Archive for October, 2008
October 30th, 2008
Brent R. Brodeski, MBA, CPA, CFP®, CFA, AIFA®
In this day and age of 24/7 media overload, it is easy to get distracted and overcome by excessive hype, overreaction, and opportunistic “negative think.” In fact, we believe much of the current market volatility and panic has been generated by the media. While the media is primarily in the business of selling advertising by keeping us off balance, there are a few commentators that are offering messages based on timeless wisdom who can offer us broad and deep perspective. Their sane and refreshing messages offer peace-of-mind for readers with the time, experience, and perspective necessary to navigate through all the media noise. To help you during this challenging time, our advisory team has compiled a series of our favorite articles written by some of the wisest and most respected minds in finance. You may wish to bookmark the link as we will continue to add new articles of interest as this financial crisis continues to unfold. Click the link below to view Savant’s articles of interest.
http://savantcapital.com/clients/Default.aspx?id=4556
October 29th, 2008
Brent R. Brodeski, MBA, CPA, CFP®, CFA, AIFA®
It is hard to believe that the Presidential election is coming up next week. After a long summer of nonstop campaigning, voters finally get to cast their ballots. The candidates clearly have a lot of differences that voters must weigh in order to make a decision. This is especially true for their views on tax policy.
Click the link below to read an excerpt from our Summer 2008 newsletter that compares the candidates’ views on taxes. It also discusses what Presidential elections might mean for the stock market.
presidential-politics-and-the-stock-market.pdf
October 28th, 2008
Adam W. Larson, CFA
At the recent Savant Town Hall meeting, we talked about how the stock market is a leading indicator of what may occur in the economy. This means that the stock market often begins to fall before the start of a recession or financial crisis. It also tends to recover at the point of maximum despair - well before there are any signs of an economic recovery.
In his book “Wealth, War, and Wisdom,” Barton Biggs shows that the stock market was a surprisingly accurate leading indicator of important events during World War II. Right before the Battle of Britain, as the Germans bombed London in preparation of an invasion, it appeared that Britain would fall. It was a truly dark time, yet for some reason, the British stock market rallied. We know now that the Germans would lose the Battle of Britain and never launch an invasion. The book describes a number of other important events in the war that the stock market seemed to predict. In fact, markets began to fall in Germany and to rise in the U.S. long before any headlines began to talk about a turning point in the war. An investor who sat on the sidelines until World War II was over would have missed out some substantial gains.
So besides being interesting, what does this mean for today’s financial crisis? It means that today’s headlines have less to do with today’s stock prices than you might think. Biggs states in his book that “…the bottom of a bear market by definition has to be the point of maximum bearishness. The new news does not have to be good: it simply has to be less bad than what has already been discounted.” For example, the U.S. might be headed for a recession, but as long as it is not any worse than today’s deflated stock prices have already forecasted, it will actually be positive news.
The point is that once the headlines proclaim truly positive news such as improved credit conditions, economic growth, or even the end of a major war, the recovery in the stock market will most likely have already started.
October 28th, 2008
Brian P. Conroy, CFP®
Rule number one of investing is to “buy low”. Low is of course a relative term, and the markets argue every day about what the right price is for a given company, those who sell PRESUMABLY believe the stock price is high, and those who buy think it is low. Consider the fact that for each panic sell in recent weeks, there was an opportunistic buyer. Not everyone is so pessimistic.
Most successful investors (as contrasted with traders and speculators) agree that timing markets cannot be profitably accomplished in a consistently profitable manner over extended periods. Even while they hold this belief, they are often tempted to go to cash during a period of uncertainty (in the words of Jack Nicholson’s character in the movie A Few Good Men, “Is There Another Kind?”), in the hopes of getting back in the market when things have “calmed down”. This is admittedly a temptation to the most stalwart long term investors. The problem is that investors who employ this strategy usually get out too late, and in too late. (Sell low, buy high- OOPS). The reason is that markets don’t really calm down, they Calm UP. And they typically calm Up while the economy is decidedly not calm. Markets are forward looking, and recoveries in the stock market typically occur while the gloom and doom of a recession are still very much being felt on main street. Most investors will often not be comfortable getting back in the market until the NEWS is better, and this is usually much too late. Interestingly, when investors engage in this “wait it out” strategy, they often insist that they are not really timing the market…..they are “preserving capital”… Selling low and buying high unfortunately is not an effective capital preservation technique.
Assuming you have a sound globally diversified strategy in place, here are a just a few reasons to consider holding fast to your long term strategy:
Stock market valuations are low. We are seeing valuations (P/E ratios) we haven’t seen since the early 1980s.
Consumer confidence is at 16 year lows- this is typically a lagging economic indicator, very backward looking, and overly influenced by the current media mood.
There is an ocean of cash on the sidelines- while cash and bond yields are very disappointing. Stock dividend yields are approximately equal to short term bond yields.
Extraordinary global efforts are underway by central banks to inject liquidity into the banking system and stimulate the global economy with coordinated rate cuts (You’ve likely heard the mantra- Don’t Fight the Fed).
The markets will inevitably calm UP, and patient disciplined investors will eventually be rewarded for their forbearance…
October 27th, 2008
Brian P. Conroy, CFP®
If Dr. Evil were in charge of our government, and the governments of the world, how would he go about creating chaos -AKA a Great Depression? For guidance on how to truly create chaos, Dr. Evil would need to dust off his history books.
STEP 1: It seems there would need to be a triggering event of sorts, just to get things started. A housing and credit bubble would certainly work, and have the added benefit of going largely unnoticed while the public, recently stung by the unwinding of a stock market bubble, speculated on rapidly appreciating real estate. When real estate stopped appreciating, the plan would begin to take shape. But the meltdown of real estate values, and the freezing of credit markets would not be enough in this very diversified very resilient economy. This would need to be followed by a series of government missteps.
STEP 2: Ignore the lack of liquidity, and make it even worse by raising interest rates. Ignore the failure of banks and resulting banking panic. This worked quite nicely in the 1930s. The FED’s actions during this period are the stuff that feeds conspiracy theories. The new FED had a lot to learn about monetary policy.
Step 3: Raise income taxes and launch a series of expensive government spending programs. These also really helped turn a financial crisis in 1929, into a long painful economic crisis.Step 4Stoke the fires of protectionism, create tariffs that trigger retaliatory tariffs, and gum up free trade entirely. Smoot-Hawley paved the way in the 1930s.
Thankfully Dr Evil is not in charge, nor does it seem, is he currently running for the presidency. The current candidates for president are in agreement about the urgency of unfreezing credit markets, injecting liquidity (not ONE M-I –L-L-I-O-N dollars, but BILLIONS) into the system, and increasing FDIC coverage. Both are also talking about tax relief (yes, I realize the reality might be different from the campaign rhetoric) and even fiscal stimulus packages. And in a recent debate they each seemed to argue that they were more of a “free-trader” than the other.
It seems Dr. Evil will not be in charge…..
October 24th, 2008
Wendy M. Blair, CFSC
During these volatile, worrisome times it is important to remember that – no matter what happens on Wall Street you will leave a legacy that consists of more than your personal financial wealth.
You pass on more than one kind of personal wealth. Your personal financial wealth is the assets and “things” that you pass on to your friends, families, and charities. Other types of wealth that you may be remembered by and appreciated for can be even more significant than your financial wealth.
- Emotional Wealth – your values, personal growth & happiness
- Intellectual Wealth – your knowledge and education, your natural talents, skills and gifts.
- Social Wealth – your charitable contributions (time, talents and treasure), community standing, and your reputation.
Always remember that wealth transfer comes in other forms than financial, and all are important and should be treasured.
October 23rd, 2008
Thomas A. Muldowney, MSFS, ChFC, CLU, CFP®, CRC, CMP®, AIF®
There appears to be a few connections that we humans often forget. One of them is that there is often a separation between emotional thinking and intellectual thinking. This separation often causes us to take emotion-driven steps that we know are wrong but we hope are right. Hope springs eternal! Let us see if we can identify a few examples. Surely you have heard the phrase “no pain - no gain.” There are so many fields to which these pearls of wisdom apply. Let us explore them.
Weight loss - If you are in your fifties, in order to fit into that wedding tux, you probably have to work out. “Push ups” are one of my least favorite exercises. I even disliked them when I was a kid. However, they pale by comparison to today’s much needed and much dreaded “Push Aways.”
The exercise “push away” is simple. Once instructed, you’ll know (intellectually) how to do it effectively. Here’s how; when you are offered a second helping at dinner, simply “push it away.” That’s right. Don’t eat it. Do this too; Push away the bread. Push away the hot buttered potatoes. Push away the cake, the ice cream, the deserts and finally, at snack time push away the Twinkies. If you are not into the “push away” exercise, you can go on inhaling that stack of Oreos. A second helping of pie or cake will also taste plenty good and look how well you’ll sleep tonight. Only problem is that you may have to step up to XXXLs for the next shirt or pair of slacks that you have to buy. Push aways are painful. No pain, no gain.
Consider golf. Every one of us weekend warriors hit a disproportionate number of shank shots. When we do, what do we say? “I just have to spend more time at the practice range.” Intellectually we know that you have to hit a lot of golf balls in order to improve your game. If you don’t, don’t expect to play with Tiger. If you are content with a mediocre game, you don’t have to waste your time in practice. For every hour that most professional players spend competing in their sport, you will find that they must spend 8 to 10 hours behind the scene practicing. It does not matter whether your sport is baseball, football, or body building, you have to suffer some pain in order to improve. Practice is painful. And once again, no pain - no gain.
Why should financial accumulation be any different? Unless you are in the lucky genetics club, you have to work at it! Successful accumulation only comes at the expense of short-term spending. It is painful to give up eating out or a few movies every month in order to have funds necessary for accumulation. Saving money actually means having to give up something every week. You have to do this from week to week, year to year, and get by with a little bit less. The same sacrifice applies to slicing off a part of every paycheck because you elect to fund your 401(k). “No pain - no gain” applies to just about everything for which we aspire to excel. Sacrifice is just part of it. Lately, investment volatility has been the big contributor to the pain.
Ironically, we’ve gone back 10 years except the tides are now upside down. In 1998, we turned on the TV and waited with bated breath to see how high our technology stocks could go. Today we turn on the TV to see if the banks, our investments, or our economy are going to survive. If not, just adapt. Ownership comes with some short-term peril, like wildly volatile price swings. Sometimes they’re deeper than we ever expected. It not only costs you investment volatility, you have to pay for investment returns with a painful dose of patience. Once again; “no pain - no gain.” Owners of investment portfolios just found out how painful that volatility can be. Those who held on, can be thankful for long-term visions and long-term strategies. They will have the gain for tolerating the pain. ”Ownership” has always been the way to financial security. That’s why most of us would rather own our homes, our cars, or just about any other asset that we plan to use over our lifetimes. Investing in stocks is based on ownership…ownership of the companies in which we invest.
Ownership comes with responsibilities and risks but it pays off with lots of benefits. Responsibilities include being a proper steward over the assets in your charge, being responsible to your customers and clients, and the employees and their families. The rewards are also plenty. If you produce good products or good services, people the world over will want you to help them fix their problems or use your products or services. This is a simple truth that has not changed. Not now, in the face of this economic challenge, and not ever.
It is even more ironic that people who lend money, in order to receive a rate of return on their own investments, want to lend it to people who are creditworthy….these are the owners!
The financial markets have dealt us an unexpected blow, nasty and deep. We knew that they could behave erratically, but in this day and age, no one expected them to sink so deep at exactly the wrong time (for instance while ”I” am invested!) We all know the aphorism “Buy Low and Sell High!” Many people took exactly the wrong steps at exactly the wrong time. They sold their high quality blue chip investments and tried to hide their money under the mattress. Others went scurrying for CDs, but tried to spread them out so they wouldn’t have too much “uninsured” money in just one bank. It took the very deepest of pockets, the Federal Government, to quell the panic. For a few days even Federal T-Bills provided almost a zero investment return. Most of us are anticipating that the panicking is through…but it is always possible for markets to drop even more. Those who sold on fear may eventually pay a price and they may suffer. They’ll end up with less retirement money, less cash flow, and possibly a later starting retirement date. Here we can see it happening again; “no pain - no gain.”
We can feel your pain. Your seasoned financial advisor has suffered through the pains of several ‘bear markets.’ Our best desire is to help you and your family reach your stated goals. The credentials don’t come easy. We have worked our way though school, through training, and through years of counseling folks just like you through tough times. ”No-pain - no gain” applies to us, too and we’re ready to help.
It is hard to imagine that our portfolios or our 401(k)s could go further downhill. Sadly my imagination has little impact on the working of the financial markets. We could be in for more pain, but just like the daily exercise that we force ourselves to do, we can expect and look forward to enjoying the gain! Stay on track. Your long term plan and strategy will carry through to the financial security that you expect.
Good luck in all of your financial endeavors.
October 23rd, 2008
Wendy M. Blair. CFSC
Are you ready for the unexpected? Negative financial events come in many forms; a job loss, significant medical expenses, home or auto expenses, or a substantial and unexpected downturn in the stock market and economy.
Most experts agree that you should have three to six months worth of living expenses set aside in an emergency fund. An emergency fund should be a safe, money market or savings account that is liquid and easily accessible. Without an emergency fund a sudden loss of income may force you to rely on debt; credit cards, and loans (if it is even available to you) or, may force you to sell marketable securities in depressed financial markets. Neither increasing your debt exposure nor selling at lows are very attractive alternatives during tough economic conditions.
If you don’t have an emergency fund now, please begin one as soon as you can. Even if you need to start very small by setting aside $5 to $10 a week (a value meal or two), please begin to do it now. While this won’t amount to much at first the most important thing is to begin a “habit” of setting aside the dollars. After a short time of consistent deposits you may be able to bump your scheduled deposits up (this is just like giving yourself a raise). As your account grows you can then search out money markets that pay a marketable rate of interest to enhance the work your money is doing for you.
Remember, emergency funds should meet your short term needs. Your stocks and bonds invested in retirement accounts and other savings vehicles are designed to meet your long term goals.
October 22nd, 2008
Wendy M. Blair, CFSC
Glassbooth is a nonprofit organization that is developing innovative ways to access political information. Glassbooth believes that their success is contingent on a nonbiased process and is not affiliated with any political party, organization or ideology. At the Glassbooth.org website you will take a short quiz, where Glassbooth shows you how your views line up with the stated positions of each candidate. Part one of the quiz asks you to assign a total of 20 points to 14 issues, giving more points to issues that you believe are the most important. Issues include trade, economics, healthcare, taxes and budget as well as social security. Part two of the quiz takes you to a page with a list of topics that are now up for debate and you are asked to use a sliding scale to designate whether you strongly support, strongly oppose, or fall somewhere in between when it comes to those topics in question. After completion of part one and two, you will receive a resultant percentage score that shows how well your beliefs match up with the candidates.
October 13th, 2008
Amy L. Barrett, MBA, CFA, CFP®, CDFA™
Last weekend at a party, I met a very interesting woman. Her name is Pamela Bardo. One thing that makes her so interesting is that she works as a consultant to people in the throws of divorce. They contact her because they want to learn the value of their homes’ contents. She values the furniture and much more.
Pamela shared a story about a recent divorce in which the husband had collected toy trains and baseball paraphernalia. The husband wanted both collections (which were purchased with marital assets) and claimed they were had little valve. The wife did not agree. She invited Pamela into her home while the husband was a work. When Pamela finished her consultation, she was able to provide the wife with a dollar estimate of both the toy trains and the baseball collection.
Middle-aged couples who have collected “stuff” over the years should be acutely aware that the resale value could be significant. Pamela related that it is not uncommon that mature couples have over $200,000 of person assets. When faced with a divorce, valuing a home’s content could be a worthwhile endeavor.
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Brent R. Brodeski, MBA, CPA, CFP®, CFA, AIFA® 
