News

December 18, 2008

Letter to our Clients

In the most recent bad news from Wall Street, Bernard Madoff, former NASDAQ Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was arrested and charged with securities fraud. What did he do? He allegedly collected money to invest from clients, made up false statements to show that they were doing well, and used new clients' money to pay interest and withdrawals to existing clients. This is known as a Ponzi scheme and is estimated to involve more than a $50 billion loss for his investors.

Let's look at three key safety tips that would have prevented clients from being taken in.

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

Use an independent custodian. Madoff held his client assets, managed them, and priced them. The conflicts of interest are obvious. Investment performance can look better if the prices reported to clients are manipulated, which is allegedly how Madoff showed winning year after winning year despite market turmoil. At our firm, our clients have an independent custodian, TD Ameritrade. We have no input on investment pricing. Clients receive an independent statement directly from TD Ameritrade.

Check on insurance. Fraud insurance does not protect against market declines; but it does protect against theft of securities and/or related fraudulent transactions. Our clients benefit from fraud insurance. The first part is Securities Investor Protection Corporation (SIPC) coverage up to $500,000 per account. TD Ameritrade also has an additional $250 million in fraud insurance from Lloyds of London. If TD Ameritrade were to go bankrupt, your investments would be transferred to another brokerage, every share intact, just as they are.

One final thought - if an investment sounds too good to be true, it probably is. Reportedly Madoff claimed consistent annual returns of 10-12% with little volatility and no annual losses. What legitimate investor can make that claim in recent years?

We hope this letter offers you some reassurance around the safety of your investments. Please bring us any questions or concerns you have about this issue. We're talking about your hard-earned savings here. . . no question about the security of your assets is off-limits.

December 2, 2008

380 Elm Street

Usually the market analysis is the easiest part of the monthly letter. With the battering portfolios have taken since summer, there is small consolation that we are down far less than the indices. Bonds were positive again in November, as well as money market funds. International stocks dropped less than domestic over the month. Diversity has cushioned the November blows.

We would all like to know how much longer this bear market will strike at our security. This much I can assure you: when stocks regain significant strength, we will trim stock positions and increase bond and cash positions to ride out the remainder of the market downturns. A temporary stock rally may occur in the next few months. We will apply this plan to your portfolio and future goals when we meet.

Perhaps they are right, who suggest that we were counting while so many are starving. What are our temporary losses compared to real pain? To share with a stranger, to right a wrong, to forgive an injury, is to receive the bounty we think we are giving, from those whose riches we needed to discover - peace on earth is at our open fingertips.

November 6, 2008

380 Elm Street

October market drops exceeded total losses year to date. The final week saw significant reprieve and stocks soared. Checking portfolio positions this week, it is heartening to see them responding strongly. Still very low compared to a year ago, current market levels may give way again before this troubled time is over. Banks must begin lending and housing prices must reach bottom before the economy can turn around. Business will be stronger, with less debt, when this market cycle finally turns upward again. Stock markets will anticipate the economic recovery but expect a rough road back.

We have experienced real pain in the past few months, with more likely to come. The current environment has encouraged frequent comparisons to some of the worst times in our nation's past. In the early '80s, U.S. Gross Domestic Product (GDP) shrank during five quarters in a two-year span and slid by more than 7.8% in a single quarter. Inflation topped 14%, the prime rate was 21.5% and unemployment reached 11%. While we haven't seen the worst yet from current economic indicators, we are a long way from these sorts of statistics. In the current market, there really is only one certainty. Stock and bond markets alike are going to be volatile for the foreseeable future. Watching this volatility is no fun, but we fully expect to be rewarded in the long-term for our patience and our discipline.

With a decisive election people spoke their concerns and selected a new course. Americans expect their leadership will steer the country through these treacherous economic times and rebuild American stability at home and influence in the world. Overcoming racial issues in the election, our actions speak our values on human rights everywhere with power and conviction. Only in America.

October 2, 2008

380 Elm Street

There is an excess of news. One story that requires in-depth coverage could fill the media for weeks. These complex events keep happening. People are spinning from the froth the media churn up. They are angry about being poorly informed and the injustice of ordinary taxpayers paying for the greed of highly compensated executives. There is also a deficiency of trust. When the Chair of the Federal Reserve, whose job is to stabilize the economy, says we, the taxpayers, need to buy the bad mortgages or else the devastation in credit loss will mean job loss and a long worldwide recession, people are cynical. Voters' angry emails pummeled Congress over Treasury Secretary Paulsen's bailout package crippling those up for re-election from supporting even the revised version, hammered out by subcommittee. We have a crisis in the economy and a crisis in leadership. A strategic legislative move now and we'll get by with minimal damage. The lesson from the Great Depression is that we cannot do nothing, or the wrong thing. Ben Bernanke is better equipped than most to call the shots now and his position is permanent. Treasury Secretary Paulsen is part of the Bush presidential cabinet.

Our diversified portfolios retain a significant lead (read: much less negative) over the U.S. indices. With a weakening world economy, international positions have suffered more than domestic recently. Strong cash positions in solid money market funds, as well as bonds, have limited the losses this September. Holding tight remains the best policy. An uptick in November markets is expected but we have a long bumpy road ahead, even if the bottom was 9/29. We won't know the bottom until we are out of the woods. Meanwhile we keep in touch, with you and with the marketplace. We'll emerge wiser and stronger than ever.

Autumn has entered on many levels. This change too, is temporary, and part of progress.

September 19, 2008

Letter to our clients

This has become a memorable time. Your patience and forbearance have been amazing. You know we would be in touch with you directly if you needed any action to improve your situation. This is the time we anticipated. It is not over yet. When all this ends, we will have a better marketplace and your accounts will recover more quickly than most. After the three down years of market in 2000-2002, our accounts were back to their highs by the end of 2003. The market indexes were several years recovering.

We want to reassure each of you that the diversity of your investments is one part of your stability in this situation. Mutual fund money markets are managed to maintain a share price of one dollar. One competitive money market fund, the Reserve Primary Fund, owned bonds in Lehman that caused its share price to drop to $0.97. Fidelity, Vanguard, and T. Rowe Price, as well as TD Ameritrade have assured shareholders that they have taken no such risk and have moved to even reduce the level of risk in the money market funds we use.

The anxiety from the domino of effects leaves investors fearful for their own financial security. We knew the effect of the sub-prime mortgage was pervasive, but with newly created, opaque investments, no one could tell what the cords leading from it entangled. The governing laws to prevent this situation are in effect; we need them to be strengthened and then enforced. Meanwhile, the market is experiencing a great cleaning out of bad business.

The companies that have failed were corrupted and loosely regulated. Their services are no longer required by the private investors, who needed them sixty years ago in order to participate in the market. The two remaining, of the big five wirehouses, Morgan Stanley and Goldman Sachs, as well as smaller broker-dealers, will face much stiffer regulation and oversight in the future. We are not affiliated with any broker-dealer or wirehouse. The big wirehouses are no longer needed in a world where their services can be more efficiently provided by online access and Registered Investment Advisors.

The Federal Reserve and Secretary of the Treasury have been resourceful and creative in their handling of this economic crisis. We have confidence that their capabilities are not exhausted. They will continue to provide economic stability, that the greed of some have so extensively undermined.

September 4, 2008

380 Elm Street

After a strong start, August stock markets undulated to a positive finish. European shares swelled with their best month since April. As often happens when stocks tremble as they did in June, investors turn from growth to value stocks and our value stock positions have grown well Since June. Our diversified portfolios still escape the double digit drops in the major indices, both year-to-date and from a year ago.

The hopes for an economic lift and stock rally in the last half of the year are dim. An event like sustained low oil prices could trigger a market turnaround. More realistically the scene looks like we may be in for more significant downside before the financial sector stabilizes and again provides the footing for a growth economy. The road continues to look bumpy, with small rallies in stocks along the way, but no signs indicate that we should anticipate a near end to the bear market. Meanwhile we keep investment buckets in many wells and will draw up any water to be found for thirsty portfolios.

September signals a return to schedules and reduced serendipity in daily routines. Evenings shorten suddenly, not gradually, as science dictates. Productivity offers a way to avoid focusing on the inevitable. There is much to accomplish, yet time to enjoy lingering in the garden. Note how bees do it.

August 19, 2008

380 Elm Street

July stock markets continued the downward trend of June but at a much slower pace. August has begun with an up trend in stocks as inflated oil and commodities prices drop toward their bear market levels. Oil and commodities drove inflation, making the weak economy precarious. Our average portfolios are down about a third as far as the major stock indices. European economies have followed ours and added to the difficulty of diversifying out of the U.S. stocks. Refuge stocks in these times include health care and consumer goods, which have returned well since mid-June.

Americans have definitely reduced their gasoline consumption. The nearly bear-market drop in crude oil prices in August is partly the result of the effect of reduced demand, and also the reversal in excessive speculation in the energy market that contributed to the price balloon. With lowering energy costs, and the strengthening dollar, inflation is less of a threat. This is a good sign. The economy will recover when banks get back to lending again. Their reluctance to make even good loans strangles the economy. Until the banks get their houses in order, the economy will be sluggish. Markets tend to anticipate moves in the economy so stocks will rise when economic forecasts improve. For now we wait and watch.

Habits simplify our living. The unthinking activities we repeat every day just get done. No decisions. Conversely putting too many activities on auto-pilot makes ruts in our life path. Vacations jump us out of the ruts. In a changed environment we have to think more about what we do. Returning from time away offers an opportunity to change our routine, try a new direction by making a new habit - until the next vacation.

July 2, 2008

380 Elm Street

June markets brought stocks to the brink of a long awaited bear market. It is hard to see the numbers go “out the window” and important to remember that you still own the shares. It is just that no one wants to pay as much for them right now. Our diversified portfolios handily survived this month with half to a third of the drops suffered in the major stock indices. Our portfolio three-year averages are two to three times the average gains for the past three years in the major indices.

The stock market has finally sobered up. The world economic situation is serious. There are no easy fixes and the economy may get worse before it gets better. When investors sense things are close to improving in the economy, the stocks prices will rise in anticipation, probably when we least expect it. The anticipated fourth quarter market rise this year may be minimal. Until credit markets are functional we cannot expect a sustainable market rally. Meanwhile we expect stocks and bonds to be bumpy and we'll keep any cash as cushion against the anticipated downturns until it seems the worst is over.

Early morning precedes the pulse of a summer day. Strong herb scents, collected overnight, burden the air. Red poppies distract a hummingbird hurrying to the honeysuckle. Lush tree tops draw the first sun, slowly lowering it to open the day. The heat threatens but the mellow lingers.

June 3, 2008

380 Elm Street

May closed another positive month for stocks. While still lagging year-end values, the direction is appreciated. Our diversified portfolios, many carrying extra cash, have again outpaced the major indices. The economy is expected to feel a temporary up-tick from the Federal rebate checks. That should be followed by another economic slump by late summer. Although jobs and manufacturing have slowed for several months in a row, the numbers have not declined as much as they usually do in a recession. The sluggish economy and soaring commodity (as in energy, food) prices have consumers feeling trapped. If this is not a full recession, we will do well to avoid meeting the definition. Stock markets are expected to improve the last half of the year and pick up significantly in the fourth quarter.

So far this quarter the bright spot has been technology. This sector has the advantage of a large overseas market, benefiting from the weak dollar. This combined with low dependence on the currently high priced commodities market sets tech ahead of manufacturing now. Business is turning to technology to improve performance in a challenging economy, which should keep tech healthy for a while.

It seems that every flowering shrub has come through the winter with buds in record profusion. Yet the ancient weeping mulberry tree in my yard has not survived. There is no accounting for its demise when all around it flourishes. Last year's abundance was its final offer. The birds will miss their July fruit extravaganza. The great twisted arms and draping boughs will sculpture the yard at least this year.

May 2, 2008

380 Elm Street

Stocks rose in April, wiping out recent months' losses. The month closed with 4.5% rise in the DOW, the strongest one-month gain in a year. The Feds reduced rates by ¼ percent to 2% at their April end meeting. They will not be lowering rates again soon. Normally that announcement would signal that the Feds foresee a turn in the economy and that would lift stock values. The reason to hold interest rates is not that recession is ending but that inflation threatens as the economy struggles. We are still in the woods but diversified portfolios continue to weather the turbulent markets better than most.

Whether the formula defining economic recession is met or not, Americans are feeling recession. The rebate checks will offer a temporary relief but the underlying problems will continue to keep people's money tight. The only good economic news is that prices rose less in the first quarter than they did in the previous quarter. The rate of inflation is at least not increasing.

Perhaps one thing lovelier than a day in June is a week in June - in April - after a long winter. People were stunned, but smiling. Flowers and trees raced into bloom and bumble bees appeared out of thin air. Suddenly and spectacularly winter released its grip and we slipped out into spring.

April 2, 2008

380 Elm Street

March closed the fifth consecutive down month in the market. It was 1990 when that last occurred. Some market analysts feel that the bottom may be near but most expect the bumpy ride to continue into the summer. Our portfolios have fared the stormy weather better than the market indices which are definitely negative year-to-date and over the past twelve months.

Fed Chairman Ben Bernanke has moved to avert a plunge in the economy by supporting stocks that threatened to pull the country to the brink of depression. Whenever a major company falls we get new legislation and Bear Sterns will legacy new regulation of banks and financial service industry. We have yet to regulate greed but new laws may keep its effects at bay for the next few years. Bernanke seems determined that depression and his term as chair will not coexist. We take no small comfort in this.

Birds fill the yard again and their early morning song sequels the overnight chorus of the spring peepers. Sporting glossy new plumage songsters seriously stake out turf and set to nest construction. Why does the ritual never grow old? Would we savor every moment of the return of spring, without winter? The first snow storm may catch us by surprise but never the first daffodil.

March 4, 2008

380 Elm Street

February markets closed the month slightly lower than it opened. Bond markets, the usual safe haven from struggling stocks, suffered in February as the ripples of the credit market widened. Only cash was king last month. Many mutual funds own energy and precious metals in their diverse mix of stocks.

The signal from credit (bond) markets to stocks is that the end is not in sight. Investors are often too optimistic at the end of a bull market and we have seen days of excessive buying in an attempt to make the markets bounce back. Most however believe that there is much more downside before the return of good times and a new bull market. If it helps, close your eyes and ignore the numbers; this is something we need to endure for a while yet before things really get better again. And they will.

The economy is distinct from the stock market, even though the two are closely related. Sometimes the stock market grows during a recession. The economy is in recession when business slows down and people lose jobs. The housing sector is definitely in recession now. When the economy is booming and prices and wages are rising, we have economic inflation. The best economy is when growth is strong and inflation is limited, the “Goldilocks economy” we've had in recent years. The worst is when the economy is sluggish and we have high inflation or “stagflation”. Chairman Bernanke has his hands full as he finishes year one.

The return of daylight savings time next weekend makes the winter seem shorter. It used to be late April before we switched off standard time. Sap is running but we are a long way yet from the warmth and flowers of spring. But it is beginning, again.

February 4, 2008

380 Elm Street

The coldest and darkest of another winter is past. People savor or anticipate their moments in the sun. Our own star swells to blush us and revive our fancy for the easy life. New snows will melt more quickly now and we'll soon move smoothly out of boots and coats.

January stock markets ended well even though a net loss prevails for the month. We expect markets to be choppy at best for the coming months. The last half of the year looks better.

In order to get to a new bull market we have to cycle through a bear market. The longer a bull market runs, the worse the bear is when it arrives. Until the DOW is down 20% from its peak of just over 14100 we are still in the same bull market that began in 2003. This means the DOW has to go below 11200 to open the bear market. Of course we prefer the decline be gradual. The good news is that bear markets are shorter than bull markets. I would like to get through the bear and get it behind us, but it may not happen now.

A stock market free fall is always scary but you own good solid investments. The lower market value means that no one wants to pay as much right now for stocks. When demand for stocks returns, the prices of what you own will rise again and surpass old high values. A down market holds no danger to a diversified portfolio unless you need to sell investments while they are lower priced. Meanwhile bonds are flourishing and money markets are still returning over 3%. Be assured I will contact you if we need to change your investments.

There will be no more office vagabonding and annual directions to a new location. The purchase of our office as a condo unit is scheduled to close next week. You can plan to see us here for a long time. It is good to be settled again.

January 4, 2008

380 Elm Street

Yes, the stocks prices are down and it is really ok. Stocks need to do this from time to time and it has been a while since the last bear (down) market - at least five years. The longer the market goes without this down turn, the worse the downturn will be when it comes. And it always comes. So let's hope the markets do this right and leave us positioned for several more years of good growth.

Meanwhile cash and bond positions minizime the damage from reduced stock prices. It is good to remember that you still own the stock positions but no one is willing to pay as much for them today (market value is down) as they would a few months ago. Unless you need to sell, it really does not matter. A few months from now the stock positions you own will draw a fine price again as your portfolio bottom line gains real growth. This is the meaning of long term investing.

The new year blows fresh with opportunities awaiting. Our Administrative Assistant, Laurie Dyer needed full time employment and moved on at the year end. The position here is only part time. We'll all miss Laurie's warmth and helpfulness and wish her the best in her new beginning. Our new Assistant, Brenda Slaney has experience administering a small office. She is here from 8am to 1pm. I trust you will quickly enjoy working with Brenda as much as I do.

Copyright © 2003-2008 Victoria M. Lechner.  All rights reserved.