Friday, September 04, 2009

Finding your own buried treasure!

There was a time when U.S. savings bonds ruled. For members of the baby boom generation in particular, U.S. savings bonds were ubiquitous. Boomers received them as birthday or graduation gifts, and they bought them using Savings Stamps at school or through payroll savings plans at work. Indeed, millions of boomers are holding bonds.

These bonds were popular because they were the quintessential safe investment: a government-guaranteed return on investment.

The problem is that many bond holders were not careful with their bonds. As a result, many got stuck in a desk drawer or placed in a safe deposit box, never to see the light of day again. That's why the Department of the Treasury today has more than $16 billion worth of fully matured savings bonds on its books that are no longer earning interest for their owners.

These Series E bonds, which were bought in varying denominations between 1941 and 1979, are worth a minimum of four times their face value.

Sometimes they are worth even more. A $100 Series E bond bought for $75 in April 1960 would be worth more than $700 today. But since that bond--and any bond over 30 years old--has stopped earning interest, bond holders are losing money to inflation by not cashing in.

The Treasury has begun a campaign to raise awareness about this potential windfall. At a time when the government's own finances are stretched, why is the Treasury urging Americans to find their matured bonds? First and foremost, it is the right thing to do. After all, it is the consumer's money. Moreover, in these troubled times "found money" can significantly help bond owners who may be struggling financially.

The Treasury has created the website, to facilitate the search for unredeemed bonds.

If the bonds were bought in 1974 or later, holders don't even need to know the bonds' serial numbers. They can just enter the Social Security numbers of people in their family who may have purchased bonds, and the data base will match the numbers against matured, unredeemed savings bonds. The website includes a calculator to tell you how much unredeemed bonds are worth, and it provides instructions for finding bonds issued prior to 1974.

Here are low-tech tactics you can use:

-- First complete a financial inventory of all of your assets. Carefully
check the information provided. If you have unredeemed bonds, we
encourage you to redeem them now, when "found money" would be
especially welcome.
-- Here are some places you can look for bonds: a safe deposit box, home
safe, or a special "hiding place" such as an old chest of drawers in
the basement or attic. Baby boomers might find savings bonds tucked
away in a scrap book with their old report cards.
-- We encourage you to talk with relatives at family events about old

Once the bonds are found, cashing them in is relatively easy. For small amounts, it's more cost-effective for you to redeem the bonds yourself. You can cash your matured savings bonds at most local banks.

Treasury doesn't maintain a list of local banks that redeem bonds, so you should be sure to check with your local bank branch. When you present the bonds at the bank, you will be asked to establish your identity. If you have an account at the bank, you can redeem an unlimited dollar amount of bonds. If you do not have an account at the bank, you may be limited to $1,000 worth of bonds at a time.

If the savings bonds are held in the name of a deceased relative, the bonds can still be redeemed for their full value. The heir or legal representative merely has to fill out a form, provide the required documentation, and send the notarized materials to the Treasury Department. There are different forms for different situations, but all can be found at .

One of the biggest concerns some people have is the tax liability associated with matured bonds. Obviously, individual situations will vary, but for the vast majority of Americans, cashing the bonds will not affect tax rates and will provide extra after-tax money. Federal income taxes are due only on the interest earned by the bonds, and U.S. savings bonds are exempt from state and local income taxes. The Treasury Department provides an IRS Form 1099-INT either at the time of redemption or, in most cases, at the end of the tax year.


I want to thank you all for your courage and patience you have shown during one of the most difficult bear markets of our lifetime. We are honored by your decision to retain and keep us as your trusted financial counsel during this period of time.

Although there are no guarantees, it appears that the majority of you have been rewarded for your decision and it shows in your current Schwab statements. I am almost afraid to make this next statement, but it appears most of you are in position to make some of the best returns of your lifetime, if the stock markets continue to react as positively as they have so far. In my estimation, that includes a stock market pull back in September and possibly part of October, at which time we hope to invest the rest of your investable assets.

As always, when you are done with this newsletter, please pass it on to someone you think would benefit from it. If you know of someone who might benefit from our counsel, please give them a copy of this newsletter and have them contact us. We are still looking for four or five good new clients.

September is usually the worst month of the year!

No, I do not think September will be the worst month of 2009. The worst should be far behind us. However, the stock markets have gotten far ahead of themselves. Those of you that I have met with in the last six weeks know I have been standing on one foot and then the other, because the stock markets have been recovering and I felt I should be investing the second half of clients' investable money. Yet, historically, September is the worst month of the year for the stock market. So I have been waiting and biding my time until September got here.

Since the majority of you have been out of the markets for most of 2008 and early 2009, we are far ahead of the October 11, 2007 to August 20, 2009 stock market returns. As the markets recover, you stand to make some very nice returns that those who rode the stock markets all the way down can only dream of. That is, if I get the rest of your money back into the markets. Up until now for 2009, we have been beating DJIA and S&P 500 indexes and the Nasdaq index has been beating us. I am very competitive and would love to beat all of the indexes. However, this is not only impossible but, at this point, it may be taking your risk tolerance levels beyond what you want.

Most everyone I have visited with recently has agreed the prudent thing to do is wait for September. So we wait for a few more days to see what September will bring us.

Friday, July 03, 2009

Sell in May and go away?

June has been a very busy month, stay with me here. I spent the first week in Washington, D.C. trying to fill my head with as much knowledge as I could, from people who I am not sure had a good handle on what they were trying to say. Does anyone in Washington really read all of their bills, understand all of their jobs and/or really mean what they say?

The second week I got back to working with clients and trying to understand what in the world was going on in the stock markets.

June 13th was Kathy's and my 40th wedding anniversary and, as most of you know, I almost always take this week off to be with Kathy. We went to the lake, rode bicycles, visited with friends and took a trip to Mackinaw City site seeing. We pretty much lay around and lowered our blood pressure during the third week.

The fourth week found us back in the office with appointments, two funerals and a trip to Chicago for some strategic planning. I was also elected President of the National Association of Personal Financial Advisors' Midwest Board of Directors. It means I will have to do a little traveling, but is a big honor and will help clients by exposing me to new and helpful information from some of the very best and brightest advisors in the world. I am not sure the best and the brightest are always the same people, but don't quote me on that.

Now I am back for the last two days of the month and the beginning of the next month, working with clients and getting ready to head back to the lake for the 4th of July week-end.

So why is this important enough for me to be wasting your time on it, because this is the normal life of most Americans, including investment professionals, during the summer months. It is also where the saying "Sell in May and stay away" came from. During the summer months the volume of investments is usually very low. It does not take a lot of trading to create a move up or down and most trends are short term.

I had expected the current stock market down turn to have occurred at the beginning of June when Chrysler and General Motors were in Chapter 11. I was actually disappointed that it did not happen then. Well, people seem to have been on vacation and too busy to do it then, so they are doing it now.

I don't mean to sound cold, withdrawn or unfeeling. This is just the way most summers go. If the stock markets would have reacted to the Chrysler and General Motors filings and gone down, I was ready to invest the other half of our clients' money. There are no guarantees, but since the markets have done what they have, I actually expect them to drift or trade within a range for the rest of the summer. Then I expect them to give us some real direction. The chart below shows what the markets have done so far this year and how our current investments have fared. It shows that March 9th was probably the low point of the year for the stock markets, and, unless we retest those lows, I am not too worried. It also shows the level of the stock markets when we started investing again, when they hit their 2009 high on June 15th and where we are today. It shows we are better off than we might have thought, but not as well as we probably wanted to be. It shows we may be starting into that summer range-bound trading area. Once the kids are back in school and vacations are over, traders will get more serious and will give us some direction.

Finally, it still looks like this decade will go down as the worst in history. The first decade of the 21st Century will not be over until the end of 2009; however, through December 31, 2008, the S&P 500 has lost a total of 32.9%, for an average annual rate of return of -4.4%. For every $100,000 invested January 1, 2000, investors would have $67,251 on December 31, 2008. The S&P 500 will need to have a return in excess of 41.7% in 2009, and that does not appear likely, in order to avoid it becoming the worst investment decade on record. Be thankful that our stops worked last year and got us out of our investments. The normal asset allocation's buy and hold did not work during this decade.

God bless!

Wednesday, June 10, 2009

Don't underestimate President Obama

President Bush and Treasury Secretary Paulson took a lesson out of Alan Greenspan's book "The Age of Turbulence" when they set up the bailouts of AIG and the banking system. In his book the Ex-Federal Reserve Chairman explains how bailouts like this were done several times in the past. The first time the Fed was happy just to get close to breaking even but, after that, the Fed actually started to make a profit from such bailouts.

In 2008's original plan, the government would buy troubled assets in the banks, bundle them and then sell them in auction, similar to how the government bailed out Mexico's loans back in the early 1990s. The original TARP program did not include the government holding stock or having any control over the banks. However, October 14, 2008, Secretary Paulson and President Bush revised the program to use the TARP money to buy non-voting Tier 1 preferred stock and warrants in the banks. They also put restrictions on how the banks could do business and on senior executive compensation.

Many economists argued that this plan would be ineffective in inducing banks to lend money, since it appeared that the bank would be paying more interest on the government loans than what they could charge customers. Here again, this was exactly what Alan Greenspan had done to Mexico and why Mexico ended up paying these loans back early.

Earlier this year some banks wanted to pay back the TARP money, to get the government restrictions removed from their companies. President Obama put this off by requiring bank stress tests.

Ten of these banks bought back $68 billion of these shares yesterday. That has given the government a 5% profit on that part of the transaction in a very short period of time. Now these banks may still have to buy back warrants worth approximately $5 billion more to completely free themselves from government restrictions.

President Obama and his team, being the shrewd politicians that they are, put the banks off long enough to insure that the banks were strong enough to survive and to make sure that the government came out of the process with a handsome profit. In doing so, they also gave notice that they are going to be a force to be reckoned with now and in the future.

So why did the banks want to pay this money back so very much? First, the executives did not like the government telling them how much and how they could get paid. Second, if someone gave you $100 at 7% interest and told you to loan it out at 3% or 5%, what would you do?

Now some people will say that the government has no place making a profit from something like this. I think they are damn lucky to still be in business.

I think Nassim Nicholas Taleb,author of the Black Swan, put it best. I will paraphrase what he said: The U.S. economy is broken, but not beyond repair. It does not necessarily need more regulation, but more intelligent regulation. Plus, we should let companies like Citibank and General Motors fail once they become too big and cumbersome and act irresponsibly. Nothing should be allowed to get too big to fail. What is fragile should break early while it is still small. People who drove a school bus blindfolded and crashed it should never be given a new bus.

To read more of what Taleb said go to

Thursday, May 28, 2009

The average Joes aren't paying close enough attention

The following is not meant to be a political article, but intended to defend free markets.

On May 1st, the rule of law, the bedrock of our legal and economic systems was chipped. Instead of company ownership being redistributed based on the provider's place in the legal capital structure, as the law requires, Chrysler's redistribution of assets took place based on a very subjective criterion. By shafting bondholders and undermining the bankruptcy system, the legal system may change the way investors view different investments and the risk of those investments.

Using the public's economic fear of the current recession as a weapon, the government took Chrysler from its rightful owners: Secured loan holders (banks, stockholders, mutual funds, hedge funds and pension funds). They gave it to struggling, very sympathetic, $40-an-hour earning blue collar workers, who will now be earning $15 an hour (Chrysler's employees and the United Auto Workers Union). Chrysler was stolen from its rightful owners.

Bond investors spend time studying bond covenants, which spell out how assets are disbursed in the event of a bankruptcy. Secured senior lenders get the secured assets; unsecured, junior bondholders and loan-holders follow (as a part of leveraged buyout, Chrysler had no unsecured outstanding bonds or loans); unions and employees are next in line; and equity investors get whatever is left, which in this case would be almost nothing.

For 200 years the United States has had a well functioning bankruptcy-court system that was designed to make sure that division of assets is equitable. That system has now been threatened.

For the rest of this article go to: and request a free copy of our newsletter.

Wednesday, May 20, 2009

News that lulled the markets:

Monday, May 18, 2009: As in most weeks before a holiday, there appears to be little earth shattering news. However, with the lack of bad news, the markets made their own news by posting stellar one day returns: DJIA +2.85%, Nasdaq + 3.11%, S&P 500 +3.04% and EAFE +0.37%. Oh those international guys never seem to be in step (EAFE).

The best news of the day for me was being on the cover of Lansing State Journal's Business Weekly, at .

Tuesday, May 19, 2009: The Supreme Court agreed to hear a potentially significant appeal from Conrad Black., the jailed former newspaper CEO who was convicted under the broadly worded anti-fraud law that makes it a crime to deprive someone of honest services. Black was prosecuted for skimming millions of dollars from Hollinger International and the Chicago Sun Times.

His attorney says the vaguely worded criminal prohibition allows prosecutors to charge corporate executives and public officials with crimes, even without proving they wrongly took money for themselves.

This sounds, to me, like something that should be used on some of the CEOs from the banks and companies that screwed up the economy last year.

Another item Tuesday was an article on Ford adapting the EcoBoost system that BMW and Audi have used to create more energy efficiant cars. They are going to use it in their Lincoln MKS and MKT, Ford Taurus and Flex crossovers. In 2010 they plan to put it into their vehicle of choice for the Millionaire Next Door, the Ford F-150 pickup.

The EcoBoost combines turbocharging with the direct injection of gasoline to allow Ford to replace larger engines like V8s with smaller, more fuel efficient V6 engines without giving up much performance.

Wednesday, May 20, 2009: The Vex, a stock market confidence gauge, is showing investors are more comfortable and think they see more clarity in the stock markets than earlier this year. These same investors have less fear of the stock markets and are less panicked.

All this is as we appoach the General Motors chapter 11 filing deadline. Is it just me or does this look like a possible train wreck going somewhere to happen?

Wednesday, May 13, 2009

News to ponder:

Saturday, May 9, 2009: 9 out of 13 banks going through the Federal Governments's stress test did not need to take more money.

Monday, May 11, 2009: Over the last 10 years, nearly 2 out of 3 actively managed mutual funds underperformed their category benchmarks after fees and taxes.

Tuesday, May 12, 2009: President Obama's top antitrust official announced that the administration would restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market shares. This is a direct reverse of President Bush's administration's approach, which strongly favored defendants against antitrust claims. It returns to a policy that led to the landmark antitrust lawsuits against Microsoft and Intel in the 1990s.

Many smaller companies complaining of abusive practices by their larger rivals were so frustrated by the Bush administration's antitrust policy that they went to the European Commission and to Asian authorities. May 13, 2009, the European Union regulators slapped Intel with a $1.45 billion fine today for unfair antitrust actions undermining rival chip maker AMD.

Wednesday, May 13, 2009: April home foreclosures shocked everyone with a 32% increase over the year before and 1% higher than last March's record breaking levels. There was a record 342,000 foreclosures. More than 1.3 million homes have now been foreclosed on since the market meltdown began in August 2007. The top 10 states were in order highest to lowest: Nevada, Florida, California, Arizona, Idaho, Utah, Georgia, Illinois, Colorado and Ohio. Hooray, Michigan is not #1 in something!

The stock markets lost money for the last 3 days. It will be very interesting to see how the stock markets react as we get closer to General Motor's Chapter 11 filing deadline, June 1, 2009. I plan to be very careful for the next 4 weeks.

Thursday, May 07, 2009

News you can use:

Monday, May 4, 2009: Warren Buffett says he sees the economic slide ending, but won't put a timetable on recovery.

He believes Treasury Secretary Paulson and Fed Chairman Bernanke acted honorably and intelligently when they forced Bank of America to close the Merrill Lynch acquisition. Considering the fragile situation at the time, had Bank of America been allowed to invoke a major adverse change clause and back out, it may have been disastrous for the financial system. And although they have sympathy for Wells Fargo's complaints about being forced to accept TARP money against its will, by and large they believe the government handled the financial crisis well.

Inflation: The aggressive stimulus policies will have consequences, and might produce inflation. The US borrows from the rest of the world and will have an incentive to reduce the cost of that debt by inflating the currency. It is the easiest way out, and therefore the most likely. Incidentally, US revenue from taxes this year is going to be lower than last year; and so the people actually paying for the AIG bonuses and all those other expenditures we had recently are the Chinese and other foreigners who are buying US government bonds. They will see their purchasing power erode, perhaps substantially. The impact of foreign exchange rates is unclear since other countries are doing even worse than we are, running even larger deficits per GDP in order to offset falling demand.

Future of the world's economy: While Buffett has no idea what the near future holds, he believes that, over time, people will live better. We are able to produce today much more than our ancestors did, even though they had the same inherent intelligence and natural resources we have. But our system unleashes human potential and that process has only just started. There will be greed and fear, but the trend will be improving. Despite all the horrors of the 20th century, with two world wars, political turmoil, a Great Depression and several recessions, US standard of living improved sevenfold. Our enormous human potential will generate much more progress, despite occasional hiccups.

Tuesday, May 5, 2009: Inflation: Kraft Foods, Inc., the world's second largest food maker, said first quarter profits gained 10% on price increases and cost savings. Net income advanced to $660 million from $599 million a year earlier.

I waited to post this week's blog for one day, because I wanted to know more about the following two items. They are the real news of the week.

Thursday, May 7, 2009: Associated Press: Some of the nation's largest banks will be scrambling to demonstrate that they can raise capital after results of government stress tests leaked out, showing many need more funds. The Treasury Department will officially release results later Thursday. The tests were designed to gauge whether any of the nation's 19 largest banks would need more capital to survive a deeper recession. It turns out many of the banks do: Wells Fargo & Co., Citigroup, Inc. and Bank of America Corp. all need billions more, regulators have told them. Citigroup will need to raise about $5 billion; Bank of America will need to raise $34 billion; Wells Fargo needs between $13 billion and $15 billion; GMAC, the lending arm of beleaguered automaker General Motors, is said to need $11.5 billion; Morgan Stanley is looking at between $1 billion and $2 billion. The Journal said at least seven of the banks will need a combined $65 billion. The entire group is deemed to need around $100 billion combined. Officials have said they will not let any of the 19 institutions tested fold.

The first test scenario envisioned unemployment reaching 8.8 percent in 2010 and housing prices dropping another 14 percent this year. The second imagined unemployment rising to 10.3 percent next year and homes losing another 22 percent of their value this year. But economic assumptions have changed since the tests were designed in February. Unemployment already has surpassed the 8.4 percent the test's first scenario predicts for 2009, which leaves some analysts wondering whether the tests were harsh enough.
General Motors, which faces a June 1 deadline to cut debt and expenses or else file for bankruptcy protection, on Thursday said it lost $6 billion in the first quarter. GM is losing $113 million a day. It had $11.6 billion in reserve as of March 31, 2009, but I think we have seen that would probably be gone by the end of June.

Thursday, May 7, 2009: General Motors, which faces a June 1 deadline to cut debt and expenses or else file for bankruptcy protection, on Thursday said it lost $6 billion in the first quarter. GM is losing $113 million a day. It had $11.6 billion in reserve as of March 31, 2009, but I think we have seen that would probably be gone by the end of June.

Many people were surprised that President Obama forced Rick Wagner to resign as the Chairman of General Motors. I was not. I believe that Mr. Wagner knew General Motors was going to file chapter 11 bankruptcy when it took the $15.4 billion from the federal government. I also believe President Obama found out about this and gave Mr. Wagner a choice of resigning or going to jail.

I can see no other option for General Motors than filing chapter 11 bankruptcy on or before June 1, 2009 and that, as I pointed out last week, is going to test the strength of the current stock market rally.

Tuesday, April 28, 2009

Week's News That moves the Markets

  1. Monday April 27, 2009, The top story has to be the Swine Flu and it over shadowed the very poor restructure program laid out by General Motor's CEO Fritz Henderson. I was Twittering with a reporter who was checking out what will probably be the first case of Swine Flu for Michigan Monday night.
  2. Tuesday April 28, 2009, The restructuring of the UAW contract with Chrysler may put off the fall of Chrysler for a few years, but it can't save it alone. Thursday's Government deadline will become crucial to the markets this week! The Government says Bank of America and Citi need to up their bank's capital after the acid tests. Commercial Bank of China and Honda post profits.
  3. Wednesday April 29, 2009, Swine Flu is still part of what is moving the markets but, during the first two days of the week, it was the fear of the unknown that wreaked havoc on the markets. Now that we have become more knowledgeable, the markets are having a better day.
  4. Wednesday April 29, 2009, More companies appear to be showing profits for the quarter and this is helping the investment markets. CEOs worth their salt should have been able to, and/or should now be able to shed problems caused by last year's economic meltdown and get their quarterly profits in order during this quarter or next.
  5. Thursday, April 30, 2009, I will be coordinating the Your Money Bus ( stop at the Detroit Public Library, 5201 Woodward Avenue, Detroit, Michigan. The nonprofit group is giving out TOTALLY FREE personal financial planning information to anyone who stops. We will be there from 10:00 a.m. to 3:00 p.m.
  6. Friday Morning, May 1, 2009, I will be coordinating the Lansing stop of the Your Money Bus ( We will be right in front of the State of Michigan's Capitol Building, 100 North Capitol, Lansing, Michigan from 9:00 a.m. to 1:00 p.m. We will be giving out TOTALLY FREE personal financial planning information to anyone who stops by.
  7. Friday afternoon, May 1, 2009, I will be coordinating the Grand Rapids stop of the Your Money Bus ( We will be at the President Ford Museum, Rosa Park Circle, Market Street and Monroe Avenue, in Grand Rapids from 2:30 p.m. to 6:00 p.m. We will be giving out TOTALLY FREE personal financial planning information to anyone who stops by.

Tuesday, April 21, 2009

Notable News of the Week

  1. Monday April 20, 2009: 67% of all companies reporting in the 1st 2 weeks of this quarter reported positive earnings. A far change from that of the last few quarters.
  2. Tuesday April 21, 2009: Bank losses have not hit bottom yet! As banks post quarterly reports Bank of New York posts a -51% loss, Comerica posts a -92% loss and Huntington Bank went from a $ .35 gain to a $6.79 loss for the quarter.
  3. Wednesday April 22, 2009: McDonald's profit rises on breakfast and drinks, Wells Fargo profit climb 53%, Morgan Stanley wider than expected loss. Stock's earnings are mixed but better than a few months ago.
  4. Wednesday April 22, 2009: Advertising has changed drastically, over the past few years local and national newspapers, magazines, radio, television and cable stations have had a hard time making enough money from advertising to be profitable and many have had to file chapter 11 bankruptcy. Now Yahoo and other internet advertising firms, who took the business away from the others, are also having earnings problems with their advertising.

Monday, April 13, 2009

Notable News of the Week

  1. Monday April 13, 2009: Governor Jennifer Granholm would support a graduated income tax. Now you all know I have supported Governor Granholm many times when others have not, but this is insane. Ted's comment: According to an article in Forbes magazine within the last 30 days, Michigan is the #5 most taxed state in the country. Now the Governor wants to raise the taxes even higher? Does she want to be able to say we are #1, the highest taxed state in the country? I would not want that title. Last year we had 2.5 million people leave Michigan and that number is not slowing down. Isn't it time our governmental bodies realize that we cannot support the State's current services. That, rather than raise taxes to cover the costs, it is time to start cutting back services, combining governmental bodies including state, county and city to reduce taxes, not increase them. Governor Granholm, if you keep raising taxes, anyone with money will simply leave the state.
  2. Tuesday April 14, 2009 Bloomberg: The U.S. government is considering swapping some of the $13.4 billion General Motors Corp. owes it for an equity stake in a stripped-down version of the car maker. Then 2 hours later Reuters UK: GM bankruptcy fears drag down auto stocks. Ted's Comments: Well, what do you expect after last year's Fannie Mae and Freddie Mac fiasco, where the government asked (told) them to make loans and provide liquidity to the markets and then took them over; causing the stocks to lose 80% of their value? Now they are about to do the same thing to an almost nonexistent GM stock value. If that is not enough, has anyone looked at how many jobs GM going into chapter 11 is going to cost this country? According to Fortune in 2006 GM had 335,000 employees, in 2007 GM had 266,000 employees and the 2008 estimates were 243,000 employees. Under the chapter 11 program GM will end up with less than 133,000 employees and it will probably affect another 500,000 employees of suppliers. That is a loss of over 702,0000 jobs in the last three years and that is probably low. No wonder the country is in a funk! Best not have all our money invested before the June 2009 GM chapter 11 deadline. We are going to want to see how this plays out.
  3. Wednesday April 15, 2009 Bloomberg: Analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March Period, the longest stretch of declines since at least the Great Depression. Ted's comments: This either means that we will start out of the mess we are currently in or we are out to set a 100 year record. For now we are slowly getting back into investments. However, we are very worried about the June 1, 2009 deadline for GM and will wait to put all our eggs back into investments until we see how that plays out.

Wednesday, April 08, 2009

Mid-Week News to Watch

I download articles into my computer and have the computer read them to me as I get ready for work in the morning. I am going to start posting the articles I feel are noteworthy at least once a week.

  1. Richard Fisher, President of the Dallas Federal Reserve Bank, said Wednesday that the first "green shoots" of recovery can be seen in the U.S. economy, Dow Jones Newswires reported. (Mr. Fisher has been a person I have listened to and agreed with, for the 11 years I have watched him.)
  2. U.S Wholesale inventories in February fell by the most ever even as sales rose modestly, according to a report that suggested businesses were getting control of their stocks of goods. (This is important because wholesale inventories have to dry up before factories will be forced to gear up.)
  3. The commission is expected to unveil the proposal to reinstate the "uptick" rule, that was repealed in the summer of 2007. The rule had been in effect since the early 1930s and was long considered a "circuit-breaker" and/or "tap on the brake" when markets started falling too fast, like last fall. It had kept hedge funds from piling on and causing excessive market sell offs. The SEC will vote Wednesday on which type of rule they intend to propose. (We really need this back, write your Congressperson and Senators.)
  4. Discounter Family Dollar Stores shares jumped 4.8%, after it said Wednesday that its second-quarter profits rose 33%. (We are starting to get some good quarterly reports, but the majority are still very bad. This is, usually, the sign that we are trying to bottom.)
  5. Preliminary figures showed auto sales in China reached about 1.03 million in exceeding U.S. auto sales for the third month in a row, accounting for 90% of all auto sales. (Now you know why we want to invest in China first when we go back into our investments.)
Note: Past returns are no guarantee of future returns. These are simply the things I found most interesting while starting my day from 6 a.m. to 8 a.m., that my computer read to me.

Friday, April 03, 2009

Redesigned Web Site and Earth Day

Friday, April 03, 2009 Blog

For those of you who have been following my blog who are not clients I apologize, but the March newsletter will not appear in this blog. Some things are only for paying clients.

We do have two new announcements:

First, we have opened a new office in Portage, Michigan. Many of you know we have been approached to open offices in Las Vegas and Phoenix, but we decided that would take too much time away from our current clients.

Second, our completely redesigned web site is now up and running. It took six months and a lot of time and money, but the new web site has a lot more to offer.

  1. For the Gen-X type, we have a free financial planning software program available on the left side of the home page. I believe you will find it very user friendly, life orientated, thorough and, as I mentioned, free.
  2. There are a lot of flash videos, MP3 player audios and Power Point presentations.
  3. The In The News area shows most of the WLNS television news clips we have been in over the last 12 months and articles we have been in from Business Week, The Wall Street Journal, Los Angeles Times to the Peruvia news (Peru, South America) and more.
  4. There are areas showing frequently asked questions, our privacy policy, contract, fees, disclosure and more.
  5. Under What Clients Can Expect is our new Planning Tenets. This should be interesting to even our long-time clients.
  6. Finally, there is a new password-protected Client Links area.
    • That helps clients access their Charles Schwab accounts.
    • There is an access to MoneyGuidePro, a very thorough Life, Financial and Wealth Planning program that is only for client use.
    • There are links to the Internal Revenue Service, Social Security, Student Aid information, the Special Needs Alliance and other client oriented areas.
    • We are hoping that, by next year, clients will be able to store their valuable paperwork like tax returns, wills, trusts, medical directives, and powers of attorney. They will be able to access their investment reports, 1099 forms and average cost basis forms whenever they wish, via their own computer.

$ Ways to Go Green and Save Green $

With Earth Day just around the corner, you might want to think about ways you can help Mother Earth while helping yourself save some money. Here are just a few small ways you can modify your own hapits to help the environment and your wallet:

  1. Recycle. Everything from cell phones to computers can now be recycled or reused. Most computer manufacturers now have recycling programs, and cell phones can be donated to a number of charities.
  2. When you need a new monitor, get an LCD. Flat-screen LCDs use less energy than plasma monitors, and they're now Energy Star rated.
  3. Reduce "vampire power" with a smart power strip. Many of the devices you use every day pull a fair amount of current even when they're not turned on. A smart power strip can detect when devices are shut off and prevent the flow of current to those devices. Some can also be set to automatically power down peripheral devices, such as printers, whenever the main device (like your computer) shuts off.
  4. Buy electronics that use rechargeable batteries. You'll have to buy fewer disposable batteries, and fewer disposable batteries will end up in landfills.
  5. Don't buy it if you don't need it. A lot of people replace their cell phones, MP3 players, and other gadgets as soon as the newest version comes out. If you stick with the old version through a new product release or two, it saves you money and reduces landfill waste.

Friday, February 20, 2009

February 2009 Newsletter Text

It has been beyond frustrating to watch what we believe to be the raping and pillaging of America by a privileged few who rotate between the executive suite of the largest investment firms and the top tiers of regulatory agencies and the administration. You, our clients, came to Creative Financial Design with dollars, hopes, dreams and fears in hand, asking for help; and we put our lives, experience, and training on the line to help you do well and help you make good decisions about your present and future. Then we get to watch while a select group of (words my mother taught me not to say) destroy institutions and wreak havoc on stocks, options, and the trust and confidence of the American people. On top of that, we watch while politicians use this opportunity to maximize their personal benefit under the guise of a proposed bailout, promising security that is purchased at the price of our grandchildren's future.

I suspect this bailout will benefit those executives. I suspect it may even end up making money for taxpayers. But current sentiment is certainly justifiable, and there is a clear danger that these same executives may do more lasting damage than just the financial crisis they brought down upon us.

But, in the meantime, I think it's fair and natural that all of us look back at the global meltdown, at the lockup of capitalism itself, at a mess that will take perhaps a trillion taxpayer dollars to fix, and recognize that the people who engineered the mess received millions in individual bonuses that will never have to be paid back, and were favored by tax regulatory oversight even as they were arguing that fiduciary planners, like myself, are under-regulated.

I think it's appropriate to vent some of this anger and frustration to you, the press and our elected representatives. It may be time to start making sure we never have to go through something like this again.

This next issue is very interesting and complicated. I greatly regret all the damage that has been caused to the American people by the corporate meltdown; however, some good may come out of it in the end. For the first time I see millions of Americans are waking up to the idea that:
  • It is important to live within your means.
  • Taking on debt makes you vulnerable.
  • Consumer purchases may be less valuable than contributions to savings.
  • Just maybe some of this new found thrift might find its way to the government policymakers as well.
The point is that the trauma of the past year may have shaken the complacency of people who seldom thought about the consequences of their spending habits, who have lived more for the moment and saved less for the future. If the market fully recovers its equilibrium and value, than this new level of financial self-care will be a bonus that may be felt across the financial landscape.

The fact that millions of people have reformed their spending habits is part of what has created this economic downturn. Our economy, after all, is heavily dependent on consumer spending, and every ec9onomic stimulus package is passed in hopes that taxpayers will spend every dime of it rather than pay down their debt.

I don't know what the answer is here, but it seems to me that our economy has to find a solution to this dilemma:
  • The behavior that is good for the consumer is bad for the corporate world.
  • The behavior that is good for the corporate world is bad for the consumer.
This conflict of interest, which is currently built into the fabric of our economy, will need to be resolved.

I want to thank the many clients who have expressed their concern about my mental and physical state during this period of time. I want to especially thank you for the praise for the work that we have done. Many of you have said things like, "Thank you for caring about me," "Thank you for worrying," "I trust you to do the right thing," "I know you have an overall plan for me," "I'm so worried about you and your staff," etc. Absolutely amazing! My very favorite comment from clients (and it has been said by many) is, "Thank you for not letting us lose as much as we might have!"

The thing that strikes me the most throughout this mess is the absolutely essential value of the "financial plan". This is our road map that we have developed with clients, that is supposed to reflect their values, that should take into account emergencies or disasters along the way (whether it is a worldwide financial meltdown, a sudden illness, a catastrophic weather related incident, a job loss, the collapse of a company or industry). So far our financial plan has worked. Our stops on our investments have reduced our losses and worked as advertised.

I will admit that I am tired. It is hard to sleep through the night sometimes with all that is running around in my mind. However, now is going to be the most critical time for us to be sharp. For now we are approaching the time to take action.

How to Survive a Bear Market

It is hard to watch 500 and 1,000 point drops in the Dow; these last few months have been brutal on all of us. It was even harder to watch our portfolios fall with it. The Dow was off 46.36% from its October 11, 2007 high, and the more diversified S&P 500 was off 51.84%. Invested alongside you in the very same investments, we certainly felt your pain. And we feel it even more professionally that we do for our personal portfolios. We did not have a crystal ball to tell us how bad it was going to get, but our sell signals did warn us and help us avoid the majority of the meltdown. The ironical part of all this is that one of our biggest clients fired us last March, because they no longer believed in our signals. I have wondered how much money they lost, but it is more important now that I worry about taking care of all of you.

Other planners are telling their clients, "Going to cash would have been guessing and you did not hire us to 'guess' with your investment portfolio." "You need to ride out the market's ups and downs."

Well, we called this market and got you out of it long before the real meltdown. Now, unfortunately, these same advisors may be right if we are not careful. They are also telling their clients that, "These 'experts', who get you out of the market during bad times, usually remain too fearful to get back into the market, at their clients' expense."

As I have always said, the time to get back into investments is at the point of maximum fear, when there is blood in the streets, and that time is coming.

Waiting out a bear market in cash sounds like a great idea but, without a crystal ball, it is among the worst possible investment advice. Investment gains are made in just a few days out of the year. Yet another study (this one by consulting firm SEI in 2002) showed that investors who cashed-out during a bear market and waited until the market "recovered" before getting back in, jumped in too late and lost out on double digit gains. Investors who held on through the last 12 bear markets gained an average of 32.5% in the first year following the market's recovery. Investors, who jumped back into the market just 3 months late, gave up over 17% of the market's gains and it took them an additional 1 1/2 years to recoup their losses.

Investors Who Gain----------------------------After 1 Year-----------Broke Even
Rode the Markets Down & Back Up------------32.50%---------------1.5 Years
Jumped back in 1 week too late-----------------24.30%---------------2.5 Years
Jumped back in 3 months too late-------------14.80%---------------3.0 Years

This bear market will end, and it will do so when we least expect it. Remember, recoveries are only labeled thus in hindsight. By the time the headlines scream 'recovery,' it's too late -- investors who do not reinvest will have missed out. Worse yet, they will have made the classic investing mistake of "sell low and buy high." Well not so low, but almost all of us have to make up some ground.

You hired us to develop a thoughtful investment strategy and keep you out of the FOG. We did that and got you out of the markets for the majority of the 2008 economic meltdown. We did this by looking at our buy sell signals. Our clients who took our advice in 2007 and 2008, who had accounts containing only ETFs, were down between -3.42% to -17.38%.

Today's market is the same market, but the flip side of the coin. We are now getting buy signals. Oil has been giving us a buy signal since the market bottomed in November. We have waited for a confirming signal and expect to get it soon. Fear has gripped most of us and it is going to take courage, but it is about time to buy back into the markets before we lose out on the gains.

You're In or Out!

There are really only two ways to invest in the market...position yourself for when it goes up, or for when it goes down. The market goes down roughly 30-40% of the time (depending on the time periods). Why bet against it? Remember: For investment portfolio growth, it is more important to be IN the market when it rises and OUT of the market when it falls. Keep in mind that the huge markets' swings during 2008 were due to leverage. If an investment bank had to unwind a position that was leveraged 30 or 50 to 1, it had to sell an awful low of securities to do so, resulting in the point tumbles. Now that leverage appears to be about out of the markets and the government appears to have done all the damage it can do. So now the markets should get back to what they do best.

What Should You Do?

There is no question that we are in a recession. Even after the credit markets start to recover, we still have several quarters of negative growth ahead of us. Recovery from this bear market will likely take years, not months, and we have to retest our bottoms. Common sense needs to replace fear. This is a time to spend less and save more. It is a time to focus on family and friends and less on material things. Make sure your cash reserve is adequate. Reduce debt if you have any. Turn off the 'fear mongers' on television and remember that you are in this for the long haul.

"Markets are capable only of creating temporary declines. Only people can create permanent losses."

Now it is time for us, Creative Financial Design, to do our thing for you. There are no guarantees; but it is time to rely on the buy and sell signals that took care of us in 2008 and got us out of the markets to tell us when to get back in. That time is not today, but I think it is getting closer. For now we sit in cash and bonds, but soon it will be time to get back into the markets.

Finally, for those of you who had accounts under $50,000, with annuities, variable life insurance, 401(k) accounts or chose not to take our advice, I am sorry you did not do better. You lost between -15.78% to -40.17% in 2008. In August of 2006 when our first sell signal showed up, I suggested, in many cases, you cash in your annuities or combine accounts you had with other advisors to raise the value of your accounts with us, so they were large enough that you could use our ETF and stop formula. If you had done this, your losses would have been much less. I do not say this now to make you mad at me. I bring it up because I believe the recovery that is coming will work much better within our system than with your current investments. Plus, market meltdowns seem to be happening more often than in the past and, because of the increasing speed of computers, these meltdowns appear to be going much deeper than in the past. The markets are going to recover. They always do but, they are also going to have another meltdown and, I want you to fare better in future meltdowns than you did in this one.

Thank you for your courage and patience during these difficult times. We take nothing for granted, and are honored by your trust in us. When you are done with this newsletter, please pass it on to someone you think would benefit from it. If you know of someone who might benefit from our counsel, please give them a copy of this newsletter and have them contact us; for, as all businesses during this time, we are looking for new business.

God bless!

Ted Feight

Tuesday, February 03, 2009

January 2009 Newsletter Text

I think it is about time you get a little good news. No, I cannot guarantee that the 2008 markets meltdown is over. I can't even tell you when it will be over. No one can tell you that. In fact, I am not sure if we have seen the worst of it yet. That is why we need to look at a few things before we get to the good news.

The Ugly
Last week the Wall Street Journal ran an article titled "Banks Die Too Fast for the Regulators." It said, "Banking regulators across the country are struggling with a new phenomenon: Banks are failing with accelerating speed, exposing holes in the regulatory infrastructure designed to catch collapsing institutions. The two small banks that failed a week ago, National Bank of Commerce in Berkeley, Ill., and Bank of Clark County, in Vancouver, Wash., both fell before regulators hit either one with public enforcement actions that would have alerted the public to their condition and allowed regulators to demand changes. National Bank of Commerce, for one, was reeling from losses related to its investments in mortgage giants Fannie Mae and Freddie Mac. Of the 25 banks that failed in 2008, nine toppled before regulators publicly cracked down." Later in the article it said, "Meantime, federal regulators are bracing for more than 20 bank failures in the first quarter of this year. Regulators typically crack down on weak institutions following periodic exams. But banks are falling into trouble faster than in previous downturns. By the time problems are discovered, many of those banks are beyond repair, regulators have found. For the most part, I think it was a tidal wave," says Rob Braswell, the top bank regulator in Georgia, where five banks failed last year. Only one was under a public enforcement action at the time. "We've seen banks die within a matter of days and weeks. You go from having a cold to buried."

That was just to give you a taste of what is coming.
  • This week over 52,000 people were laid off. By March of this year, 2 of my 4 sons will be unemployed. If that is what is happening to big business, think about what is happening to small business.
  • They say the Lansing Mall will have to file bankruptcy and the Meridian Mall, in Okemos, Michigan, has 13% of its stores empty.
  • Small businesses that have been paying all of their bills and have no problems have had their credit lines cut off.
  • Auto dealers have been forced to pay extra money to the banks that floor plan their cars and/or forced to order new cars even though they cannot sell the ones they have.
  • Many stores have gone from having 25% off sales to 75% off sales, just to raise money to pay their bills.
Didn't I say something about good news?

Well, the good news is that it has to get worse before it gets better. There has to be blood in the streets so we can fix the problems that got us here. We can't expect the government to be the only ones who do the fixing. Some of the fixing has to come from us, each and every American, but that is for another newsletter.

The Good
So where is the good news? Well, every 20 or 30 years some of us humans get greedy and screw things up. What we are going through right now is Mother Nature's way of straightening us out. Oh, yes, this is usually about as bad as it gets. We just don't know how long it will take for some of the people to have had enough.

My guess, and that is all it is, is sometime around April or May will be a very good time to start investing again. We won't realize it was until November or December. The markets should end the year with single digit losses, but investments made during that period of time should work like magic for some time to come.

This is where I have to say past returns do not guarantee future returns and there are no guarantees.

During 2008:

  • Clients with accounts we managed that were under $50,000 or contained 401(k)s, variable annuities, variable life insurance, untouchable stocks and mutual funds were down between -15.78% to -40.17%.
  • Clients who took our advice and had accounts only containing ETFs were down between -3.42% to -17.38%.

During 2008 the markets were:
DJIA -33.80%
Nasdaq -40.50%
S&P 500 -38.50%
EAFE -45.10%

The good news is that when the markets start to come back (and they always have come back -- we just do not know how long it will take) they will have to make the following just to get back where they were on January 1, 2008:
DJIA +51.06%
Nasdaq +68.07%
S&P 500 +62.60%
EAFE +82.15%

We do not even have to get in at the bottom to get extraordinary returns. We are about to live through possibly the best period of time to make money in your lifetime. There are no guarantees, but out of a grass fire comes a fertile field and out of the ashes of the Phoenix comes new life. We just have to be patient, not spend our money foolishly, not be in a hurry and have faith.

Thank you in advance for your courage and patience during one of the most difficult bear markets of our lifetime. We take nothing for granted, and are honored by your decision to retain us as your tgrusted financial counsel. When you are done with this newsletter, please pass it on to someone you tnink would benefit from it. If you know of someone who might benefit from our counsel, please give them a copy of this newsletter and have them contact us; for, as all small business during this time, we are looking for new business.
Ted Feight

Monday, January 05, 2009

December 2008 Newsletter

Avoid the Bernie Madoffs in the world![i]

[1] Thanks to Tom Posey, of Posey Capital Management for help with this portion.

The buzz on Wall Street is still the Bernard Madoff Ponzi scheme, which appears to have vaporized $50 billion.

What did he do? He allegedly collected money to invest from clients, made up false statements to show that they were doing well, and used new clients' money to pay interest and withdrawals to existing clients.

The majorities of his clients were thought to be very sophisticated, but didn't see this coming. Could they have? Let's look at three key safety tips that would have prevented this from happening.

1. Stick to stocks, bonds, ETFs, and mutual funds that are publicly traded and listed on major exchanges like the New York Stock Exchange. They are valued independently at least daily, if not minute-by-minute, while the exchange is open. You can check their reported returns against your own portfolio. If you can't look up the prices and performance in the newspaper or on the Internet - that's a red flag - ask a lot more questions.

2. Be sure your advisor uses an independent account custodian. Madoff held his client assets, managed them, and priced them, too. See the conflicts of interest? Investment performance can look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite market turmoil. At Creative Financial Design, our client assets are held by an independent third party, Charles Schwab. We have no input on investment pricing and that separation is a very good thing. The only power we have over those accounts is to make trades and deduct fees. Clients also get an independent statement directly from Charles Schwab each month.

3. Check on insurance. Our clients benefit from fraud insurance. The first part is the Securities Investor Protection Corporation (SIPC) coverage for $500,000 per account. Then Charles
Schwab buys additional coverage from Lloyd’s of London that provides protection of securities and cash up to an aggregate of $600 million, and is limited to a combined return to any customer from a Trustee, SIPC and Lloyd’s of $150 million, including cash of up to $1 million. Fraud insurance does not protect against market declines, but it does protect against theft of securities and/or related fraudulent transactions.

If an investment sounds too good to be true, it probably is. Reportedly, Madoff claimed consistent monthly returns of 0% to 2% (annual returns of 10-12%) with little volatility and no annual losses. This claim of making money in up-markets while not participating in declines is impossible.

My final Madoff thought is this: I have seen this same type of Ponzi scheme pulled off in Lansing and Flint three times. The first time I was in competition with the gentleman who pulled it off. He got the business and the customer got the shaft.

Which type of planning advice do you want in 2009?[i]

The following is my overview of a white paper by Dave Loeper, CEO of Wealth Capital Management in Richmond, VA. Dave was one of the very early adopters of the Monte Carlo modeling technology in building portfolios and communicating volatility more meaningfully to clients.

Dave is attempting to calculate the benefit of a financial planner who tends your investment portfolio, and constantly rebalancing back, not just to the original tolerances, but to the equity exposure you would need in order to achieve your goals. This exposure is a moving target; in times like these, when the markets have put many of you behind your retirement goals, there would need to be a higher allocation to equities. Other times, when you are ahead of the game, the planner would give you a reasonable chance of success with fewer equities. The net effect is to broaden clients’ exposure during down markets, when there is an expected recovery, and reduce clients’ exposure as they achieve their goals and effectively take them out of the way of whatever bear market might set them back.

The paper runs to 40 pages, so I'll offer a quick summary of the high points. If you would like to see the total paper, let me know and I will send it to you.

Dave's central thesis is that advisors should manage client wealth instead of client returns, and that they should make their asset allocation decisions on an ongoing basis based on their evaluation of where a client is relative to his/her funding goals. In many cases, he says, clients are already overfunded, and should not be heavily weighted in equities; the advisor should lock in their achievement of the goal. Clients who are underfunded should be encouraged to save and invest more money in the markets, to freeze spending and/or raise the allocation to equities. The asset allocation decisions are based on each client's funded status, with the full recognition that we don't know what the markets will do in any given year or decade.

The test Dave chose is a woman who happened to be widowed in 1926. She needs to generate $5,000 a year in real (inflation-adjusted) income (about $50,000 in today's dollars), from the proceeds of a $100,000 life insurance policy left to her by her deceased husband. As it happens, she will live to the year 2006; as Dave puts it, her blood pressure runs out when she turns age 100.

At the moment the life insurance settlement is paid out, the universe splits into five different branches, and in each branch the woman works with a different money manager.

  1. The first checks out the widow's risk tolerance and creates an asset allocation which will run more or less constantly throughout her life.
  2. The second adopts a target-date equity allocation which Dave sets as 100 minus the widow's age--starting at 80% and dropping from there.
  3. A third manager decides to put the entire portfolio into stocks.
  4. The fourth sets a long-term asset allocation and then manages to beat it by 1.5% a year.
  5. The fifth runs a Monte Carlo analysis with historical inputs, and decides to set the portfolio at an allocation which produces an 82% confidence rate of reaching the widow's stated long-term goal. Each year, this manager will re-run the analysis, and over the next 100 years, he will be required to make nine changes to the allocations--all in the first 20 years of her life. A table in the white paper shows these changes, but basically the percentages shift from 80% equities in the first two years to 45% in 1928, to 30% in 1929, to 80% in 1930 (we're now in catchup mode), to 100% in 1931, back to 30% in 1938, back to 45% in 1942, to 60% in 1943, and then back down to 30% in 1945, when the portfolio appears highly likely to meet the widow's funding goals.

Overall, advisor 1 maintains a stock allocation of 38%, and achieves a compound return of 8.29% each year.

Advisor 2 is gradually lowering exposure, but over 80 years, he/she has an average stock allocation of 41% and a slightly higher compounded return of 8.42%.

The third manager, who owns nothing but stocks (I won't calculate the average annual stock exposure for you) generates an impressive 10.36% rate of return.

The fourth manager has the same average allocation as the first one, but because he can beat this index each year, he manages to achieve a 9.8% compounded yearly return.

The wealth manager has an average annual allocation of 38% and a very low 30% allocation for all of the Post-WWII years, and manages to generate 8.58%, compounded, a year.

You might think that the terminal wealth of the portfolios can be sorted neatly according to the compounded annual return, but that wouldn't take into account the sequence issue; the sequence of returns matters greatly to overall wealth.

Now here's the punch line: If the widow continues to take her inflation-adjusted income out of the portfolios:

1. In the universe of the first manager she will be broke at age 51.

2. She spends her last dime at age 50 in the universe of manager two.

3. She runs out of money at age 55 with manager three.

4. The fourth manager, who can consistently beat the market, fares much better; the widow dies leaving an inheritance of $1,072,678.

5. The fifth manager? With him watching over the portfolio, adjusting the stock allocations up a bit when the market is down, down a bit when the market has taken her closer to her funding goals, she dies with $4,878,522 in her portfolio.

His allocations never produced superior returns in any one year, never beat the indices, but it did manage to capture a bit more of the upside, a bit less of the downside, and basically iced down the portfolio when the widow had essentially achieved her funding goal. Of course, the other managers contributed to their own defeat, by continuing to invest aggressively when they could have taken the widow's risk off the table, and by refusing to become more aggressive themselves when the funding goal was slipping out of their reach.

I think the results would have been much more dramatic if Dave had assumed that the widow had earned some income during this 80-year time period and managed to save a bit more and increase funding during times when the portfolio returns had threatened her funding goals. This, of course, is the kind of flexibility that pre-retired clients have and, in fact, the opportunity that clients have at this very moment, when more money could be deployed when virtually every asset class is on sale, often at screaming bargains.

Do you know the difference between an Elderly Lady and an Old Woman? Money!

Goodbye 2008![1]

[1] Thanks to Bob Veres, The National Association of Personal Financial Advisors (NAPFA) and Bob’s readers for helping us all communicated better with our clients during these troubled times.

We certainly live in interesting times. We did foresee, in the fall of 2006, the financial and economic turmoil that has resulted from difficulties in the real estate, credit and derivative markets. That is why the majority of our clients are now holding cash and short term bonds. However, we did not foresee the extent to which things would fall apart. Since October 2007, the world seems to have been turned on its head. The pessimistic outlook so commonly held today will not be reversed until there are reasons to be optimistic. Capitalism depends on confidence. Without it, transactions cannot take place. And confidence is in very short supply today.

It is our belief that the current decline in the stock market is being driven by two other types of sellers as well: Those who are forced to sell to meet cash needs or liquidation requests, and those investors who are driven to sell out of fear or a sense of panic. Forced or panicked sellers are not selling with economic justification. Therefore, they push prices down to such an extent that they actually set the stage for a significant price recovery. The majority of investors buy high and sell low! Yes, you read that correctly.

Although there are no guarantees, those of you who took our advice are now ready to buy really low and participate in what could be the greatest worldwide investment recovery in 78 years. No one is sure when this recovery will start or long it will last. We just need to be patient. Financially, we know you can do it. Emotionally, we know you can too; you just may need our help.

For now, we want you to lead your lives in as normal a fashion as possible. None of us knows how long our stay on this earth will be. We encourage you to continue to spend money on things or services that increase the quality of your life or the lives of loved ones within reasonable spending limits. However, if we have cautioned you about your spending level being higher than what would be prudent given your portfolio size, recent investment declines will only magnify the importance of a spending reduction.

It is very important for all of us to be mentally prepared for additional bad economic news as the nation and the world work through this. There will be no quick solutions. As dark as it is, it could, and probably will, get worse. If the markets decline from here, they will only increase the potential of your future profits. That is if you don’t spend your money before it gets a chance to once again work for you.

Many of you grew up in small towns or cities, and you may remember that some of the most beautiful springs followed some of the harshest winters. I can tell you with certainty, after having watched the market for 35 years, that spring is coming. We have been given one day at a time, so I cannot predict with accuracy when spring will bloom, but I can tell you that it will arrive. At that point, this harsh winter will become a memory.

Finally, with all that is going on today when you are done with this newsletter, pass it on to someone you think would benefit from it, be they family, friends or business associates.

Thank you in advance for your courage and patience during these difficult times. We take nothing for granted, and are honored by your decision to retain us as your trusted financial counsel.

Ted Feight