2% in October, which was the largest decline in two years, according to MarketWatch. The Commerce Department also reported that consumer spending declined 1% in October, its largest decline since the September 2001 terrorist attacks. And, of course, housing is still in trouble. The Case-Shiller home price index published last week by Standard & Poor's showed home prices in 20 major U.S. cities fell a record 17.4% on a year-over-year basis. SOME WISDOM never goes out of style. Below are a few of the late Sir John Templeton's 22 Principles for Successful Investing that we think are worth remembering in this volatile market environment: 1. Outperforming the majority of investors requires doing what they are not doing. 2. Buy when pessimism is at its maximum, sell when optimism is at its maximum. 3. Buying when others have despaired, and selling when they are full of hope, takes fortitude. 4. Bear markets aren't forever. Prices usually turn up a year before the business cycle hits bottom. 5. Buy what other people buy and you will succeed or fail as other people do. 6. Invest worldwide. 7. When your method becomes popular, switch to an unpopular method. 8. Stay flexible. No asset or method is forever. 9. Stock market investing takes more skill than any other kind of investing. Source: The Templeton Touch (1983), by William Proctor. Templeton makes it sound simple, but we know from experience that successful investing is anything but simple! Weekly Focus – Think Inspiration, Not Spending After you cover your basic needs, you have a choice on what to do with your money. You can save it, spend it, or redirect it to higher purposes. Prudent planning suggests that you save a certain amount, but, after that, how do you determine how much to spend for your own gratification versus redirecting toward serving your highest commitments and deepest values? One of the best ways to answer that question is to ask yourself, “Whom do I want to become?” Once you know the answer to that question, the path you should follow will unfold… and it may surprise you.

Aug 27, 2007 Weekly Commentary

The Markets Sometimes Wall Street has a short-term memory. It was just a few short days ago on August 16th, that the Dow Jones Industrial Average hit an intra-day low of 12,455, which was an 11% drop from its July 19, 2007, all-time closing high 14,000, according to Yahoo! Finance. Remember that? Things were so tenuous in the credit markets that the Federal Reserve felt compelled to step in and add billions of dollars of liquidity to banking systems and to cut the discount rate. However, with last week�s strong rally, the Dow closed last Friday just 4.4% below its all-time high. And year-to-date, the Dow is up 7.4%, which is nothing to sneeze at. Are all the problems that prompted the Fed to take action now behind us? The short answer is nobody knows. With all the exotic securities and new-fangled investments that have been sold in the past few years, it may take more time for the effects of subprime problems and liquidity issues to work their way through the system. Then again, it�s possible that the Fed�s action was all that was needed to cure the problem. Of course, we continue to monitor the situation. Liquidity issues took a backseat last week as good economic news helped drive a nice rally in the stock market. In particular, data on durable goods orders and new home sales were perceived positively by the markets, according to MarketWatch. If you look at the performance numbers below and have no memory of the volatile times earlier this month, you�d think we�re having a great year in the stock market. And looking at the one-year returns, it�s hard to argue that we�re not. WILL TAKING A PERSONAL FINANCE CLASS IN HIGH SCHOOL help your child later in life? According to a new study, your teenager may be better off selecting another elective. Researchers at Ohio State found that adults who took a high school personal finance class didn�t score any better on a test of basic investment knowledge than those without a personal finance primer. Interestingly, however, respondents who took a personal finance class in college scored more than a full point (or a letter grade in academic terms) higher than those who took a high school personal finance course. Published in a recent issue of the Journal of Family and Economic Issues, the study involved 1,039 alumni of Ohio State. So why would college classes be more effective than those in high school? Study co-author Jonathan Fox, an associate professor of consumer sciences at Ohio State University, says college classes are more comprehensive and that personal finance lessons may be more applicable for college students who are living on their own, paying bills, and dealing with financial aid issues. Additionally, with study respondents who held a bank account before age 18 scoring more than 5% higher than those who didn�t, Fox says the study underscores the value of real-life financial experiences as teaching tools. Accordingly, he suggests the best way to convey the basics of personal finance to high school students might be to include real-world financial issues for teens in the curriculum. There�s plenty of room for improvement when it comes to educating teens about personal finance. A 2006 survey measuring the financial knowledge of 12th graders conducted by the Jump$tart Coalition for Personal Financial Literacy found only 14.2% knew that stocks have historically, over long periods of time, returned more than bonds. How do you teach your children about money? Do you have tips you�d like to share? Let us know. THE RICH SEEM TO BE GETTING RICHER. Have you ever heard the phrase, �Mind the gap?� In addition to being the broadcasted warning to train passengers to take a giant step from the boarding platform onto the trains in London�s Underground rapid transport system, it�s a commentary on the financial situation of American families. According to a new study by the University of Michigan�s Institute for Social Research (ISR), the rich are getting richer and the poor are getting poorer. Based on data from the Panel Study of Income Dynamics, over the last 20 years the net worth of the top two percentile of American families nearly doubled, from $1,071,000 in 1984 to $2,100,500 in 2005. However, the poorest quarter of American families lost significant financial ground over the same period. Specifically, the poorest 5% of American households that had a negative net worth of just over $1,000 in 1984, carried $9,000 in debt in 2005. According to an August University of Michigan press release, �From 2003 to 2005, the average net worth of American families increased 12 percent. In constant 2005 dollars, overall average net worth, including home equity rose from $275,600 to $309,600. But during that period, the average net worth of African American households fell slightly, from $59,900 to $59,500. The median net worth of households headed by high school drop-outs and by younger people, from ages 20 to 39, also declined.� You can probably find statistics that paint a different picture, too. With the election season heating up, you can count on �income inequality� being one of the campaign issues. Weekly Focus � Maturity Brings Richer Memories Do you ever wonder why your 12 year-old can�t remember riding on the teacups with her cousins at Disneyland when she was five? MIT neuroscientists may have the answer. Researching how memory formation differs between children and adults, the scientists found that although the two groups are similar when it comes to constructing basic, factual memories, adults do a better job at remembering rich, contextual details. According to the MIT press release, the MIT study, published in the August 5th advance online edition of Nature Neuroscience, indicates that a �more developed prefrontal cortex (PFC) -- an area of the brain associated with higher-order thinking, planning, and reasoning -- may be responsible for creating richer memories in adults.� Quoted in the release, senior study author John Gabrieli of MIT�s McGovern Institute for Brain Research and Department of Cognitive Sciences explained, �Activation in the PFC follows an upward slope with age in contextual memories. The older the subjects, the more powerful the activation in that area. That makes sense, because there's been a convergence of evidence that the PFC develops later than other brain regions, both functionally and structurally.� So, there are some advantages to growing older!

Aug 26, 2008 Weekly Commentary

The Markets When Warren Buffett talks, people listen. Last Friday, the famed investor spent three hours talking to CNBC's Becky Quick live from Omaha. Here are a few highlights from their conversation that are worth sharing. When asked about the state of the economy Buffett said, “The country will be doing far better five years from now than it is now, but it won't be, in my judgment, it probably won't be doing better five months from now.” In other words, Buffett seems to be saying that we need to take a long view here and realize that it took us more than 12 months to get into our current predicament, so it may take more than 12 months to work our way out of it. Buffett seems to think there’s value in equity markets around the world. In one of his more upbeat remarks, he said, “I see values in all arenas. I mean, we try to look for the best ones, but there's no magic to any given market and things are cheaper than they were a year ago in markets here and in markets around the world. So, everything is more attractive, generally speaking, both here and in Germany, and the UK, and Korea, and you name it.” So, what keeps Buffett up at night? What does he worry about? His answer is quite instructive. “Well, I don't worry that much in the sense that we've been through lots of recessions in the past, and that the country always comes out stronger, and so I expect, I expect stock markets to go down from time to time. I expect there to be uncovered, I expect that we will uncover credit mistakes. I expect that we'll have recessions. But, I also expect, and I'm totally convinced, that your children will live better than you and your grandchildren will live better. So, I don't, I don't get upset about, day-to-day, what's happening in the market. It may offer, in fact, it does offer chances to buy things more attractively. I mean, if I go to a supermarket and things are on sale, I feel better.” Buffett’s optimistic words helped the stock market post a strong gain last Friday. However, weakness early in the week left the market slightly down for the week. As Buffett says above, the good thing about weak markets is they may create attractive investment opportunities. As your wealth advisor, we continue to do our best to find those attractive opportunities and turn them into financial success for you. HOW WOULD YOU LIKE A JOB where you make nearly a million dollars a year yet your accuracy in your main job activity is less than 10%? It appears that such a job exists and it’s called “Wall Street Securities Analyst.” Back in the heyday of securities analysts—the bubblelicious late 1990s/early 2000s—these stock stars pulled down average annual paychecks of $1.8 million, according to a March 2003 Fortune article. By 2003, the brutal bear market had taken its toll and the analysts’ pay was down to approximately $800,000 per year, according to that same article. Analysts are paid to research companies and develop earnings estimates. These earnings estimates are used to help determine if a company’s stock is valued appropriately in the stock market. Money managers then use these estimates to help them make buy and sell decisions. You would think that these highly educated analysts (many of whom have MBAs, CFA designations, and come from prestigious schools) would be quite accurate in their estimates. Unfortunately, they frequently miss the mark by a wide margin. An August 20, 2008, Bloomberg story spelled out in stark terms just how poorly analysts have fared lately. Bloomberg said, “Analysts correctly predicted results for 6.7% of the companies in the Standard & Poor's 500 Index that released second-quarter earnings, the fewest since Bloomberg began tracking the data in 1992.” With less than 10% accuracy in predicting earnings, it’s no surprise that many investors have trouble “beating” the market. The analysts were particularly off the mark in forecasting earnings for banks, brokers, insurance companies, and retailers, according to Bloomberg. This inaccuracy is not just a recent phenomenon either. David Dreman, in his 1982 book, The New Contrarian Investment Strategy, cites a 1977 study published in the journal Financial Management, which shows how poor analysts were in making forecasts back in 1972-1976. In the study, the researchers found that the average annual error for earnings estimates on 92 New York Stock Exchange listed companies between 1972 and 1976 was 24.1%. In other words, the actual earnings from these companies were about 24% different from what the analysts had projected. As they say in the computer business, “garbage in, garbage out.” It’s no different in the investing world. When you work with poor data, it’s difficult to be a successful investor. We try to be careful in distinguishing between data we think we can “trust” and data that we think is susceptible to “error.” Securities analysts provide good background information, but their earnings estimates are often not very reliable. We’ve learned that being somewhat of a skeptic and filtering information through our own lens tends to pay dividends. Weekly Focus – Just Six Words Can you summarize your life in just six words? A recent book titled, Not Quite What I Was Planning: Six-Word Memoirs by Writers Famous and Obscure, is filled with these short life stories. Here are several examples: “Risked it all; wasn’t quite enough” by Greta Orris. “Aging late bloomer yearns for do-over” by Sydney Zvara. “Painful nerd kid, happy nerd adult” Linda Williamson. “Extremely responsible, secretly longed for spontaneity” by Sabra Jennings. “Too much suffering because of money” by Sam Norton. It’s not easy to find just six words that encapsulate your life, but it’s a worthwhile exercise. Give it a try. We’d love to hear what your six words are!

Aug 20, 2007 Weekly Commentary

Weekly Commentary The Markets We are from the Federal Reserve and we are here to help. To dredge up an old cliche, like a knight in shining armor, the Federal Reserve swooped in last Friday with a shot of adrenaline�in the form of a cut in the discount rate�that pepped up the markets. The discount rate is the interest rate charged to banks and other depository institutions that borrow money from the Federal Reserve. For various reasons, it�s largely a symbolic rate since very few financial institutions actually borrow money in this manner. However, that didn�t matter to the financial markets. More importantly, this symbolic move led some analysts to believe that it may open the door to the Federal Reserve cutting the all-important federal funds rate in the near future, according to The Wall Street Journal. The cut in the discount rate last Friday sparked a large rally in the stock market, which helped drive the Standard & Poor�s 500 index to its biggest one-day percentage gain in more than four years, according The Wall Street Journal. Unfortunately, it wasn�t enough to offset losses earlier in the week. At its lowest point last week, the Dow Jones Industrial Average was down more than 10%, a threshold that typically signifies a �correction.� As Barron�s pointed out, the stock market was on a streak of 1,591 days without experiencing a 10% decline. That was the second longest streak since World War II. So the current decline is, if anything, overdue. Data from Ned Davis Research helps put the current decline into even better perspective. Their research shows that between 1/2/1900 and 6/28/2006, the Dow Jones Industrial Average declined 5% or more an average of 3.3 times per year. They also found that a 10% or more decline occurred an average of 1.1 times per year. And finally, they discovered that a decline of 20% or more occurred on an average of once every 3.4 years. Yes, the markets can be volatile. However, as the data from Ned Davis Research shows, volatility is normal, it�s expected, and as advisors, we try to plan accordingly. IT�S BEEN FIVE YEARS SINCE THE SARBANES-OXLEY ACT (SOX) WAS ENACTED in response to corporate scandals at firms such as Enron, Tyco, and WorldCom. For directors, officers, auditors, securities analysts, and corporate lawyers at companies (foreign and domestic) that have registered equity or debt securities under the Securities Exchange Act of 1934, life is a lot more complicated. However, SOX�s strict requirements on corporate governance, securities analysis, and audit work are paying off. Today, according to a study by the Center for Audit Quality, an arm of the American Institute of Certified Public Accountants, 60% of investors report that SOX has increased their confidence in U.S. capital markets. Corporate complaints about the high cost of complying with the law seem lost on individual investors. Just 22% of those surveyed said the law should be eased to address concerns about its costs and any negative effect on U.S. competitiveness. Only 5% of those surveyed said adopting the law was a bad idea. Accountability and transparency are always a plus from an investor�s standpoint. LAST WEEK, THE INVESTMENT COMPANY INSTITUTE issued its report titled, The U.S. Retirement Market 2006. Among the key findings: Total U.S. retirement accumulations reached $16.4 trillion in 2006, an 11% increase over 2005. Retirement assets now account for nearly 40% of all U.S. household financial assets, compared with 24% two decades ago. Employer-sponsored retirement plans play a key role in helping American workers accumulate retirement assets. Nearly two-thirds of Americans� retirement assets are held in employer-sponsored retirement plans. About half of Americans� retirement savings are held in defined contribution plans and IRAs. Assets in defined contribution (DC) plans and IRAs continued to grow more rapidly than assets in other types of retirement plans in 2006, increasing 15% compared with 8% asset growth for other retirement plans. Together, assets in DC plans and IRAs represented 51% of retirement assets in 2006, up from 39% in 1990. The good news is that, in a working world where the corporate pension has gone the way of the drive-in movie, Americans are accepting more responsibility for funding their own retirement. Weekly Focus � Ah, the salad days of our youth� When summoning inspiration for a summer salad, tossing in five special veggies can boost your meal�s antioxidant power significantly. According to RealAge.com, a handful of artichokes, radishes, broccoli, red chicory, or leeks can improve your defenses against everything from wrinkles to heart disease. Of the 27 vegetables tested, the artichoke led the antioxidant pack and won extra points for being rich in fiber and folate.

Aug 18, 2008 Weekly Commentary

The Markets The tug of war in the stock market ended in just about a draw last week as the Standard & Poor's 500 index rose a fraction. Since the beginning of the year, the S&P 500 index has traded in a range roughly between 1,215 and 1,450, according to data from Yahoo! Finance. However, when you consider the weakness this year in the financial and homebuilding sectors, the rise in oil prices and the inflation spurt, we might view it as a positive accomplishment that the market is only down about 12 percent year-to-date as measured by the S&P 500 index. When you dig deep into the market, there’s been significant turbulence in certain sectors (e.g. financials, homebuilders), but some of that weakness has been offset by strength in the transportation and commodities sectors, according to Morningstar. Of late, a stronger dollar and declining oil prices have helped breathe life into the markets. As of last Friday, the dollar had appreciated for 11 straight days against the euro, according to Barrons. While you never know for sure what causes a run like that, some of the “experts” suggest it’s due to weakening international economies. So, while the U.S. economy may be weak, other countries are starting to slow and that may make the U.S. look a little better on a relative basis. August is frequently a peak time for Wall Street titans to retreat to the Hamptons and other upscale locales to soak up some sun and relax. As a result, stock market volume has been relatively light this month so it’s hard to draw any conclusions from the recent market action. As we head into the fall and get another round of quarterly earnings, that may change. Stay tuned… WHY DOES THE PRICE OF A STOCK FLUCTUATE? Theoretically, you could argue that stock prices are simply a function of supply and demand but that’s so broad that it’s not very useful in trying to determine the future direction of stocks. Over time, two main schools of stock analysis have developed—fundamental analysis and technical analysis. Fundamental analysts use financial data such as revenue and earnings to try and determine a company’s underlying value and potential for future growth. Technical analysts use charts based on market activity such as past prices and volume to try and identify the future direction of the stock. Devotees on each side vigorously defend their chosen method. There’s also a third, but less understood method of stock analysis called cycle analysis. This school looks at things such as harmonics (don’t ask), Elliott Waves, Kondratieff Waves, Gann patterns, presidential cycles, 40-week cycles, 20-week cycles and yes, even astrological cycles. Cycle adherents are very quantitative and believe the markets are driven by mathematical patterns that are not readily observable. Of course, “cyclists” stand ready to discern these patterns for you for a fee. So which school of analysis is the best? In reality, they all may have a place. The reason is, there are some market participants who believe in and invest based on these schools. If enough of them act at the same time, that ends up driving demand for a stock and could cause it to go up or down. Unfortunately, there’s no way to measure or predict the impact of any one school on the price of a stock or the market as a whole. Over long periods of time, stock prices tend to reflect the underlying earnings of the company. If you can get the earnings right and figure it out before the “crowd” does, then you may have a winning strategy. Of course, that’s no easy task. Weekly Focus – Mind Reading? The U.S. Army awarded scientists a $4 million grant to study brain signals in an attempt to, “decipher what a person is thinking and to whom the person wants to direct the message,” according to an August 15 Associated Press story. Using brain wave-reading technology known as electroencephalography, or EEG, scientists had volunteers wear an electrode cap and then they asked the volunteers to think of a word chosen by the scientists. The scientists then analyzed the brain activity. In what may be a scary thought (pun intended), the scientists, “hope to develop thought-recognition software that would allow a computer to speak or type out a person's thought,” according to the article. And now you know were our tax dollars go.

Aug 13, 2007 Weekly Commentary

Aug 13, 2007 Weekly Market Commentary The Markets All is well that ends well. So wrote Shakespeare 400 years ago and it seems an appropriate description for the stock market last week. The market started last week on a tear. The Dow Jones Industrial Average rose 476 points in the first three days, which was the Dow's best three-day rally since March 2003, according to Barron's. But on Thursday, investors had a change of heart and the Dow posted its second worst loss of the year, according to The Wall Street Journal. By the time Friday morning rolled around, nervous investors continued selling. However, the Federal Reserve stepped in and helped calm the markets by injecting $35 billion into banking systems, according to MarketWatch. This added some needed liquidity and confidence to the markets and the Dow ended the day down just slightly. The Fed's intervention raises an interesting issue. If investors start thinking that the government or the Federal Reserve will intervene in the markets every time there's a potential problem brewing, this could make investors less disciplined and cause markets to not function properly. For example, if investors figure that the government will step in and prevent significant losses, they may take bigger risks, which could lead to bigger bubbles. Walking a fine line between letting markets function in a capitalistic system and intervening if things get way out of kilter is a delicate balancing job for the Fed and the government. Based on the markets response last Friday, the initial reaction was the Fed made the right move by adding liquidity to banking systems. As the markets showed us last week, we may not like what happens in the middle innings, but ultimately, the score at the end of the game is what really matters. AMERICANS HAVE TENDED TO CONSTRUCT LARGELY DOMESTIC PORTFOLIOS, but in the last few years, U.S. investors have begun to expand their worldview. According to the Investment Company Institute (ICI), of the $160 billion of net new money investors added to equity portfolios in 2006, portfolios investing in foreign companies raked in a record $148 billion, up from $105 billion in 2005. Additionally, a new Spectrem Perspective report, Meeting The Affluent Investors Needs Through International Investing, released in early May, notes that trend is strong among affluent Americans. In fact, 40% of affluent households, defined as having more than $500,000 in investable assets, say they are likely to invest or continue investing internationally. Nearly one-third (31%) say they are investing more internationally than in the past. Are investors chasing performance or is this an attitude adjustment? It may be a little of both. While the traditional benefit of international diversification has been to lower portfolio risk, today U.S. and foreign markets seem to move a little more in lockstep than in the past. Of course, this could reverse in the future. For now, some investors are pursuing global opportunity as the primary reason to invest overseas. Simply, the U.S. is a smaller piece of the world economy. Today, if you want to invest in the dominant pharmaceutical company or automobile manufacturer, you need to cast a global net. As the world becomes flatter, our investment choices become wider. ARE INEXPERIENCED MONEY MANAGERS more likely to be swayed by the euphoria of investing bubbles? In a recent paper titled, Inexperienced Investors and Bubbles, Harvard Business School's Robin Greenwood and Stanford University's Stefan Nagel compared the returns of young and older money managers during and after the technology stock bubble. The results show that inexperienced money managers, those under age thirty-five, exhibited trend-chasing behavior that produced over-investment in tech stocks. According to the authors, the trend-chasing behavior of young managers reflects their attempts to learn and extrapolate from the little data they have experienced in their career. The research showed older managers were less likely to take the bubble bait. Why? As Professor Greenwood commented in a Q&A with Sean Silverthorne, First, they have had more market experience, and know that past returns do not imply future performance. Second, they may have lived through some years of particularly bad returns. This tends to make investors more cautious. Greenwood noted further that managers older than forty just old enough to have lived through the 1987 crash were particularly unlikely to bet on technology stocks relative to their younger counterparts. It goes to show there is no substitute for experience. Weekly Focus Try Lifting This Coin Sure, the $1 and $2 Canadian coins tend to confuse travelers, but the Canadian Mint's latest addition is designed to awe. Unveiled this spring, the Mint's pizza-sized gold coin weighs in at 220.5 pounds and holds claim to the record for the world's largest and highest denomination. Face value? A cool $1 million Canadian. Oddly enough, with the current price of gold, the coin is actually worth more than its one million face value. So, it will be interesting to see what price it fetches. This week, Escala Group, Inc., a global collectibles company, announced the world's largest, most valuable coin will be offered in an online-only auction through Teletrade, Inc., an online rare coin auction company (www.Teletrade.com). Let the bidding begin! * The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. * The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. * Yahoo! Finance is the source for any reference to the performance of an index between two specific periods. * Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. * Consult your financial professional before making any investment decision. * Past performance does not guarantee future results. Securities offered through NorthStar Financial Partners- Member NASD/SIPC. Advisory Services offered through NorthStar Financial Partners-Registered Investment Advisor.

Aug 11, 2008 Weekly Commentary

The Markets A big drop in oil prices helped fuel a significant rise in stock prices last week. However, is there normally a neat and tidy inverse relationship between oil prices and stock prices? Crude oil prices dropped 7.9% last week while the Dow Jones Industrial Average popped 3.6%, according to The Wall Street Journal. The Dow’s rise included two days of more than 300-point gains. Since its July 3 high, crude oil prices have now dropped 21% as of last Friday, according to the Journal. Believe it or not, that suggests oil prices are now in a “bear market,” as measured by the traditional definition of that usually dreaded condition. Interestingly, since crude oil’s July 3 high, and subsequent 21% drop, the Dow has risen just 3.9%. Going back a little further, oil prices have risen about 66% for the 12 months ending August 8, while the Dow has dropped only 11.4%, according to the Journal. Clearly, there are other factors at play in the market. We still have credit issues to deal with; we have concerns about corporate earnings; and inflation is still a concern, although the recent drop in oil prices may help ease some of the pressure. At various times, the stock market may become fixated on a certain indicator and then trade off that indicator for a period. For example, back in the late 1970s and early 1980s, the money supply figure was widely watched by analysts. At other times, corporate earnings, the value of the dollar, the consumer price index, weekly jobless claims, and a myriad of other numbers took center stage. Currently, oil prices are grabbing headlines, but the inverse relationship between oil prices and stock prices does not appear to be strong – except perhaps on certain days. THE CHINESE STOCK MARKET IS A GREAT EXAMPLE of why it is so important to preserve capital in times of market difficulty. If we go back to December 29, 2006, the benchmark Shanghai Composite Index (SCI), which tracks both the yuan-denominated A shares, as well as B shares priced in foreign currency, closed at 2,674, according to data from Yahoo! Finance. By the end of 2007, the SCI had nearly doubled to close the year at 5,261. So far, so good. However, as 2008 dawned, the Chinese stock market began a dramatic slump. As of last Friday, the SCI closed at 2,605, which represents a year-to-date loss of just over 50%, according to MarketWatch. Notice the symmetry here. The SCI rose nearly 100% in 2007, then dropped about 50% in 2008, which left the index at almost the same price as it began in 2007. On the surface, it doesn’t make sense. If the market rose 100% in one year, then dropped 50% the next, shouldn’t it still be up on a cumulative basis? No, and that’s why capital preservation is critical. Here’s how the math works. Let’s pick a starting number, in this case we’ll use 200. Now, if we double it, i.e., a 100% increase, the ending value is 400. In year two, let’s say we cut that number by 50%. Now we’re right back to 200 – right where we started. This is essentially what happened to the Chinese market since the end of 2006. The near doubling in 2007 was wiped out by the subsequent 50% drop in 2008. This mathematical structure also helps explain why the NASDAQ Composite Index is still far below its all-time closing high of 5,048 set way back on March 10, 2000. The brutal bear market that followed took the NASDAQ down to 1,114 on October 9, 2002, which represents about a 78% decline, according to data from Yahoo! Finance. Doing the math, the NASDAQ would have to rise more than 350% in order to recoup that 78% decline – a tall order to say the least. As of last Friday, it had added back about 116% of the 350%. Stock market gains are hard fought so we try to do everything we can to help ensure we maintain those gains and not get into the mathematical hole of trying to dig out of a big loss. Weekly Focus – Unity and the Opening Ceremony The opening ceremony at the Summer Olympics was simply spectacular. It’s comforting to know that there’s at least one time and one place where 204 countries can gather and put aside their differences. Let’s hope the good feelings continue during the games and long after the Olympic torch is extinguished.

Aug 04, 2008 Weekly Commentary

The Markets If you simply look at the trend of our gross domestic product (GDP) over the past three quarters, you might get the impression that the economy is poised for takeoff. But, just like you shouldn’t judge the quality of a bottle of wine based on the beauty of its label, you shouldn’t trust statistics without looking into the details. Here’s what the GDP trend looks like, according to newly revised data from the Department of Commerce: Period GDP Change Q4 2007 -0.2% Q1 2008 0.9% Q2 2008 1.9% Based on the chart, it looks like the economy was weak in Q4, but has been steadily improving since then. On the surface that’s accurate, but let’s look under the hood a bit. The second quarter included $91 billion of one-time economic stimulus payments that helped boost the consumer spending component of GDP to an annualized growth rate of 1.9%, up from 0.9% in the first quarter, according to The Wall Street Journal. Also, the Journal noted, “Strong export growth is the biggest factor keeping the economy out of recession.” To buttress that point, exports grew 9.2% in the second quarter. But, how long will our strong export growth last? An August 1st Journal article said, “Many parts of the world are slowing down themselves as rising prices take a toll on consumers and businesses.” If export growth slows, that may have a negative effect on future GDP growth. Yes, we’re pleased to see that the economy grew 1.9% in the second quarter. However, upon further analysis, the number may be a little misleading. Wall Street seemed to agree because on the day the number came out, the Dow Jones Industrial Average dropped 205 points. Investing is a bit like putting a puzzle together. It takes many pieces to create the whole. In this case, the “under the hood” GDP number is just one of many pieces that help define the state of the economy. We continue to review lots of “pieces” in an effort to do the best job possible for you. BEAR MARKETS ARE QUITE TRICKY because it’s common to see big “up” days in the middle of a major decline. These up days may convince a naïve investor that all is well and they may dive in, only to discover it was a head fake. The financial sector is a good example. Year to date through July 31, the Financial sector was down more than 25%, according to Bespoke Investment Group. However, if you look at the 10 biggest up days in the Financial sector since 1990, seven of them occurred in 2008. That’s right. Despite the sector dropping more than 25% this year, it still experienced seven dramatic up days. The Technology sector experienced the same thing. During the 2000 – 2002 bear market, the Technology sector lost 82% of its value, according to Bespoke. Yet, during that horrible period, the sector experienced nine of its 10 biggest up days since 1990. Just like the GDP trend discussed above, a big up day in the market makes a good headline, but it may not be the “all clear” signal. Nobody rings a bell at the top of a market and nobody rings one at the bottom. Among other things, it takes hard work, patience, and “emotion management” to succeed as an investor. YES, OIL COMPANIES DO MAKE A LOT OF MONEY, BUT as investors, we have to keep these profits in proper perspective. Exxon Mobil announced last week that it posted net earnings of $11.7 billion in the second quarter, according to MarketWatch. That was an all-time U.S. record for quarterly earnings. Ironically, it didn’t impress investors because the stock dropped nearly 5% on the day the earnings were announced, according to Associated Press. Investment analysts expected the company to earn even more. So, what perspective should we be looking at here? Profit margins are a good place to start. If you take Exxon’s $11.7 billion in net profit and divide it by its quarterly revenue of $138.1 billion, you get a net profit margin of 8.5%. That’s solid but unspectacular. By contrast, let’s look at The Walt Disney Company. Disney announced last week that third quarter net profit was $1.3 billion on $9.2 billion in revenue. Doing the math, that comes out to a net profit margin of 14.1%. As you can see, Disney’s profit margin is more than 60% higher than Exxon’s, yet how many people in government are talking about a windfall profits tax on Disney? We’re not making this point to defend oil companies. The point we’re trying to make is that once again, you have to look under the hood to determine what’s really going on. Exxon is a profitable company, but the margins they earn do not appear outrageous – even after considering the fact that oil prices have risen dramatically recently. Weekly Focus – Sleep On It If you want to get smarter, don’t skimp on your sleep. According to a recent Scientific American article, “‘Sleeping on it’ seems to provide the clarity we need to piece together life’s puzzles.” Apparently, while we’re sleeping, our brain is busy processing that day’s information so, that when we wakeup, we may have an answer to a problem or we may have new insight on something that’s been puzzling us. So, there you have it – permission to sleep in!

Apr 28, 2008 Weekly Commentary

The Markets Here's some positive news. More than half of the institutional money managers surveyed in Barron's semi-annual Big Money poll are bullish on the U.S. stock market through the end of this year. In fact, the survey found that 87% of the money managers expect to be net buyers of stocks over the next three to six months, while only 13% expect to sell more stocks than they buy, according to the April 28th Barron�s article. Lest we get too carried away, it would be wise to remember what Yogi Berra said regarding forecasts, �It�s tough to make predictions, especially about the future.� With that caveat out of the way, it helps to know what other investors are thinking. Why? Because it helps us figure out what expectations are being built into the market. If we think expectations are too high, then that may cause us to be a little more conservative. If we think expectations are too low, then we may be more willing to step up to the plate. Ironically, while more than half of the surveyed institutional money managers are bullish about stocks, the general public is in a dour mood. U.S. consumer sentiment hit a 26-year low in April, according to a survey compiled by the University of Michigan/Reuters. The survey identified high prices for food and energy, weak income growth, and declining home values as the key drivers of our bad mood. From a contrarian standpoint, bad news might actually be good news. If we�re near the bottom in sentiment, then it might make a U-turn and start heading up. Happier consumers might translate into more spending, which could lead to stronger earnings and rising stock prices. NOW THAT TAX SEASON IS OVER, you might be pleased to learn that on average, each household in the U.S. paid about $4,300 in federal taxes just to cover the interest payments on our $9.4 trillion public debt, according to Jim Jubak at MSN Money. Jubak also pointed out that we rang up a $700 billion federal trade deficit in 2007, we have $950 billion in credit card debt as of March 2008, and we have $1.6 trillion in auto loans and other non-revolving debt. A trillion here and a trillion there, pretty soon we�re talking about serious money! Part of what�s happening in the economy today is a de-leveraging of our financial system. Households and corporations (particularly financial companies) are cutting back on their use of debt. People are beginning to realize that swimming in debt might be fun for a while, but eventually, if we�re not prudent with our use of debt, we might be in for trouble. The negative effects of binging on debt are now starting to show up in the form of rising bankruptcy rates, loan defaults, and even marital problems. The unwinding of the loose credit era may be painful for many people. However, once we get past this period, it may set us up for a new period of economic growth that�s based on firmer footing. HOW DOES THE WORLD�S 24TH RICHEST PERSON spend his money? Well, with an estimated fortune of $19.5 billion according to Forbes, Russian billionaire Mikhail Prokhorov is launching a new consumer magazine, and befitting his mogul status, Prokhorov is naming his magazine Snob. Along with the magazine, he�s launching a companion web site and television station. In total, he�s looking to invest up to $150 million in the new venture. So, how does he define �Snob?� According to a representative of the company, �Snob to us means a person who is a 'self-made man,' a person who has gained a right to snobbishness.� In Russia alone, Forbes says there are 87 billionaires. No doubt, many of them are in the magazine�s target market. Weekly Focus � How Much Happiness is Enough? There's been a lot of talk over the past few years about happiness and what it takes to be happy. Numerous books have hit the bestseller lists extolling the virtues of consciously working toward being as happy as we can be. On the surface, being happier sounds like a great idea. But, can too much happiness�like too much cookie dough�be a bad thing? Yes, according to some recent studies. If your objective is to grow your income, advance your career, and add to the material comforts in your life, then having a little "unhappiness" in your life may be necessary. Why? Because if you are completely satisfied and happy with your life, you'll lack the motivation to keep improving it. If you're already a 10 out of 10 on the happiness scale, chances are you'll walk around with a smile on your face and lack any desire to keep "working" hard to improve your lot in life. By contrast, people who score 8 out of 10 on a scale of happiness tend to be more "successful" than those who scored a 9 or 10 out of 10. Their slight level of discontent led them to keep working hard toward improving their situation. Just shows the truthfulness of this old saying, "Be careful what you wish for."

Apr 27, 2009 Weekly Commentary

The Markets The government's ability to "stick the landing" will go a long way toward determining how well the economy – and, by extension, the stock market – will fare over the coming years. If you're a fan of gymnastics, you're familiar with the concept of "sticking the landing." Whether it's coming off the vault, the beam, or the bars, gymnasts hope to make that picture perfect landing with a big smile and arms outstretched. Taking a step forward on the landing, a step backward, or, worse yet, falling on your you know what, leads to a dreaded deduction and a disappointing finish. The government is in a similar position. With its myriad of fiscal and monetary policies, the government is furiously working to "stick" an economic landing that will prevent the recession from turning into a depression or the recovery from turning into runaway inflation. Their stab at managing interest rates and trying to thaw the credit markets is a good example. On March 18, the Federal Reserve announced they would purchase more than $1 trillion in government and agency debt and mortgage-backed securities in an effort to lower interest rates and spur growth. So, how well has it worked? The yield on the 10-year Treasury note immediately dropped one-half percent from 3.0% to 2.5% – a huge one-day decline and a quick sign that the market liked what it heard. However, by last Friday, investors had reconsidered and the yield on the 10-year note was back up to 3.0%. While the yield on the 10-year note has done a round trip over the past few weeks (possibly due to improved economic expectations or higher inflation expectations), the Fed has achieved great success in lowering other rates. For example, interest rates for mortgages, investment grade bonds, junk bonds, and municipal bonds have all declined since the Fed went on its bond-buying spree. And, let's not overlook the effect in the stock market. Since its March 17 close, the S&P 500 index has risen about 11%, according to data from Yahoo! Finance. Overall, the government has made some headway in managing interest rates, but the credit markets are by no means back to normal. Unlike gymnastics, where you know in an instant if the gymnast "sticks the landing," we won't know for months, or perhaps even years, if the government sticks its economic landing. In the meantime, we'll continue to watch for the signs and make adjustments accordingly. ARE GREAT INVESTORS BORN OR MADE? If you look at people like Peter Lynch, John Templeton, or Warren Buffett, it's tempting to say that they were born with natural gifts that endowed them with special investing skills. In reality, the common thread among people who excel at something, whether it's investing, sports, or playing the violin, is that they typically earned their skill through 10,000 or more hours of deliberate practice. Researchers have concluded that deliberate practice to the tune of 10,000 or more hours is generally required to master a particular skill. Geoffrey Colvin, senior editor-at-large of Fortune magazine, defined deliberate practice as, "activity that's explicitly intended to improve performance, that reaches for objectives just beyond one's level of competence, provides feedback on results, and involves high levels of repetition." In other words, it's more than just reading The Wall Street Journal every day or hitting a few buckets of balls after work. For example, what's made Tiger Woods so good? How about he's been playing golf since he was 18 months old under the tutelage of his hard-driving father who wanted to turn him into the greatest golfer that ever lived? By the time Tiger won the U.S. Amateur Golf Tournament at age 18, he had been practicing with intense focus for more than 15 years. Lynch, Templeton (now deceased), and Buffett have similar stories. They have been passionate, deliberate investors for decades and developed specific strategies that they've honed for years. The result? They’re considered some of the greatest investors that ever lived. Knowing how difficult it is to be a successful investor, we continue to engage in our version of "deliberate practice" on your behalf so we can do a better job as we try to navigate these unusually tricky markets. Weekly Focus – Think About It "Don't judge each day by the harvest you reap, but by the seeds you plant." --Robert Louis Stevenson

Apr 21, 2008 Weekly Commentary

The Markets Investors took a hard look at last week's corporate earnings announcements and decided to throw themselves a party. As earnings reports season kicks into gear for the first quarter, we're starting to see a two-tier scenario. Some companies, such as certain banks, brokers, and mortgage firms, are still hurting and recording billion-dollar write-offs. Other companies such as Coca-Cola, IBM, and Johnson and Johnson, are still doing quite well as evidenced by their first quarter earnings reports that were released last week. The weak dollar and strong emerging markets are helping these companies as they rely on foreign business for a chunk of their sales. The strong gains in the stock market last week may suggest that investors are beginning to believe that perhaps we�re past the midpoint of this economic slowdown. Using that logic, investors may be discounting the current slowdown, and envisioning an upcoming recovery and positioning themselves to take advantage of it. From a professional�s standpoint, the current market environment is really quite fascinating. We have so many crosscurrents taking place that it requires all of our skills and talents to try to make sense of them. Here�s a brief list of what we�ve been dealing with in recent months: More than 200 billion dollars of losses in the financial sector, according to Reuters The near collapse of a major investment bank Record oil and gas prices Record precious metals prices Record agricultural prices A very weak dollar Strong emerging markets economies Strong U.S. exports A drawn out war A combative political season An explosion of newfangled investment products When you add it all up, the complexity and intermingling of our economic and financial system is rather mind boggling. Yet at the end of the day, it may turn out that the diversity of our world economic system may actually save us. Yes, there will be winners and losers, but as evidenced by last week�s market euphoria, the winners may ultimately have the upper hand. WHAT�S THAT SAYING ABOUT THE COBBLER�S CHILDREN never having shoes? A Central Michigan University (CMU) professor set out to discover whether finance professors employ the investment strategies they teach. CMU assistant professor of finance Colby Wright, along with James S. Doran and Dave Peterson of Florida State University, surveyed all finance professors at accredited, four-year universities and colleges in the U.S. to assess how they invest their own money. The study discovered that approximately two-thirds of finance professors are �passive investors� and do not try to beat the market. (Only 7% of respondents believe that they could beat the market �if they had the time.�) The study also found that finance professors have the bulk of their wealth in general mutual funds, with a fair amount invested in individual stocks. Surprisingly, the study found that finance professors have limited investing experience. For example, the median professor has purchased an individual stock fewer than 20 times in his or her life; more than 14% have never purchased an individual stock; roughly 70% have no experience buying options; and approximately 60% have never purchased an exchange traded fund. The researchers also found that when finance professors actively trade stocks, what matters the most in their evaluations are price-to-earnings ratios, market cap, and momentum-related information such as a stock�s return over the past six or 12 months and the stock�s 52-week high and low. The more complex dividend-based valuation models and some of the traditional asset-pricing models were the least utilized by finance professors. Clearly, there�s a difference between what the professors teach and what they do. Weekly Focus � Do You Want to Live to 115? At 115, Edna Parker of Shelbyville, IN, is now recognized as the world�s oldest living person, according to Guinness World Records. What�s her secret? According to her grandson as reported by the Associated Press, �She's never been a worrier and she's always been a thin person, so maybe that has something to do with it.� Dr. Tom Perls, an aging specialist at the New England Centenarian Study at Boston University, added, �The secret to a long life is now believed to be a mix of genetics and environmental factors such as health habits.� He went on to say that centenarians also seem to deal with stress much better than the average person. Do you have any desire to live to 115 assuming you could do it with reasonable health? ' style='margin: 0px 5px;' cols='100' rows='15'>Do you have any desire to live to 115 assuming you could do it with reasonable health? ' style='margin: 0px 5px;' cols='100' rows='15'>The Markets Investors took a hard look at last week's corporate earnings announcements and decided to throw themselves a party. As earnings reports season kicks into gear for the first quarter, we're starting to see a two-tier scenario. Some companies, such as certain banks, brokers, and mortgage firms, are still hurting and recording billion-dollar write-offs. Other companies such as Coca-Cola, IBM, and Johnson and Johnson, are still doing quite well as evidenced by their first quarter earnings reports that were released last week. The weak dollar and strong emerging markets are helping these companies as they rely on foreign business for a chunk of their sales. The strong gains in the stock market last week may suggest that investors are beginning to believe that perhaps we�re past the midpoint of this economic slowdown. Using that logic, investors may be discounting the current slowdown, and envisioning an upcoming recovery and positioning themselves to take advantage of it. From a professional�s standpoint, the current market environment is really quite fascinating. We have so many crosscurrents taking place that it requires all of our skills and talents to try to make sense of them. Here�s a brief list of what we�ve been dealing with in recent months: More than 200 billion dollars of losses in the financial sector, according to Reuters The near collapse of a major investment bank Record oil and gas prices Record precious metals prices Record agricultural prices A very weak dollar Strong emerging markets economies Strong U.S. exports A drawn out war A combative political season An explosion of newfangled investment products When you add it all up, the complexity and intermingling of our economic and financial system is rather mind boggling. Yet at the end of the day, it may turn out that the diversity of our world economic system may actually save us. Yes, there will be winners and losers, but as evidenced by last week�s market euphoria, the winners may ultimately have the upper hand. WHAT�S THAT SAYING ABOUT THE COBBLER�S CHILDREN never having shoes? A Central Michigan University (CMU) professor set out to discover whether finance professors employ the investment strategies they teach. CMU assistant professor of finance Colby Wright, along with James S. Doran and Dave Peterson of Florida State University, surveyed all finance professors at accredited, four-year universities and colleges in the U.S. to assess how they invest their own money. The study discovered that approximately two-thirds of finance professors are �passive investors� and do not try to beat the market. (Only 7% of respondents believe that they could beat the market �if they had the time.�) The study also found that finance professors have the bulk of their wealth in general mutual funds, with a fair amount invested in individual stocks. Surprisingly, the study found that finance professors have limited investing experience. For example, the median professor has purchased an individual stock fewer than 20 times in his or her life; more than 14% have never purchased an individual stock; roughly 70% have no experience buying options; and approximately 60% have never purchased an exchange traded fund. The researchers also found that when finance professors actively trade stocks, what matters the most in their evaluations are price-to-earnings ratios, market cap, and momentum-related information such as a stock�s return over the past six or 12 months and the stock�s 52-week high and low. The more complex dividend-based valuation models and some of the traditional asset-pricing models were the least utilized by finance professors. Clearly, there�s a difference between what the professors teach and what they do. Weekly Focus � Do You Want to Live to 115? At 115, Edna Parker of Shelbyville, IN, is now recognized as the world�s oldest living person, according to Guinness World Records. What�s her secret? According to her grandson as reported by the Associated Press, �She's never been a worrier and she's always been a thin person, so maybe that has something to do with it.� Dr. Tom Perls, an aging specialist at the New England Centenarian Study at Boston University, added, �The secret to a long life is now believed to be a mix of genetics and environmental factors such as health habits.� He went on to say that centenarians also seem to deal with stress much better than the average person. Do you have any desire to live to 115 assuming you could do it with reasonable health?

Apr 20, 2009 Weekly Commentary

The Markets "Time heals all wounds" is a well-meaning cliche and, with a little tweaking, it can apply to how you deal with losses in the financial markets. This popular quote implies that the simple passage of time has a healing quality. In reality, the healing quality comes from what you do during the passage of time. Likewise, investors who have lost money in the financial markets may benefit from the passage of time if they follow a few simple ideas. First, understand that time is an investor's potential ally, but not a panacea. The stock market has historically risen over a long period of time, but how long is long? As the table below shows, the S&P 500 index has a negative annualized return over the past 10 years. Time helps but you shouldn't simply rely on the passage of many years to dig you out of a financial hole. Second, understand that what worked in the past may or may not work in the future. When you have a major stock market dislocation like we've witnessed over the past 18 months, it makes sense to reevaluate your investment strategy. Different times may call for a different strategy. Evolving financial products may open up new opportunities. Incorporating what you learned from this bear market may help you profit from the next one. Third, understand that training your mind is just as important as quantitative research. You can do great research and pick a winning investment, but if your emotions get the best of you, you could turn a great investment into a big loser. Those ugly twins – fear and greed – have a way of interrupting the best laid plans so they must be monitored. The financial markets are a great teacher and if you want to be a great investor, you should never stop learning. As advisors, we use the passage of time to keep learning from the markets and we try to turn our learning into your profits. PEOPLE DON"T USUALLY MENTION "VELOCITY OF MONEY" in everyday conversations, but this arcane concept is a driving force behind the government’s massive stimulus program and easy money policy. Currently, the velocity of money – the rate that money in circulation is used to purchase goods and services – is low. This means people aren't buying stuff as frequently as they used to and that tends to slow down economic growth. By pumping more money into circulation and keeping interest rates low, the government hopes to encourage people to start spending money, which, in turn, should lead to greater economic growth. Consider the following example: You earn $100 and spend it on a golf lesson. The golf pro uses the $100 to take his family out to dinner at a local restaurant. The restaurant owner uses $85 to pay his expenses and then buys a book at the local bookstore for $15 and so on. As you can see, the economy hums as the same $100 circulates through the system. However, what happens if you earn $100, spend $60 on groceries, and save the rest? In technical terms, that $40 not flowing back into the economy slows velocity and may lead to an economic slowdown. It can become particularly acute if the bank holding your $40 gets stingy and decides not to lend it. As American families reduce their spending, become more frugal, and save more, the economy suffers from the "paradox of thrift." While saving more may be good for an individual, if everyone increases their savings at the same time, it ends up reducing demand for goods and services, which leads to an economic slowdown. With that as a backdrop, in late 2008, the velocity of money in the United States dropped by roughly 50% as consumers cut back and put more money in the bank. Since consumers aren’t consuming like they used to, the government has stepped in to fill the gap through stimulus spending and easy money. The "correct" rate for the velocity of money is a moving target and only time will tell if the Federal Reserve and the Treasury get it right. Weekly Focus – Think About It "We must use time as a tool, not as a crutch." --John F. Kennedy

Apr 14, 2008 Weekly Commentary

The Markets Do you remember the catchy old slogan from GE, "We bring good things to life?" Well, last week they reneged on their pledge. A surprising earnings shortfall from the giant Blue Chip company sent the financial markets into a tizzy last Friday. We�ve known for some time now that the credit markets are having �issues.� What we�re starting to see more of is how the credit issues are spilling into unexpected places. GE is a good example. They announced an 8% drop in first quarter profits compared to profits a year ago, and attributed a significant amount of that shortfall to problems in their financial services division, according to a report from Briefing.com (www.briefing.com). While we may think of GE as a large industrial company, they actually generate more than one-third of their revenue from financial services, according to Reuters. Now, here�s the crazy thing. Analysts were forecasting profits from continuing operations of $.51 per share for the quarter. The actual number came in at $.44 per share, which equals a $.07 shortfall. Amazingly, that $.07 shortfall resulted in a stock drop of about 13% and a decrease in GE�s market capitalization last Friday of about $45 billion, according to Reuters. Think about that. A mere 7 penny earnings shortfall wipes out $45 billion in market value. Does that seem like an overreaction? Clearly, investors were blindsided by the earnings miss and they voted with their dollars by selling stock. But, here�s the lesson. When crazy and surprising things happen in the markets, it may create opportunities. Academics can argue that markets are �efficient� and perhaps the sell off represents an efficient reaction to new news�but, maybe not. It may reflect an emotional reaction to an unexpected situation. Human emotions can make us do crazy things. While we�re not making a buy or sell recommendation on GE here, we are using it as an example to suggest that in the midst of market turbulence, we continue to keep our eyes focused on opportunities that may unexpectedly present themselves. HOW MUCH MONEY DO YOU NEED to be rich? When it comes to money, it appears that a million dollars just doesn�t cut it anymore. A December 2007 survey by Spectrem Group asked affluent households, defined as those with investable assets of $500,000 or more, how much money it takes to be rich. Here�s what the survey found: The people in the survey already had at least $500,000 in investable assets so perhaps it�s not too surprising that the most popular amount of money needed to be rich was well over $500,000. In this case, it was $5 million. I wonder how many of the 8% who said they needed $100 million already were worth $100 million? The survey illustrates a couple important points about human emotions and desires. The first is a concept called anchoring. All the people in this surv