Private Client Commentary - Economic Outlook

Dear Clients,

If you would have told me fourteen months ago, when the Dow was at fourteen thousand, that we'd be sitting here today, shell-shocked by a bear market that took the popular index (at one point) down to 7,400+, I would have asked you what you been smoking.

Yet here we are, and based on the forecasts of many an economist, such as these two that were featured last week on CNBC.com, we're apparently staring into the abyss.

"The economy is in a bit of a free fall," says Nariman Behravesh, chief economist at Global Insight. Behravesh is among those who now expect the economy to contract as much as 5 percent on an annualized basis in the first quarter, followed by a small contraction in the second quarter. Global Insight's outlook assumes President-elect Barack Obama and Co. "do something big, bold and swift," explains Behravesh. "If they don't, then for sure this is the worst recession in the Cold War period."

Bank of America's chief economist Mickey Levy is forecasting a decline in every quarter of 2009 and doesn't see a return to trend, or normal, growth until early to mid 2010. "The enormous correction in housing will continue through next summer, accompanied by a rapid rise in unemployment and declining corporate profits," Levy says.

Either the doomsayers far outnumber the Pollyanna's when it comes to the current state of the economy, or the doomsday headlines simply sell more media. Nonetheless, you can't deny that the reality of the recent statistics supports the spirit of today's headlines. But another thing we can't deny is that even the doomsayers, like BofA's Levy (who is among the more pessimistic), forecast an ultimate end of the pain (early to mid 2010 in Levy's case).

Here are a couple of relatively optimistic (a little harder to find) outlooks also taken from CNBC's website:

"The recession will end sometime in the first quarter, followed by a not great-shakes recovery," says Ram Bhagavatula, managing director at Combinatorics Capital. "There's room for optimism. Both the Fed and Treasury have done a lot more than they usually do at this point in the cycle."

Housing Related Comment: Optimists point to relatively stable sales over the past year, declines in new and planned construction and the recent sharp drop in mortgage rates. "We are starting to find the critical elements to a housing bottom," says David Resler, chief economist at Nomura International, adding a late spring rebound in sales and prices is "not out of the question."

If indeed the problem began with housing, many believe that housing is the key to a sustainable economic recovery.

I've made it my practice lately to reference the comments of arguably the most successful investor of all time, Warren Buffet. Why? Because I find it fascinating that the greatest there's ever been, and currently the richest man on the planet, has done it by following the most basic fundamental rules of investing. When asked what his favorite holding period for stocks is, he says "forever".

Buffet told CNBC the following in August 2007 and repeatedly throughout 2008:

"We'll survive current and future recessions just as we've survived past problems. We've got a wonderful economy... There's never been anything like that in the history of the world. We live seven times better than the people did a century ago on average... We've had problems all along. If you look at the last century, we had that Great Depression and World War Two, we had the Cold War, we had the atomic bomb, but the country does well."

"Recessions will create opportunities. I made by far the best buys I've ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap."

In October

Private Client Commentary - Fed moves

Dear Clients,

Wow! And again I say Wow! Can you believe what the Fed plans to do to bring this economy out of what has turned out to be the worst recession in decades?

In case you missed it, they lowered the Fed Funds rate (rate banks charge each other on overnight loans) target to a range of 0 to 0.25%. And, according to their post meeting statement, they are committed to keeping short-term rates very low for the foreseeable future. They also plan to significantly increase their buying of Freddie Mac and Fannie Mae debt, effectively forcing mortgage rates lower

Private Client Commentary - fund holdings

Dear Clients,

There is of course a whole lot going on that we can talk about; the auto bailout, fed meeting on interest rates, massive global stimulus attempts, the worst recession since the early 80's, etc, etc. But just for today, rather than focus on any of the above, let's take a look at a few of the top holdings within a large cap growth fund that occupies the majority of the portfolios we service.

This particular fund currently holds 291 stocks. The following six are among the largest positions (in terms of the percentage of the portfolio each occupies).

Keeping with last week's theme, as you read the brief profiles, ask yourself if you see these companies continuing to produce their products and/or services in the years to come.


GE (represents 1.2% of the portfolio)
The diversified technology, media and financial services company with products and services ranging from aircraft engines, power generation, water processing and security technology to medical imaging, business and consumer financing, media content and industrial products, it serves customers in more than 100 countries.

Current share price: $17.11
One year high: $38.52
Price to Earnings Ratio: 8.1
Dividend Yield: 7.25%

Microsoft (represents 2.25% of the portfolio)
Microsoft Corporation develops, manufactures, licenses and supports a range of software products for computing devices. The Company's software products include operating systems for servers, personal computers and intelligent devices, server applications for distributed computing environments, information worker productivity applications, business solution applications, high-performance computing applications and software development tools and video games.

Current share price: $18.98
One year high: $36.72
Price to Earnings Ratio: 10.2
Dividend Yield: 2.67%


Apple (represents 1.15% of the portfolio)
Apple Inc. designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking solutions.

Current share price: $98.27
One year high: $202.96
Price to Earnings Ratio: 18.3
Dividend Yield: n/a


PepsiCo (represents .90% of the portfolio)
PepsiCo, Inc. is a global snack and beverage company. The Company manufactures, markets and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods. The Company is organized into four divisions: Frito-Lay North America (FLNA), PepsiCo Beverages North America (PBNA), PepsiCo International (PI) and Quaker Foods North America (QFNA). Its North American divisions operate in the United States and Canada. Its international division sells products in approximately 200 countries, with operations in Mexico and the United Kingdom.

Current share price: $51.81
One year high: $79.79
Price to Earnings Ratio: 14.9
Dividend Yield: 3.23%


Medtronic, Inc. (represents 1.24% of the portfolio)
Medtronic, Inc. (Medtronic) is a global player in medical technology, alleviating pain, restoring health, and extending life for millions of people around the world. The Company operates in seven business segments: Cardiac Rhythm Disease Management (CRDM); Spinal; Cardiovascular; Neuromodulation; Diabetes; Surgical Technologies, and Physio-Control.

Current share price: $29.85
One year high: $56.97
Price to Earnings Ratio: 15.3
Dividend Yield: 2.45%


Target Corp. (represents 1.3% of the portfolio)
Target Corporation operates general merchandise and food discount stores in the United States, which include Target and SuperTarget stores. The Company offers both everyday essentials and fashionable differentiated merchandise. Target

Private Client Commentary - look into the future

Dear Clients,

For today's commentary we'll eavesdrop once again on a conversation between our Investor and Advisor duo.

As I've suggested before, virtually all of you have been very patient as this now ten month old bear market has done a number on the value of your equity positions. I know this isn't the first bear market for most of you, and I'm guessing that's one reason why no one's getting too excited. Nonetheless, I'll bet there are times when you can relate to our Investor friend below.

Take care,
Marty

Ps: always keep in mind; if you'd ever like to chat between review meetings about the market, the economy, etc., we welcome your call.





Investor: Man this market frustrates me. Up one day, down the next. It seems like lately we're just not getting anywhere!

Advisor: I know what you mean.


Investor: You know what I mean? Don't you have anything pithy to offer me?

Advisor: Nope, I simply agree - it seems like lately, we're just not getting anywhere.


Investor: So how long do we keep doing this?

Advisor: How long do we keep doing what?


Investor: How long do we keep doing what we're doing? Which seems like absolutely nothing! And are you messing with me again?

Advisor: Nope, not messing with you, just want to be clear what you're asking. Because, as you suggest, we're not really doing much - other than sticking with our long-term plan.



Investor: Okay, so how long do we stick with our long-term plan?

Advisor: Okay, I swear I'm not messing with you, but my answer is - we'll stick with our long-term plan for a long-time, otherwise it's not a long-term plan, now is it?

And you see, this bear market we're in began just ten months ago, which at this point makes it about average in length (as past bear markets have gone). And, in investment terms, ten months is very short-term.


Investor: All right, I get it. I guess I'm just getting impatient - tired of getting my monthly statements showing my declining balance.

Advisor: I feel ya, but that's what happens when we're in a bear market. And always keep in mind - you're monthly investment statement is not like a bank statement.

What I mean is; when your bank statement shows a decline, it's because you spent some money and you truly have less of what you had the previous month. When your investment statement shows a decline, and you haven't taken a withdrawal, you still have all the stuff you had the previous month. It's just that this month's appraisal of the stuff is lower than the last month's. You indeed haven't lost unless you sell some of your stuff when the price is down - which again, you wouldn't do if you have a long-term plan. The beauty of thinking long-term is you simply never have to sell in a down market.

Now, do I need to remind you of all the underlying benefits that bear markets bring?


Investor: Oh please don't! You've made your points very clearly, over and over again with all your commentaries!

Advisor: I thought you might say that

Private Client Commentary - anybody's guess

Dear Clients,

I received an email yesterday asking on what basis some of these forecasters on television are making their dire predictions

Private Client Commentary - planning

For months I

Private Client Commentary - muscle memory - business cycle

Dear Clients,

As you

Private Client Commentary - lower prices take care of lower prices

Dear Clients,

This is another one of those weeks that inspire more commentaries than you probably need

Private Client Commentary - eye of the storm

Dear Clients,

Those of you who have been receiving my commentaries for years may have noticed that during bull markets my comments often center around the ultimate bear markets to come, and during bear markets I

Private Client Commentary - 30%+ declines

Dear Clients,

Even though the vast majority of you are hanging in there with your exposure to the market, and a few have taken it one step further and done what some might say is the obvious - bought more (bought low)

Private Client Commentary - human nature

Dear Clients,

I hope you don't mind, but I'm going to keep the commentaries coming as long as this bear market lasts. At times like these, perspective is everything. And, as you well know, my perspective suggests that recessions and their attending bear markets are cyclical phenomena that, while extremely difficult (if not entirely impossible) to predict - when viewed in retrospect, are always necessary and timely - in that they purge the world of dangerous excesses born of the preceding expansion. I'll even go one further and suggest that their timing is always perfect.

Today, we can't turn on the financial news without exposing ourselves to the litany of negative headlines, very much designed to get our attention. Not to suggest that these promulgators of bad news aren't telling the truth - in fact they are. Companies are closing shop in record numbers, unemployment is up (consequently), the financial institutions of the world are suffering in record numbers, etc., etc. - but when it

Private Client Commentary - Mkt is Killing Me Conversation

Dear Clients,

As of this moment, it looks like the market is re-tracing much of last week

Private Client Commentary - Obama win

Dear Clients,

The economy, according to the surveys, was the number one issue on voters

Private Client Commentary - Patient still in hospital

Dear Clients,

What do you know

Private Client Commentary - what if the mkt never closed

Dear Clients,

At 12:45pm yesterday the Dow was ever so slightly in positive territory. Fifteen minutes later, at the close, it was down 203 points. What amazing volatility we

Private Client Commentary - Greenspan's admission

Dear Clients,

Turned on the TV this morning and it felt like d

Private Client Commentary - panic scenario

Dear Clients,

Last week a client asked what would it take, relative to the stock market, to make me panic? After I gave him the

Private Client Commentary - political season

On occasion I

Private Client Commentary - emotions - glass half full

Dear Clients,

You

Private Client Commentary - Bernanke

Dear Clients,

With the Dow down 4% today, I can

Private Client Commentary - biggest one point day

Dear Clients,

All I can say again is Wow! Yesterday saw the biggest single day point increase in the history of the Dow. And of course the question today is; is it sustainable? Has the bear market finally done its part in bringing the excesses to light and helping purge them from the system - and are we now ushering in the next bull market? Or, is it a sucker's rally - where the market surges, taking investors with it, only to sell off back to the bottom - breaking hopeful hearts along the way?

Of course you know, I don't know. Timing the stock market is something no one has ever done with any, investment worthy, degree of accuracy. And anyone willing to go on national television and tell us, with great conviction even, that they know where the market is headed, has let his ego run wild with his common sense. I woke up this morning to Bloomberg Television just in time to hear that three "major market strategists" (as opposed to minor market strategists) are indeed labeling this a bear market rally. Two simply stated that, due to the coming deep global recession, investors must sell into this rally; for we are no where near the end of the pain. The other was so bold as to even predict precisely when the market will bottom, which, if you're interested, is mid 2009. As I've illustrated many times in the past, not that these guys are wrong, but even the most popular gurus seldom guess correctly when it comes to forecasting the market.

Now, having clearly stated my position on market timing and my opinion regarding those fortune tellers who would have us bet our portfolios on their predictions, I will say emphatically, that I would not keep these primetime palm readers from making their prognostications for all the tea in China. In fact, if it is indeed time for this market to turn the corner, these guys are essential to making that happen.

Think about it, if everyone turned bullish at exactly the same time, every drop of cash on the sidelines would rush in at once, and I'd guess the Dow would settle somewhere north of 16,000, with nothing to keep it there. And trust me, that's not what we need! We need pessimists, and we need them to remain pessimistic, and we need people (not us) to continue to listen to them. That will help ensure that the liquidity the next bull market needs to move higher at a healthy (sustainable) pace stays in place. There's the old adage, "bull markets climb a wall of worry", implying that they are born, and advance, in the midst of very bad news - and again, we need the doom-sayers to keep things relatively negative, at least for a while.

So here we are, and like our kids suffering through the long drive to Grandma's house, all we want to know is - are we there yet? And all I'm saying is; if we are, we want to keep the air conditioner running and leave the ones sleeping in the back seat (dreaming that they're still on the road) there for as long as possible - while we go inside and enjoy Grandma's apple pie.

And lastly, please do not take this as my prediction that the bear market is finally over. I honestly do not know!! And as I've said many times before, it's not important that it end today, it's only important that this bear market end after, and only after, it's finished its work.


Have a great week,
Marty

Private Client Commentary - margin selling

Dear Clients,

All I can say is wow! Who would a thought we

Private Client Commentary - the forest

Dear Clients,

As I

Private Client Commenary - confused market

Dear Clients,

It seems that days requiring more than one commentary have been happening all too often lately. I promise to keep this one brief.

During the last two days, we

Private Client Commentary - crisis conversation

Dear Clients,

Yes, I know, I

Private Client Commentary - Cramer comments

Dear Clients,
I'll keep this one brief. The big news this morning is that the Fed is stepping into the commercial paper (short-term unsecured corporate debt) market for the very first time. It appears that the Fed will be buying this short-term paper in a move to get credit investors back into the short-term lending business. For the past week or two even the highly liquid, generally high quality, money market had begun to freeze up. Now get ready for the media to bill this as "more tax payer money at risk". And yes that's true, but it is at risk in the 'money market' and my suspicion is that the tax payer will make out just fine on this one, in the near term. For today, we won't get into the longer-term concerns over the government stepping so directly into the private sector.
Those of you who have watched CNBC or the Today Show the past couple of days may have caught 'Mad Money' host Jim Cramer, advising investors to get their money out of the market, at least money with a five year time horizon. Which, at first blush simply sounds like general financial planning advice - which in the aftermath of his comments (apparently a lot of folks were listening) is what he seems to be claiming this morning. But make no mistake, based on how he couched his recommendation initially, Mr. Cramer was indeed making a market timing call.
Having been in the investment business for a quarter century, and believing in my heart of hearts that the near-term ups and downs of the market are virtually impossible to time, I Googled Mr. Cramer's comments over the past several years and made an interesting discovery. According to the Coax Advisory Group, who provides a service where they grade the gurus, Cramer made the following comment to his readers on March 24, 2003:
"Stocks, all stocks, are now equally dangerous. The bear market, which began in technology, has now extended to every single sector. In short, the risk of owning stocks are as high as I've ever seen them, and the rewards, the least certain. The wounds, self inflicted or otherwise, are too deep to fix, even with a successfully prosecuted war. If you want safety, go buy a bond."*
In case you weren't aware, the last bear market literally bottomed in March of 2003, the Dow hitting a low of somewhere around 7,500. If you had followed Cramer's sentiment on that day, you'd have missed a very nice extended bull market.
So then I thought I'd take a look at what he was saying last October, when the last bull market hit its peak. Here is one of his comments from October 1, 2007.
"I'm now confident that, what would have been a given in 2008, a brutal recession, will now be avoided and prosperity assured.

Private Client Commentary - emotions and the market

Dear Clients,

Looks like another one of those days that calls for two commentaries. As I mentioned in this morning

Private Client Commentary - emotions and the market

Dear Clients,

Looks like another one of those days that calls for two commentaries. As I mentioned in this morning

Private Client Commentary - Credit Default Swaps

Dear Clients,

I

Private Cliient Commentary - reflective vs. reflexive

Dear Clients,

Looks like another one of those days that calls for two commentaries. As I mentioned in this morning's message, I'm currently not in the office. But in light of today's slide in the stock market, I thought I'd take a break and offer some perspective on what's going on.

As of this instant, the Dow has dropped below 10,000 for the first time since 2004. Today's primary excuse seems to stem from Europe's sudden realization that their banking system is in every bit as much disarray as ours. Like it or not, the economies of the world are without question closely connected, and while it's not as apparent during times when most economies are growing (as some countries expand at faster paces, and a few perhaps not at all), it's very apparent, if not exaggerated, during times when one or more of the major economies of the world begin to contract. So we might think of Europe's issues today as the 'other shoe to drop'. The market looks to be reacting to the probability of a global economic slowdown. In essence, selling on the anticipation (kind of like selling the rumor) of what's to come.

As we've explored, ad nauseam, the market is ultimately the great discounter of a potential future event, or series of events. Its goal is to always be early to the party. But if the market in the short-term is anything

Private Client Commentary - buy the rumor

Dear Clients,

There are a couple of old sayings on Wall Street that are particularly worth mentioning today: One is

Private Client Commentary - Buffet article

While, as you may recall, I haven

Private Client Commentary - 777 point drop

Dear Clients,

Yesterday's 777 point drop was the biggest one day point decline in the history of the Dow Jones Industrial Average. Some say it felt like black Monday, October 19, 1987, when the Dow dropped 508 points. There is a subtle difference however in the magnitude of each decline - yesterday's amounted to a decline of 7+%, while the drop on October 19, 1987 was a whopping 23%. For yesterday to have matched Black Monday, the Dow would have had to drop 2,300 points. Now how do you think that would have felt? Talk about the end of the world!

So, as you can see, as unsettling as yesterday was, we've seen worse. I was there in '87, it was the third year of my career, and yes I know what you're thinking - I am a lot older than I look.

Of course the question now is, do we hang in there and continue to ride this roller coaster, or do we jump off and wait for the ride to end - without us on it. I think the roller coaster is a fitting analogy, in that about the only way to get seriously hurt during a roller coaster ride is to jump off right in the middle of it. By the way, for the twelve months immediately following that "Black Monday" in '87, the Dow was up 22.9%.

It's very clear; the stock market wants the rescue package. And, based on the current state of the credit markets, Main Street may not think so, but (in the short-run anyway) they may need it even worse.

As odd as this may sound, and assuming Wall Street has it right (not that they do necessarily), the best thing for everyone may very well be another big sell off in the stock market today. As I suggested in my last commentary, yesterday's decline had nothing to do with fundamentals and everything to do with emotion - the market sent a strong message (right or wrong) to the politicians that they need to stop politicking and get something constructive done.

So, for just this moment, think of the market as an emotional barometer, or perhaps a messenger to Washington - and keep that thought if you decide to take a look at your September brokerage statement.

Everything you owned back when the market peaked last October is still there. In fact, since most of you reinvest your dividends and capital gains, you have noticeably more shares than you did at that time. Which means you've been doing what smart investors do - buying more as prices decline. And you youngsters who are putting money into your 401(k) plans (as long as you're well diversified) should be grinning from ear to ear - opportunities like this (to pile up shares) don't come very often.

You'll no doubt be hearing from me again soon.

Take care,
Marty

Private Client Commentary - Emotional market

Dear Clients,

Only on days like today will you hear from me twice. That means you would have heard from me twice on just a handful of occasions over the past twenty four years. Today, those other occasions are nothing more than (as a good friend of mine put it earlier today) footnotes in history. That

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Private Client Commentary - bailout

Dear Clients,

What interesting times we live in. As I write this, the politicians have yet to agree on the details of the "bail out" package they've been working on for the past week (but I suspect that by the time you read this, there will be a plan). They're simply doing what politicians do - desperately weighing the political ramifications of whatever deal they strike.

How is it that we find ourselves in these predicaments? I mean both the financial predicament that presumably calls for a bail out, and the political predicament that I feel exacerbates the emotions around the issue.

As for the financial predicament, in a nutshell; the trouble with the economy today is that it's suffering a hangover from the real estate party. And for many players in the financial industry (the big substance abusers) it's much worse than a hangover - in fact, they partied so hard that, if we don't pump their stomachs very soon, they're dead. The problem for the rest of us is that we rely heavily on these drunkards. And if Hank Paulsen and Ben Bernanke are right, if we let them die, the ramifications for the consumer and the economy as a whole are severe.

But what of the moral hazard of rescuing these addicts, aren't we just setting them up to do it all over again? And wouldn't such a bail out fly in the face of the basic tenets of capitalism? As for the "moral hazard", expect any deal from Washington to include major regulatory reform aimed at keeping this kind of thing from happening again anytime soon. As for, "does this fly in the face of capitalism" - that would be a big fat yes. But the seven hundred billion dollar question is - what happens if we don't do it?

According to Paulsen, Bernanke and Warren Buffet, to name a few, if we don't do this bail out, our financial system, as we know it today, will virtually collapse right before our eyes (I must add however that not all economists agree with this dire prediction). And the ultimate cost of a crashing economy, lost jobs, etc., will make this bail out look like peanuts. On the flipside, if what Paulsen, Bernanke and Buffet say is true, the deal not only bails out the banks and gets them back into the business of lending - it ultimately turns a profit for the taxpayer in the long-run.

They say the stuff we would pull from the stomachs of these banks would not be at all fatal if it were in a stronger stomach. So what they're proposing is a purchasing of the mortgage investments from the banks at a discount, then holding and managing them until such time that the market improves and they can be auctioned back into the private sector - for potentially more than what we paid for them. Last week Buffet went so far as to suggest that if he could, he would do the deal himself.

The bottom line seems to be, like it or not, that some sort of bail out package will be passed - and it may in fact prove to be a step in the right economic direction. Longer term however, it's the precedent we're setting that we need to be concerned with.

As for the political predicament, I honestly feel the consumer deserves some of the blame. Mr. Consumer says he wants the government to stay out of his business; he wants to be free to become the best he can be. He wants free markets where he can invest in the creativity and innovation that will make richer the world and his portfolio. He wants all the upside, but oh how he hates the downside.

Our politicians are scared senseless (literally). They're deathly afraid of the very capitalist system they've sworn to protect. Yes, they profess out loud their undying commitment to Mr. Consumer's freedom, to protect his right to work for the things he wants in life - because that's precisely what Mr. Consumer tells them he wants.

But what happens to that thinking during those inevitable times when the freedom of capitalism combined with previous government intervention (like the huge stimulus the Fed pumped into the banking system during the 2001 recession) allows a bubble to form, a bubble dangerously expanded by excess and greed? Suddenly the politicians, out of fear of the consequences of the bubble's inevitable bursting - out of the fear that Mr. Consumer will blame them for all of it - try desperately to patch it.

(In reality, what we have is a situation where previous government intervention may have over-stimulated capitalisms creative juices, and consequently, more government intervention may be needed to fix the resulting problem. It

 

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Private Client Commentary - RTC bailout

Dear Clients,

The final comment of my last letter was to look for an RTC type program to come out of Washington that would be viewed as the ultimate answer to the current financial crisis

Private Client Commentary - redundant

Dear Clients,

I keep waiting for the return email that says "jeez Marty you are one redundant son of a gun". But until I get one, I'm going to keep on recycling the same message in many of these commentaries. Fact is, even if I get one, I'm going to keep recycling the same message in many of these commentaries.

As I write this, it's Friday morning, fifteen minutes before the market opens, the Dow Jones Industrial Average futures are pointing to a triple digit decline, oil futures are trading at $3+ over yesterday's price, and the talking heads on CNBC are telling me why all this is going on this morning. I think back a few years when we first got the internet in our office; our service provider was called Compuserve, or was it Prodigy? I remember how excited I got when we were able to print a, twenty minute delayed, market update anytime during the day. I thought wow, can you believe it? We can actually get the scoop on what's making the market move, even during the trading day. And oh how we were able to use that valuable information. Uh well, we didn't really have a use for the information, it was just cool that we could get it and talk about it.

My how things have changed, today I can pull up a stock quote and watch it tick up and down minute by minute. I can get dozens of commentaries any time of day that give me the authors' opinions on what exactly is moving the markets at that particular moment. I can watch a so called mad man scream about stocks for an hour every afternoon. And oh how I'm able to use all this valuable information. Uh well, I don't really have a use for the information, other than it gives me something to write about.

At the end of the day, it just doesn't matter, what the stock market does by the end of the day. The only thing that truly matters is what the stock market does over longer periods of time, and I'm not talking by the end of the month, the quarter or the year.. In the short-term the only thing the market can do to you, if you let it, is get you excited, in a good or bad way, depending on whether it's up or down. Case in point: it's now 6:38am, the Dow is off 115 points, no make that 107, no make that 110. Wow, it can really bounce around in the course of a few seconds. I would sure feel better if it bounced to the positive by the end of the day. I wish someone would just say something that gives traders the incentive to buy big time before today's close. I wish someone would read last month's report from Standard and Poors that said the worst is over - S&P made an intelligent argument, backed by some compelling statistical data that suggested that the market is in a bottoming phase and we'll see sunshine soon.

I was tempted to forward that S&P report to you (the Dow is now down 138), but I decided against it for the simple reason that I want you to get comfortable with being in a bear market, for bear markets are a reality that we (The Dow is now down 120) have had to, and will continue to, learn to live with. The market has its seasons, and if we're looking for a beautiful spring (a spring back in stock prices), then let's hope for a really cold winter (a bigger pull back), because the market works just like nature, the greatest springs (when the market springs back) always follow the harshest winters. And forget about the market forecasters, they're more clueless than your local weather forecaster, and you know how you feel about him.

I'll bet there are a few of you out there who are thinking I spend all this time writing these commentaries - why the heck aren't I trading something or reacting to what's going on? To you I would say, spending my time on these commentaries, if it keeps me from reacting to what's going on, is an extremely good thing for your portfolio. These commentaries are designed to keep you from reacting to what's going on, which history has proven time and again, along with lack of diversification, can be a huge investment mistake.

I'm going to close here, having typed for 45 minutes and given you nothing new to hang your hat on, except for the good news that the Dow is now down 157, make that 167 (good news because the bigger the pullback the bigger the eventual spring) and wish you a great weekend.

Take care,
Marty

PS. All kidding aside, don't hesitate to call if you're feeling nervous.

Private Client Commentary - Lehman

Dear Clients,

Well perhaps we

Private Client Commmentary - Freddie-Fannie

Dear Clients,

Well they did it (or I should say we did it, or perhaps I should say - they did it with our money), the U.S. Government has seized control of the two mortgage giants Fannie Mae and Freddie Mac. Whether this bail out ultimately turns out to be a good thing, in my opinion, is not worth discussing here. It's a done deal and any comments I may have on the plusses or minuses at this point would be purely rhetorical. Unlike my recent comments regarding the ludicrous notion of a win fall profits tax on oil companies - which hasn't happened yet, thank goodness!

The significance of the Freddie/Fannie issue that's worth noting is the simple fact that these drastic measures "needed" to be taken at all. This is important in that, if indeed the bail out averted a looming crisis, it tells us that we may finally be getting to the inevitable "darkest before the dawn". As I've suggested for the past few weeks, bear markets tend to end with a big, stock-slide inducing, bang. While the bailout may have, in effect, helped the market sidestep capitulation (big sell off on high volume) for now - it no doubt would have occurred had Freddie and Fannie been allowed to fail.

This shows us, conclusively, that it is indeed really bad out there for the mortgage/real estate market (as if we had any doubt). And it proves that the stock market has been doing its job quite well these past ten months (the market began selling off last October in anticipation of this bad, if not worse, case scenario). You see the market serves as a discounting mechanism that, through the predominate directional trend in share prices, anticipates the direction of the economy going forward. And it generally begins to discount the economic future long before the economy itself signals a change in trend. Who would have thought that last October, when the euphoria of Dow 14,000 hit the market that just ten months later it would be flirting with 10,000?

At some point in the future, you'll likely read a commentary where I'll say; "who would have thought that the Dow would be setting a new record, when just X months ago it was flirting with 10,000". And we will find that the market began discounting the move out of the current recession months before the economic indicators gave us anything positive to hang our hats on.

So in the end, an unwinding of all the bad stuff out there is a good thing. Think of it like we've been teetering on the edge of a cliff, wondering whether or not a strong wind is going to come along and blow us off - which just perpetuates the uncertainty. Once we finally "fall" and hit bottom (this fall won

Private Client Commentary - Long Term means Long Time

Dear Clients,

For today's commentary we'll eavesdrop once again on a conversation between our Investor and Advisor duo.

As I've suggested before, virtually all of you have been very patient as this now ten month old bear market has done a number on the value of your equity positions. I know this isn't the first bear market for most of you, and I'm guessing that's one reason why no one's getting too excited. Nonetheless, I'll bet there are times when you can relate to our Investor friend below.

Take care,
Marty

Ps: always keep in mind; if you'd ever like to chat between review meetings about the market, the economy, etc., we welcome your call.





Investor: Man this market frustrates me. Up one day, down the next. It seems like lately we're just not getting anywhere!

Advisor: I know what you mean.


Investor: You know what I mean? Don't you have anything pithy to offer me?

Advisor: Nope, I simply agree - it seems like lately, we're just not getting anywhere.


Investor: So how long do we keep doing this?

Advisor: How long do we keep doing what?


Investor: How long do we keep doing what we're doing? Which seems like absolutely nothing! And are you messing with me again?

Advisor: Nope, not messing with you, just want to be clear what you're asking. Because, as you suggest, we're not really doing much - other than sticking with our long-term plan.



Investor: Okay, so how long do we stick with our long-term plan?

Advisor: Okay, I swear I'm not messing with you, but my answer is - we'll stick with our long-term plan for a long-time, otherwise it's not a long-term plan, now is it?

And you see, this bear market we're in began just ten months ago, which at this point makes it about average in length (as past bear markets have gone). And, in investment terms, ten months is very short-term.


Investor: All right, I get it. I guess I'm just getting impatient - tired of getting my monthly statements showing my declining balance.

Advisor: I feel ya, but that's what happens when we're in a bear market. And always keep in mind - you're monthly investment statement is not like a bank statement.

What I mean is; when your bank statement shows a decline, it's because you spent some money and you truly have less of what you had the previous month. When your investment statement shows a decline, and you haven't taken a withdrawal, you still have all the stuff you had the previous month. It's just that this month's appraisal of the stuff is lower than the last month's. You indeed haven't lost unless you sell some of your stuff when the price is down - which again, you wouldn't do if you have a long-term plan. The beauty of thinking long-term is you simply never have to sell in a down market.

Now, do I need to remind you of all the underlying benefits that bear markets bring?


Investor: Oh please don't! You've made your points very clearly, over and over again with all your commentaries!

Advisor: I thought you might say that

Private Client Commentary - deja vu

In light of all of today

Commentary - oil and capitulation

Dear Clients,

Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.

As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.

In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.

This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.

Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.

As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.

Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys

Commentary - oil and capitulation

Dear Clients,

Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.

As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.

In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.

This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.

Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.

As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.

Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys

Private Client Commentary - win fall profits tax

Dear Clients,

The American Heritage Dictionary defines socialism as; any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.
AHD defines capitalism as; An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

I swear I have to stop watching the news during the political season

Private Client Commentary - words words words

Dear Clients,
If I

Private Client Commentary - oil and capitulation

Dear Clients,

Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.

As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.

In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.

This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.

Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.

As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.

Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys

Private Client Commentary - no ideas

Dear Clients,

I

Private Client Commentary - fishing

Dear Clients,

While I found no correlation between the Alaskan Salmon Run and the direction of the U.S. stock market, of course I discovered a nice little metaphor in my experience.

We arrived in Alaska late afternoon last Monday with great anticipation of fishing the legendary Kenai River, where in 1985, an unsuspecting angler pulled a world record ninety seven pound king salmon from the water - where in most years, forty to seventy pounders are the norm. We woke Tuesday morning to drizzling rain and a reported temperature of 50 degrees - felt like 40. At the end of six hours of hard fishing and marveling at the breathtaking beauty of the Alaskan wilderness, we left the water with one twenty two pounder "in the box" (caught by my son Nick). Not what we expected, but hey, that's fishing, you have to take the good with the bad. Our guide, a 20+ year veteran with thousands of fish under his clients' belts, did all he could to find fish that either weren't there or weren't in the mood.

Day two; raining hard, 50 degrees - feels like 30 something. Fishing a new spot with a new guide, who the day earlier managed to help his clients land four beauties ranging from thirty to forty-five pounds. Okay I thought, today's the day, after all this is Alaska! Six hours later we left the water with just two "in the box", a very respectable thirty six pounder caught by my good friend Dan, and a spunky eight pound sockeye salmon caught by Nick. But hey, that's fishing, you have to take the good with the bad.

Day three (our last day); same spot as day two; raining hard, windy, 50 degrees - feels like 30, make that 20. In spite of our limited success the first two days, we had reason to be hopeful. The previous day, the fisherman who took the afternoon float with the same guide on the same water we fished that morning; caught their limits within three hours - ranging from thirty five to a whopping fifty four pounds. Looks like a new surge of salmon were making their move up river. Six hours later, on this last day of our trip, we left the river with one "in the box", a very nice twenty six pounder landed by my son Nick. But hey, that's fishing, you have to take the good with the bad. BUT HEY, THIS IS ALASKA! EVERYONE SAYS IT'S THE BEST PLACE IN THE WORLD FOR CATCHING SALMON! THERE'S SUPPOSED TO BE A LOT MORE GOOD THAN BAD! Of course later that day, while we bid our farewells to the guides and the other fisherman, we learned that they had already fared-well that afternoon - a fresh run of kings came through just after we left the water and everyone caught their limits.

If we simply stayed in the water, or stayed another day or two, we would have certainly gotten our money's worth. Which is of course the message - it makes sense to fish waters that have delivered for decades, while accepting that some seasons may not meet our expectations. Everyone says the stock market is the best place in the world to invest your long-term money. But, just like fishing, there will always be periods when it feels awfully cold outside and nothing wants to bite.

Successful long-term investors take their cue from successful fisherman - they remain in the water, and simply weather the inevitable ups and downs.

See you soon,
Marty

p.s. Please don't feel sorry for me for not landing a fish. Having spent five days with my son and a good friend in the most beautiful place I've ever seen was an amazing and wonderful experience. I realized that first afternoon, as the three of us were in complete awe of Alaska's unparalleled beauty during the three hour drive from the airport to the river, that whether or not Mother Nature yields us a salmon was of no importance whatsoever. I thought I was going to Alaska to catch a fish, but as it turned out, I went to Alaska for an unforgettable experience with people I care about

Private Client Commentary - the weather oil prices

Dear Clients,

Every now and then I feel like I should comment on something other than the current bear market (telling you why it

Private Client Commentary

Dear Clients,

Just giving you a heads up that I'll be out of the office next week, 7/21 - 7/25, and this time I really mean it. I'll be on assignment in Alaska, researching the relationship between the Kenai River Salmon Run and movements in the U.S. Stock Market.

Apparently there's some correlation between the average number and size of the Chinook Salmon that move up river during the summer months and the performance of the stock market - but only during election years. Upon my return I expect to be able to accurately predict what the market will do between now and the end of the year. I'll be in touch soon with my recommendations. I can't wait!

Don't worry, of course I'm kidding (although I will be in Alaska next week), I haven't completely lost my mind just yet. But I have to tell you, as ridiculous as my little joke sounds, it's no more insane than what I've been listening to, much of the time, on the popular cable financial news network. Take the hosts of the show that airs at 6 o'clock every morning. There's an upper-middle aged gentleman who's been on the network as long as I can remember, I think his name is Doom. His co-host is Gloom an attractive young lady.

Doom and Gloom are very bright, articulate and mostly friendly individuals. But at times they, Doom especially, can be a little rough on their 'expert' guests. This past Monday morning for example, after one of their guests gave his prediction on where the market is headed from here (how he knows I'm not sure, could be a salmon researcher), Gloom asked him what sectors he currently favored. He courageously answered with "I like the financial sector right about now". And before he could state the obvious - that he liked financials because the whole sector's been taken out to the woodshed and that there are some good companies that look extremely cheap - Doom jumped in with something like; "you can't be serious, you people have been telling us this for the past three months and financials have been getting killed the whole time." The guest attempted to make his case only to be interrupted repeatedly with more of this "ya right" sentiment. It sounded as if Doom and Gloom knew something the expert guest didn't - that what's going on right now is what is going to go on for a long, long time - if not forever.

Now I have found this linear view of the market to be consistent among the average consumer, however I am often surprised when folks like Doom, who's been around the block a few times, take this posture. You'd think he'd know by now that the market moves cyclically, not linearly. Apparently it's easy, even for pros, to get caught up in the emotion of the current trend. But how ironic that during the following two trading days, financial stocks, almost across the board, posted phenomenal gains.

This morning Doom and Gloom seemed a little different, they were almost optimistic. If this continues for long, they'll likely get caught up in the new trend and we'll for sure have to change their nicknames.
I'm not predicting that the 480 point rally in the Dow we saw Wednesday and Thursday marks the beginning of the next bull market (it's way too soon to tell) - this upward spike in stock prices could very well be what they term a bear market rally, as many are suggesting. But I will say that it is ultimately a harbinger of things to come - could be now, could be later.

Just think of it like the ancient Native American rain dances: Did you know that during times of drought, the Native American rain dances actually worked 100% of the time? That's right, and the reason they never failed is because they never stopped dancing until it started raining. Or, like the line from Brian Tracy that I've quoted before; "if you want to be known as a great economist in America, always predict growth. If you always predict growth, you'll be right 70% of the time, and if you're wrong temporarily, you'll be right pretty soon."

Take care,
Marty

Private Client Commentary - the weather gas prices home prices

Dear Clients,

Every now and then I feel like I should comment on something other than the current bear market (telling you why it's necessary, or why you're always okay if you think long term, yada yada yada). Which means today I must be at a loss in terms of how to tell you the same story with a different twist. We're still in a bear market, although a number of "experts" think we're seeing signs of 'capitulation', which is the big sell off on high trading volume that often characterizes the end of a bear market. As I write this, the market is trading lower on negative news from Fannie Mae and Freddie Mack, while oil is up on military rumblings coming out of Iraq - sending the Dow down triple digits despite surprisingly good earnings news from GE. Of course we won't know if this is the great capitulation until after the fact. Keep in mind that all the "experts", even the most pessimistic, are offering up their predictions on when and where this bear market will end and the next bull market begins. Implying that the bear market will indeed end, and the next bull market will indeed begin. Not that you ever had a doubt.

But let's talk about something else. How about the weather? Man can you believe it was 113 yesterday? Absolutely miserable! Can't go golfing, can't ride your bike, can't go anywhere. The only thing worth doing this weekend is hang out by the pool with the kids, or stay inside with the spouse. Or, if no kids and no spouse, stay in and relax, watch a movie or read a book. Huh, when you stop and think about it, those things sound pretty good. You've been meaning to spend more time with the kids (or the spouse) anyway. Maybe it's a good thing it's so hot outside.

How about the high gas prices? Jeez, it costs a hundred bucks just to fill up your tank once a week. So maybe you try not to drive quite as much, which maybe means you're at home with the family a bit more - not all bad. Or, maybe because gas is so expensive, the auto companies will invent more fuel efficient cars. Maybe, because there's so much financial incentive these days, we'll begin seriously utilizing some of those alternative sources of energy. Huh, that might help clean up the air and lessen our dependency on oil coming from certain volatile places in the world. Maybe we'll look back in a few years and say those crazy oil prices turned out to be a good thing for us and the planet.

How about home prices? Can you believe it - a couple of years ago your house was worth $150k more than it is today. But, compared to those poor folks you hear about in the news, you're happy you didn't over-buy and use an adjustable rate mortgage. And what about the mortgage companies and investment banks that got so incredibly aggressive with those loans - they're stocks have tanked, sending ripples through the rest of the market - no doubt a big contributor to the current bear market. But when you stop and think about it, the real estate boom had to end sometime - and the bigger the bubble, the bigger the pop. The headlines today talk about the worst real estate market in decades, while it seems like just the other day when the headlines were all about the best real estate market in history. And ultimately, more affordable housing can't be all bad, while it lasts.

Please forgive me; but I just can't resist tying all this back to the stock market. As I've been preaching for nine months, much like the weather, energy and home prices - the market is cyclical. And the bear phase cleans up the messes the market gets itself into every few years. I guess affordable stock prices can't be all that bad, while they last. And every once in a while, a certain phase in the cycle inspires a revolutionary trend (perhaps it's in energy this time around) that ultimately makes our world a better place to live.

Take care,
Marty

Private Client Commentary - the weather gas prices home prices

Dear Clients,

Every now and then I feel like I should comment on something other than the current bear market (telling you why it's necessary, or why you're always okay if you think long term, yada yada yada). Which means today I must be at a loss in terms of how to tell you the same story with a different twist. We're still in a bear market, although a number of "experts" think we're seeing signs of 'capitulation', which is the big sell off on high trading volume that often characterizes the end of a bear market. As I write this, the market is trading lower on negative news from Fannie Mae and Freddie Mack, while oil is up on military rumblings coming out of Iraq - sending the Dow down triple digits despite surprisingly good earnings news from GE. Of course we won't know if this is the great capitulation until after the fact. Keep in mind that all the "experts", even the most pessimistic, are offering up their predictions on when and where this bear market will end and the next bull market begins. Implying that the bear market will indeed end, and the next bull market will indeed begin. Not that you ever had a doubt.

But let's talk about something else. How about the weather? Man can you believe it was 113 yesterday? Absolutely miserable! Can't go golfing, can't ride your bike, can't go anywhere. The only thing worth doing this weekend is hang out by the pool with the kids, or stay inside with the spouse. Or, if no kids and no spouse, stay in and relax, watch a movie or read a book. Huh, when you stop and think about it, those things sound pretty good. You've been meaning to spend more time with the kids (or the spouse) anyway. Maybe it's a good thing it's so hot outside.

How about the high gas prices? Jeez, it costs a hundred bucks just to fill up your tank once a week. So maybe you try not to drive quite as much, which maybe means you're at home with the family a bit more - not all bad. Or, maybe because gas is so expensive, the auto companies will invent more fuel efficient cars. Maybe, because there's so much financial incentive these days, we'll begin seriously utilizing some of those alternative sources of energy. Huh, that might help clean up the air and lessen our dependency on oil coming from certain volatile places in the world. Maybe we'll look back in a few years and say those crazy oil prices turned out to be a good thing for us and the planet.

How about home prices? Can you believe it - a couple of years ago your house was worth $150k more than it is today. But, compared to those poor folks you hear about in the news, you're happy you didn't over-buy and use an adjustable rate mortgage. And what about the mortgage companies and investment banks that got so incredibly aggressive with those loans - they're stocks have tanked, sending ripples through the rest of the market - no doubt a big contributor to the current bear market. But when you stop and think about it, the real estate boom had to end sometime - and the bigger the bubble, the bigger the pop. The headlines today talk about the worst real estate market in decades, while it seems like just the other day when the headlines were all about the best real estate market in history. And ultimately, more affordable housing can't be all bad, while it lasts.

Please forgive me; but I just can't resist tying all this back to the stock market. As I've been preaching for nine months, much like the weather, energy and home prices - the market is cyclical. And the bear phase cleans up the messes the market gets itself into every few years. I guess affordable stock prices can't be all that bad, while they last. And every once in a while, a certain phase in the cycle inspires a revolutionary trend (perhaps it's in energy this time around) that ultimately makes our world a better place to live.

Take care,
Marty

Private Client Commentary - Q&A defending the mkt

Dear Clients,

I thought I

Private Client Commentary - Crises past 24 years

Dear Clients,

Yes, I know, I

Private Client Commentary - repeat stock mkt conversation 0108

Dear Clients,

For today

Private Client Commentary - Economic Outlook Okay for Now

Dear Clients,

Here

Private Client Commentary - Charles Merrill Quote

Dear Clients,

I hope you don

Private Client Commentary - Oil Conversation

Dear Clients,

Last week I passionately expressed my concern over why the concept of a win fall profits tax, on anything, is a very bad idea. Apparently that commentary got your attention. I received some interesting comments - everything from concern over my blood pressure, to rousing applause, to how dare I use my commentary as a political platform. Of course I vehemently deny that I was doing anything more than showing my concern over a policy that I believe would lead us down a very dangerous economic path.

As for this week I'm feeling a little more subdued, but if you'll indulge me, I would like to stay on the oil topic for just another moment.

In a recent commentary, I made the statement that higher prices (of any given commodity) ultimately take care of higher prices. What essentially happens is that when the price of a commodity reaches levels that effectively causes consumers to reduce their overall spending (an economic slowdown), the demand for said commodity begins to decline, which brings the price down. While the commodity was previously soaring to record heights, production increased dramatically while the suppliers rushed to capitalize on the inflated price, thus increasing supply. We then end up in a situation where we have lots of supply, but slowing demand - causing the price of the commodity to fall. As the price declines, speculators unwind their positions, creating even more downward momentum.

This is how it works, and this is how it will continue to work as long as we allow it to - as long as the 'powers that be' continue to support the notion that markets over time, by themselves, will work to correct any and all imbalances. Imbalances that begin with fundamental phenomena - like strong global economic growth forcing the price of oil higher, which creates incentive for investors (and speculators as the case may be) to jump in, creating momentum that feeds on itself. We saw this in technology stocks in the late nineties, then real estate in the early two thousands, and now we seem to be experiencing it in energy.

Will the recent pullback in oil ultimately amount to a 'bursting of the energy bubble', driving prices further down? Or, is it simply a correction in oil's current bull market? Of course, no one, and I mean no one, knows for sure - just a few short weeks ago, when oil was sitting at $140+ per barrel, the majority of the 'experts' on CNBC were predicting $170+ by year's end. While today, pretty much all we're hearing is that the bubble has popped and, for the foreseeable future, prices will settle anywhere from $100 down to $70 per barrel.

As for stocks, at the moment it seems the declining price of oil and a strengthening U.S. dollar have resulted, near term at least, in a positive trend for the market. So have we seen the worst of this now ten month old bear market? Are we at the early stages of the next bull? Or, is it just a bear market rally? Of course no one, and I mean no one, knows for sure - just a few shorts weeks ago, when the Dow was sitting below 11,000, the majority of the 'experts' on CNBC were predicting that the worst was yet to come. While today, not all, but more than a few are telling us that indeed the worst is over, and its blue skies ahead.

Of course, yours truly is never going to make a near-term market prediction, but I will say that I'm not convinced at this point that the bear is done growling. Oh don't get me wrong, I'm sure he will lose his voice sooner or later, and then go into hibernation while the bulls take over. But it would be very normal at this stage of the game to see another "testing of the lows", as they say - particularly since we haven't experienced the "capitulation" that often spells the death of a bear market. Capitulation is what they have termed the big, high volume sell off that tends to occur at the end of a long decline in stocks. It's essentially what happens when the last group of nervous investors (the fence sitters) finally give up the ghost and take their losses - leaving just you and me holding stocks. With no one left to sell, the next orders will be a buys

Private Client Commentary - OIL!!!

OIL!!!

Dear Clients,

Oil at $126 per barrel was almost unthinkable just a year ago. If you

Private Client Commentary - Pine Trees

Dear Clients,
I promise to get back to more news oriented topics in the weeks ahead. But if you

Private Client Commentary - conversation

Dear Clients,
Last week we saw the stock market stage an impressive advance. While I

Private Client Letter - conversation - weak dollar

Dear Clients,
Lately I have fielded number of questions on the weak dollar

Private Client Commentary - investor personalities

Dear Clients,
For this commentary, I thought we'd take a break from investment topics and take a look at the investor. Hope you enjoy it.
Take care,
Marty

What's your mentality, your personality if you will, when it comes to your finances? Having spent the last couple of decades working with individuals in relation to their money, I have a few observations I'd like to share with you.
For starters, it almost goes without saying that money holds a very high position on most people's list of priorities. Many would profess however that, at best, it comes in fourth behind faith, family and contribution to their community. And I wouldn't dispute that for a moment, but this number four priority can lead to serious stress for some people.
At the two extremes, we have what we call the scarcity and abundance mentalities. Over the years I've counseled a number of individuals who I'd consider scarcity minded. These folks are great people; nice, humble and very conservative (financially speaking). However, they can be quite anxious when it comes to money. They may fear they won't have enough to retire. Or, once retired, they fear their money will run out before their bodies do. Many of them (not all) grew up in a financially challenged environment, where their association with money was one of stress and worry. They may have watched their parents worry, complain and even argue about what they felt they lacked materially. I have worked with scarcity minded people who have enviable fortunes (from years of saving diligently and spending minimally), but live like they're just getting by. They clip coupons, live in modest (paid for) homes, keep the thermostat at 84 in the summer, 64 in the winter, take modest vacations, if at all, drive nice full sized cars they paid cash for 11 years ago, and they can worry intensely when the stock market goes down (even though they usually have only modest exposure to stocks). These wonderful soles will die rich (having never lived rich - financially speaking), and leave wealthy heirs behind. For the scarcity minded investor, a conservative to moderate risk asset allocation strategy makes the most sense. These individuals tend to feel real pain when the market heads south (notice I said when), and left to their own devices, many would become the typical investor who, long-term, usually earns a much lower return on his or her stocks than the market indices would suggest. They would likely sell when things get scary, and only buy when they're sure it's safe - which is usually after the market's been going up for a while (sell low, buy high). Their emotional intensity is usually higher during down markets than up markets. In essence, the fear or anxiety they feel when stock prices decline is much more pronounced than the positive sensations they experience when stocks rise. It is highly unlikely that these investors will get into trouble by taking more income than their portfolio can support.
At the other extreme we have the abundance mentality. The abundant minded may also be nice, humble and even conservative in many ways. But this group doesn't seem to experience the kind of anxiety around money that many of the scarcity minded seem to. They believe they'll always have plenty. Many of them (not all) grew up in an environment where money, even when it was scarce, was not a topic that provoked stress and worry in their households. They're more likely to live lavishly - name brands, big homes with big mortgages, they keep the thermostat at 70 in the summer, 70 in the winter, take fabulous vacations, trade in their leased vehicle every three years, and worry very little when the stock market dips. These folks live rich lives (financially speaking for sure), and may very well die rich. A few however tell us that their ultimate goal is to spend their last dime on their death bed (a tough one for us to time by the way). Left to their own devices, they would stand a good chance of earning market returns on their stock portfolios. This is due to the fact that money doesn't scare them and they are therefore less apt to make emotionally driven investment decisions, which is a good thing since they need to maintain portfolios that can keep up with their lifestyles.
I guess I should also touch on another group we, as advisors, rarely see. This third group is tough to name since, in a sense, they seem to possess both abundance and scarcity minded traits. But rather than falling somewhere between, they live beyond either extreme (financially speaking). They're not likely to work with investment advisors, because there aren't any investments to seek advice on. They're abundant minded in a sense, since they have no problem spending money. But unfortunately, they tend to spend beyond their means, seemingly blind to their lack of abundance. So we could label them "abundant blinded". But, like the scarcity minded, I imagine they feel intense stress around money (for good reason), but unfortunately, acquiring new things is how they find temporary relief from their woes - which of course serves only to intensify their stress. So could we label this group the "scarcity blinded"? In either event, these are no doubt some (not all perhaps) of the folks we're hearing so much about in the news these days - the ones who financed expensive homes with interest only adjustable rate mortgages that blew up in their faces when their rates were adjusted up and their home values came down (as the real estate bubble began to burst). While we would never wish this on anybody, in our system, they will survive, and many will look back and see their experience as a blessing in disguise, the great turning point, where they were forced to look inside and make necessary changes in how they approach their lives financially.
So there you have it, the three extremes - keep in mind, these are extremes. We have found that most individuals (our clients at least) fall somewhere between the scarcity and abundance mentalities. They may feel anxiety when they read the headlines during bear markets (which is perfectly normal), but they're not likely to react and make potentially big (emotionally driven) investment mistakes.
As you've experienced, we spend a lot of time and energy helping our clients maintain what we believe is a healthy perspective on the financial realities of our world today. And we will certainly continue to walk you through the ups and downs to come. For yourself however, the next time you feel fear or anxiety as it relates to your money, take a look at your financial reality (give us a call if you need help with this) and consider whether your worry is based on the reality of your situation today, and, if not, ask yourself if you're not perhaps a little pre-wired to worry. If you can relate, who knows, maybe this insight will alleviate some of your stress. On the other hand, if you never worry about money, but wonder how you're going to pay off the VISA after booking the four week African photo safari, and tell yourself - "it's okay, we'll just hit the home equity line of credit, or skip our quarterly estimated tax payment in June, or, better yet, we'll just pull it out of our retirement plan like we did for the six week Mediterranean cruise we took all the kids on last year", ............ WE NEED TO TALK!!

Private Client Commentary - A stock market conversation

Dear Clients,

Many of you have commented that you enjoy the Q&A format for my commentaries. The following is a continuation of the Investor/Advisor conversation where the investor is looking for some clarification on some recent comments made by the advisor, and where the advisor emphasizes the importance of not reacting to the headlines.

Take care,
Marty

Investor: You

Private Client Commentary - This is What We Want

Dear Clients,

We

Private Client Commentary - TIME cover 10-74

Dear Clients,

A week ago, the market was flailing; all the news was bad, with seemingly no light at the end of the tunnel. And here we are now, just this Tuesday, in the blink of an eye the market bolted ahead 400+ points, as measured by the Dow Jones Industrial Average. As I

Private Client Commentary - How long is A While

How long is A While?

What great times these are for the financial press. There

Private Client Commentary - A Stock Market Conversation - part 3

A Stock Market Conversation (Part 3)

Dear Clients,

As I stated recently, virtually none of you seem to be rattled much by the current stock market trend. But just in case anyone

Dorian Yates

Private Client Letter - Gridlock

"Gridlock (please)"

Economically speaking, what should we hope for this political season? From a purely economic perspective, the best thing we can hope for as a result of the coming election is gridlock - where neither side gains a strong footing in the coming election. You might detect a hint of cynicism in that statement and I guess when it comes to politics I can get a little cynical from time to time. But in this instance I simply believe that a scenario where no single politician or party has much power is a good thing, at least for the economy. As you've heard time and again from me, the economy is cyclical. Periods of expansion, where everyone's smiling and enjoying the good life - and periods of contraction where things slow down and the future is uncertain (by the way, one can't exist without the other). No one likes contractions (recessions), and when they come it's an opportunity for the political party not in office to point the finger at the one that is (and make no mistake, both parties do it). When in reality, there's no politician to legitimately blame. Just like there's no politician to legitimately credit when the economy expands.

Take the 90's for example - the decade of the technology/internet revolution. President Clinton was fortunate enough to preside over the largest economy on the planet during the greatest economic expansion in modern history. I do think Bill should get his fair share of the credit - Bill Gates that is. As far as the president goes, Fred Flintstone would have gone down as one of the greatest presidents in history (economically speaking) had he held office during the 90s. Alan Greenspan was fortunate enough to be the FOMC chairman during the 90s and goes down as one of the all time best. While I'm sure Mr. Greenspan sports a very high IQ, I think Barney Rubble could have been fed chairman in the 90s and we'd have done just fine. I know what some of you are thinking; "hey that's not fair, didn't Greenspan raise and lower interest rates at just the right times, and add or remove liquidity from the system just when the economy needed it to keep things on track"? Nah, I don't buy it. Barney Rubble would have done just fine. You see the technology revolution, plus very favorable demographics catapulted the economy forward, all the while companies were using the new technology to become more efficient, which kept inflation at bay. Yep I say it again; Barney Rubble would have done just fine.

Now before anyone sends me an email chastising me for ignoring the real good or the real bad that the Ronald Reagans, Bill Clintons, or George Bushs of our past had accomplished, I'm just expressing my thoughts as it relates to their economic impact, not their social impact (I don't know how good Fred Flintstone's foreign policy would have been, or his views on trade, immigration, welfare reform, etc). You could chastise me however for not mentioning the impact taxation can have on the economy, and I'll have to give you that one. My last newsletter "Taxes" suggested that tax policy can have a direct and measurable impact on the economy. But right now the tax system is very supportive of capital investment which is good for the economy and for all citizens regardless of their level of income. So again, when I'm thinking purely economically (not socially)

how to clean ear wax

Private Client Commentary Perry and Ollie

Dear Clients,

A few days ago, the question of the day on CNBC was,

Private Client Commentary - Tax Tool

February 2008

Private Client Commentary - Pessimism The Wise Investor's Best Friend

Pessimism

Private Client Commentary - Pessimism The Wise Investor's Best Friend

Pessimism

Private Client Commentary - A Stock Market Convesation Continued

Dear Clients,

The following is a brief continuation of the pretend Investor/Advisor conversation I sent you a few weeks ago. As you

Private Client Commentary - Making Lemonade-Tao's Farmer

Dear Clients,

I hope my recent commentaries have helped you put today

Private Client Commentary

Dear Clients,

Just in case you were too busy this morning getting the kids off to school, getting to work, fixing the back yard fence or on the first tee (wearing thermal underwear I hope), and missed the news

Private Client Commentary - The R Word

I hope you

Private Client Commentary - No Time Like the Present

Last week was interesting as we watched the stock market discount the possibility of a coming recession. The following letter, like my other recent commentaries, doesn