June 2008 NewsLetter

Volume 2, Issue 5

Dear Reader:

Hello and welcome back. It’s hard to believe that it’s a new month and we’re into summer, but a recent trip to Boston convinced me it’s true. I attended an investment meeting sponsored by Barclay’s Global, held at the Harvard Faculty Club. The faciltiy was amazing, it looked like a Hollywood set, just what one would expect of the Harvard Faculty Club. As a Miamian, I’m used to heat, but at home, everything except the Everglades is airconditioned. Unfortunately, Harvard evidently isn’t used to summer heat and there was no airconditioning; it was toasty! Summer is definately here. The good news is, the program was so great, the heat was worth it.

OK, so much for my travels and Summer, here’s this months Tid Bits.........

Go Figure

75% - The percentage of US homes estimated to have declined in value over the past year. 19% increased in value, and 5% were unchanged. I have no idea what happened to the missing 1%.

65,000 – The number of US students who graduated with a bachelor’s or master’s degree in accounting during the 2006-07 academic year, up 19% from the number in the previous census three years ago. I haven’t checked, but I’d guess that means the sale of pencil sharpeners is up too.

At least Miami finally made it off #1 on the “Worst” list

Median price of single-family existing homes in the top 80 metropolitan areas.

Is That a Webcam in Your Pants?

For that special client gift, Laptop magazine introduced me to this hot new product. DVR (www.ajoka.com) can turn your buckle into a micro-camera with a high-quality voice recorder. The quality isn’t exactly spectacular, but you can fit up to 33 hours of footage.

Indexes, Indexes Everywhere

In case you really want to slice and dice your bets on the housing industry, the Journal of Investing reports that S&P has expanded the S&P/Case-Shiller Home Price Indexes to include sub indexes for low-, mid- and highpriced homes. Seventeen of the 20 metropolitan areas covered by the S&P/Case-Shiller Home Price Indexes now have their own sub indexes.

Told You Indexes Are Everywhere

I guess they were worried that there was a shortage of choices, so Northern Trust has filed for 27 new ETF’s (branded as NETs). The filing includes 20 country-specific funds and three global funds.

The Great Florida treasury Hunt

This is for real. We found a few hundred dollars laying around for our company. The department of Financial
Services Bureau of Unclaimed Property holds unclaimed accounts valued at more than $1 billion. If you have ever lived in Florida, there’s a chance they are holding unclaimed property for you. Head to www.fltreasurehunt.org and see if there’s a pot of gold waiting out there for you or your clients.

I Hope All of Your Kids Have Finished College

According to Investment News, 78% of university finance officers who expect future tuition increases to exceed inflation rate. They were probably too chicken to say how much they thought it would exceed inflation. We use 3% above the inflation rate in our planning (and keep our fingers crossed).

Wonder Why You Keep Reading So Much About the China Factor?

It’s estimated that there are 221million internet users in China amounting to 16% of the population. The number is expected to reach 490 million in 2012.

Mr. Buffet’s Picks

Where does Berkshire shop?

The Coca Cola Co. (KO)                              8.6%
Wells Fargo & Co. (WFC)                            9.2%
American Express Co. (AXP)                      13.1%
Burlington Northern Santa Fe Corp (BNI)  17.5%
Moody’s Corp. (MCO)                                 19.1%

Is the World Really Coming to an End?

Ned David Research analyzed market performance before, during and after 10 recessions since 1945; their
conclusions?

• The bad news: From pre-recession bull market peak to recession low, the S&P 500 Index fell an average of
  23.6%.
• The good news: The market historically began rising about midway through these past recessions. On
  average, the S&P 500 gained 25% six month after reaching a recession low and skyrocketed an average of
  32% a year after the recession low.
  
• The bad news: It took an average of 20 months for the index to recover to its pre-recession peak after hitting its recession low.
  
• The really bad news: It took the index more than five years to recover from the severe 1973 – 74 and 2000 – 02 bear markets.

And You Were Only Worried About Gas

According to Business Week, Citigroup Inc. and a Barcelona-based firm which operates toll roads in Europe and Latin America bid $12.8 billion to lease the 537- mile stretch of Pennsylvania Turnpike for 75 years. Money from a turnpike lease would help the state close a $1.7 billion gap in transportation funding. Soon toll costs may rival gas prices.

You Learn Something New Every Day

Reader’s Digest informed me that the Millennials differ from their baby boomer and me generation parents. I was duly impressed ‘cause I didn’t even know the Millennials existed. It seems that Generation Xers are the 47 million young adults between the ages of 18 and 29 and the Millennials are the first generation to come of age in the 21st century.

Definitely California

While I’m referencing Reader’s Digest, here’s another great idea if you’re into wine and want to impresses your friends. Pick up some of these items at a California grocery (and it’s for real). If you’re not from California, don’t despair. All you have to do is make up some nice cards to prop in front of the fruit when you serve your guests.

They’ll never know it’s not from California.

‘Cherries – Pleasant aroma of Merlot with hints of Cabernet”
“Raspberries – Fruity nose of Pinot Noir with chocolaty overtones of Zinfandel”
“Pears – Subtle wisps of Riesling with a distinct flavor of Chardonnay “

Pessimists

What ever happened to “half full”? According to the Reuters/University of Michigan Survey’s of consumers its index of confidence fell to 59.5 for May, its lowest level since 1980 and its fifth-lowest reading ever.

Early Birds

Thanks to Dealmaker, I can now share with you the origin of the term “Power Breakfast.” Bob Tisch, the late co- CEO of the Lowes Corporation, first coined the term during New York’s 1975 fiscal crisis, when he invited politicians and labor chiefs to his hotel’s dining room to hash our recovery strategies over omelets and coffee. As New York’s still around, I guess the food was good.

Blackout

This gives new meaning to “global economy.” Last February an explosion destroyed 20 fireworks warehouses in China. So what you ask? According to the New York Times, the explosion that shook homes for miles and lasted more than 24 hours, may significantly curtail fireworks displays for the Fourth of July. Even worse, evidently in order to protect any negative impact on the Olympics, the Chinese Government said it would ban the transport of many types of fireworks through October.

I Sure Hope They All Fit Together

Never can tell where you’ll find a good lesson in global economics. I found this in Conde Nast Portfolio. Boeing’s new 787 Dreamliner is truly a world wide endeavor. Here’s an example of the multiple vendors:
Cargo Door – Sweden
Horizontal Stabilizer – Italy
Wing – Japan
Wingtip – South Korea
Engine – Britain
Forward Fuselage – Japan
Wing and Body Fairing - Canada
Landing Gear – France
Movable Trailing / Wing Edge – Australia

History & Hope

T Rowe Price is not only a Rolls Royce in the money management industry; they publish some pretty interesting statistics. As an example, the table below may help you help your clients weather the current market volatility:

*Low date for the S&P 500 Stock Index during recession, as defined by the National Bureau of Economic
Research (NBER).
** Months needed for the S&P 500 Stock Index to recover to its pre-recession peak from its recession low.

In Hind Sight, I Shouldn’t Have Picked Latin As My Foreign Language

According to the U.S. Census, 58.5% of Dade county's residents speak Spanish -- and half of those say they
don't speak English well. English-only speakers make up 27.2% of the county's residents. In Hialeah 94 percent of residents identified themselves as Hispanic.

Cheap Gas!

Forget it. Best I can do is introduce you to http://autos.msn.com/everyday/gasstations.aspx?zip=&src=Netx. Type in your zip code and you’ll get a list of the stations with the least outrageous prices (I started to say “cheapest” but changed my mind) in your neighborhood.

YEA!

I noted in an earlier NewLetter that the Supreme Court had a pending case challenging a state’s right to exempt their residents from paying taxes on that state's municipal bonds (Department of Revenue of Kentucky et al. v. Davis). Well, the ruling has been issued and the Court’s decision overturns a lower court decision. The Supreme Court ruled that such in-state tax exemptions play an important role in helping states fund public projects. Phew!

Not Just The Little Guy

It’s not just the individual retail investor who got stuck with frozen assets in auction rate securities. According to the Wall Street Journal, more than 400 companies, including Google, Bed Bath and Beyond, and Starbucks, held at least $30 billion in these securities they believed to be as good as cash. The Journal reported that half have written down the value of their holdings at an average mark down of 13.2%.

Get Your Bidding Paddle Ready

The costume that Charlton Heston wore in 1959’s Ben Hur is going up for auction this summer in California. No
word on the chariot.

Attention Boomers

Want to keep abreast of the doings and thinking of your boomer clients? PC magazine lists the top 10 sites for
baby boomers:

1. Boomertowne.com
2. IrememberJFK.com
3. TeeBeeDee (tbd.com)
4. Boomergirl.com
5. AARP.org
6. Retiredbrains.com
7. Boomj.com
8. Boomer411.com
9. Eons.com
10. Retirement Living TV (www.rl.tv)

Clouds

Get ready to start hearing a new term from computer geeks – “cloud computing”. According to Wikipedia, it is a
technology model that “derives from the common depiction in most technology architecture diagrams, of the
Internet or IP availability, using an illustration of a cloud. The computing resources being accessed are typically
owned and operated by a third-party provider on a consolidated basis in Data Center locations. Target consumers are not concerned with the underlying technologies used to achieve the increase in server capability, and is sold simply as a service available on demand; some say is so named because the functionality is “out in the clouds.”

According to Information Week this will be the dominant IT delivery model of the future. Over the next year, IBM and Google plan to roll out a worldwide network of servers from which consumers and businesses will tap
everything from online soccer schedules to advanced engineering applications; in fact, our home and office based software may be become a thing of the past. Knowledge at Wharton [knowledge@wharton.upenn.edu] quotes a Gartner analyst (a leading IT research and advisory company) predicting, "By 2011, early technology adopters will forgo capital expenditures and instead purchase 40 percent of their IT infrastructure as a service.”

State’s Rights (and our loss)

A new study from the Tax Foundation shows that most American states tax job providers at a higher rate than any other country in the developed world. I guess we’d refer to this a “little brother’s hand in our pocket.”

The Universe Awaits You

This is awesome and a great site to share with your kids. WorldWide Telescope
(http://www.worldwidetelescope.org/) turns your Windows computer into a virtual observatory of space by taking 12 terabytes of data from the world’s finest telescopes including the Hubble space telescope, Chandra X-Ray Observatory Center, and the Spitzer Space Telescope providing amazing imagery of our universe. Source: USA Today

What If You Can’t Type

I’ve not been a big fan of biometrics. That’s the geek term for technologies such as fingerprinting, voice
identification, and iris recognition. I have a finger print reader on my laptop but it never seems to like my
fingerprint (plus, I remember all of my old spy movies and I know the bad guys can get around it by just nipping off the tip of my finger), so I disabled it. Evidently others object to biometrics because they consider it intrusive. Popular new solutions are biometric methods that require less-intrusive examination, such as measuring a user’s keystroke rhythm (at least according to WallstreetandTech.com).

For Golfers

Are you ready to go back to school? 12 is the minimum handicap required to be admitted to Florida State’s golf
management program.

When Does It Make Sense?

Another “ah ha” from Money. Which of your clients’ should consider purchasing long term care? Probably far
more than currently own such policies. According to MetLife, the average facility now costs $123 a day. Although only 9% of 65-year-olds can expect a lengthy nursing-home stay and only18% will need long-term assisted-living care, for those who do, the average stay is 2 ½ years. If you don’t have insurance, that’s enough to wipe out a $300,000 legacy.

Fe Fi Fo Fum, Who’s Got the Money?

Institutions, that’s who. I’m often reminding wealthy investors that personal wealth isn’t pocket change in the
institutional world. Tiny institutions have $100 million portfolios. I also often warn individuals who believe they’re stock picking mavens (or their favorite local broker is a money manager par excellence) that they’re in a contest that’s analogous to playing golf against a team composed of hundreds, if not thousands of Tiger Woods. You may have occasion to do the same. If so, here’s some statistics from Pension & Investments on the competition your clients might want to consider before entering the field.

Worldwide institutional assets            $27,621,574,000,000
Assets Held by the Top 500                $27,469,681,000,000
Assets Held by the Top 100                $23,623,350,000,000

Portfolio Managers       13,036
Research Staff              12,422

Go Figure!

Fees? What Fees?

FPAnet.org reports that when consumers were asked: Do you know how much in fees and expenses you’re
paying for your 401(k) plan?

Yes   17%
No     83%

Not to worry, I’m sure their firm’s principals are meeting their ERISA duty and have a handle on the costs and
have negotiated reasonable fees.

Go CFPs

Global Growth of CFP® Certificants

And You Thought Banks Only Sold CDs

In 2007 banks earned the following commissions from annuity sales.

Wachovia Corporation            $483,000,000
JPMorgan Chase & Co.            $163,000,000
Bank of America Corp.             $125,500,000
Wells Fargo Company             $116,000,000
Suntrust Bank , Inc.                $114,900,000
Citigroup, Inc.                         $106,000,000

Statistics To Impress Your Clients and Friends

Want To Sell Books; Pretend You Can See the Future

It’s always fun to see the brilliance of gurus in hindsight, especially the more pompous outrageous ones such as Harry Dent Jr. Here’s an excerpt from his The Roaring 2000’s published in 1998.

“The next Leap in transportation technology, due sometime in the next five years or so, calls for as much as a tenfold increase in jet power from its original speed. That means air travel at 3,000 miles per hour or more. I have heard from a reliable source that there is such a jet in development, slated for prototype testing as early as 1998.”

“If the DOW can keep from breaking below 7400 on a monthly closing basis in the next 4-cycle low, which I
predict will occur in early to mid 1998, [it, did, never falling below 7600] then the first channel of growth for stocks is likely to be the minimum growth trajectory for the next decade. This should create a peak DOW of around 21,500. If the DOW breaks above this channel In future years, then the more aggressive ratio trajectory is more likely to be the trend. That trajectory would allow for a DOW as high as 35,000.”

Well, it’s been 10 years and Mr. Dent’s prognosis is not quite on target. It barely broke 13,000 and is currently
struggling to move much past 12,000. He only missed his projections by 100% to 200%; I hope his readers
weren’t holding their breath.

I Would Found Any Institution Where Any Person Can Find Instruction In Any Study

Bear with me (or, just skip to the next item) because I’m about to wax eloquent about my Alma Mater. I just
finished reading my alumni magazine and I so enjoyed the story and remembering some of the reasons I so loved Cornell that I can’t resist in sharing,

In 1865 when Andrew Dickinson White (Cornell’s President) wrote the Cornell charter (and the motto above),
rather than using the word male or even student, he used the word person.

In 1874 members of the New York State Senate raised questions about the University’s policies, calling Cornell
and White to Albany to testify.

Senator: Let me understand what you mean by various: do you mean from all denominations?
White: From all denominations, yes.
Senator: From al religious denominations?
White: From all religious denominations.
Senator: Each man to be at liberty to conduct the services to his own method?
White: Yes.
Senator: Would you include in that I suppose Jews, as well as Christians?

White’s response is important, for there were many colleges that refused entry to Jews and others that restricted their numbers. He said:

“That would certainly be in accordance with the spirit of our charter. We have several Jewish students in our
institution and among them some of our best students, and I would never sanction anything which would infringe on their privileges, deprive them of their rights, or tend to degrade them in any manner.”

What about women? In 1872, Dr. Edward Clarke of Harvard Medical School wrote a book titled Sex in Education, in which he made the argument that study, like all strenuous activities requires a blood flow to the area which there was stress, and were women to engage in intellectual pursuits their blood would flow to the brain, thereby shrinking the uterus. “It would stop population”. About that time, A father from Cambridge, MA, wrote to President White to thank him for his “kind letter” considering his daughter’s request to become a student at Cornell. He noted that White’s response came in contrast to the “insulting coolness with which Elliot [the President of Harvard] treated their application.” Mary Holman Ladd graduated from Cornell in 1875 with an AB and in 1878 with a master’s degree.

I’ll Take A Piece of That Bet

Will have to wait to find out if a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500 but I’ll be watching. According to Fortune, it’s the basis for a bet between Warren Buffett, and Protégé Partners, a New York City money management firm that runs funds of hedge funds

Protégé has placed its bet on five funds of hedge funds. Buffett’s betting that the returns from Vanguard’s S&P 500 index fund will beat the results delivered by the funds Protégé selected. And there's serious money at stake - $1 million from the loser goes to charity. By the way, I’m on Buffet’s side.

A Great Parting Bit of Advice

Steven M. Sears wrote, “This is my last column for SmartMoney.com. I'm going to now write exclusively for Barron's.”

I was taught about the markets by some great traders. Three ideas that I learned stand paramount in my thinking everyday. These are simple, worn concepts, but I haven't found any better. The first: The stock market is a place where smart people think of ways to take money from dumb people. The second: The market hurts the most people most of the time. The third: Bad traders think of ways to make money; good traders think of ways not to lose money. http://www.smartmoney.com/contrarian/index.cfm?story=20080528-stock-options

As always, you’ve been a patient and gracious reader. I hope you’ve enjoyed this issue. If you’d prefer an
e-mail version, please drop a note to (sandrarivera@evenskykatz.com) or give us a call (305 448-8882 x211) and let us know. Until next month.

Cordially,

Harold

(c) Evensky & Katz

www.evensky.com