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