ProVise Management Group, LLC, an SEC Registered Investment Advisor

PROVISE BULLETS ©

(May 1, 2009)

• Back in the late 1990s, Harry Dent made a name for himself by developing a theory of how the market would proceed based on the demographics of the Baby Boomer generation.  In the year 2000, he declared that by December 31, 2009, the Dow Jones Industrial Average would close at 40000.  Unfortunately, Mr. Dent is likely to be very, very, very, very wrong.  He has now decided that, rather than being a raging bull, he’d rather be a retreating bear, and for the past year has talked about the Dow falling to 3800 within the next three years.  We can only hope that Mr. Dent maintains his track record of being so completely wrong.  (Source:  BTN Research, Forbes, Money)

• After being number one for six of the past seven years, Wal Mart stepped aside, passing the number one spot as the biggest public corporation on the Fortune 500 List to Exxon Mobil.  At positions three and four were energy companies Chevron and Conoco, and General Electric completed the top five.  Notwithstanding the fact that General Motors is now filing for bankruptcy the auto maker held the number six position, followed by Ford, AT&T, Hewlett Packard, and Valero Energy Corporation in the tenth spot.  The biggest decline was registered by AIG, which fell 232 positions and is now ranked 245th.  The biggest gain was recorded by URS, coming in the 264th position, or 185 spots higher than last year.  Needless to say, given all that is going on, we can expect significant changes in the coming year, especially in the financial sector where there are likely to be continued consolidations.

• Whether you are looking for the next new technology for investment purposes or simply a toy for your children, you might not need to look any further than Mattel’s upcoming toy Mind Flex, or Uncle Milton’s “Force Trainer”.  What are these?  These are toys which demonstrate telekinesis by actually levitating a ping pong type ball housed inside a tube.  It seems using your brain to move objects is becoming semi-mainstream with the introduction of these toys for the upcoming holiday season.  Scientists have already created a telekinesis monkey and have worked with some paralyzed individuals to help them concentrate hard enough to actually turn appliances off and on, control their wheelchairs, and in some cases, even read e-mail.  Who among us (especially the Baby Boomers) hasn’t tried at some point to concentrate on moving an object using only the brain?  Although these toys are aimed at pre-teen children, don’t be surprised if a lot of adults get a giggle out of buying them.  Is it possible this might lead to a new technology?  Yes.  Several times throughout history, toys have led to the development of more mainstream products.  According to an article in the Washington Post, in 1267 Roger Bacon wrote about a “child’s toy of sound and fire and explosions made in various parts of the world with powder of salt peter, sulfur, and charcoal of hazelwood”.  Of course, this was a description of firecrackers, which eventually led to the invention of gun powder.

• Hope came to the housing market in February when sales surged unexpectedly.  But, like a Groundhog Day prediction of six more weeks of winter weather, March indicated that the tough real estate market is not over.  Nationally, real estate sales fell 7.1% compared to the same time period one year ago.  In the South, home prices were down 12% and sales were down 1.7%.  In the hard hit Western part of the country, home prices were down 4%.  The worst performance came in the Northeast, with sales falling 8%, and in the Mid- West, sales were essentially flat.  The $8,000 tax credit for a home purchase seems to be resonating with first time home buyers, as 53% of the sales were to this group.  The median sales price declined 12.4% year-over-year to $175,200.  According to Fitch Ratings, prices have now fallen 27% from their peak in 2006.  The downward pressure on home prices is likely to continue, albeit at a slower pace.  At these levels, home prices have now reached what we might call “normalized”.  That doesn’t mean that prices will necessarily stop declining; it simply means that, based on historical levels versus personal income, etc., homes are now “fairly” priced.       

• Although the results of the bank stress tests will not be made public officially until May 4th, analysts are doing their own stress tests to determine which banks might need to raise more capital and/or get more money from the government.  Two of the larger banks expected to need more capital are Bank of America and Citigroup.  At the regional level, primarily due to commercial real estate loans, Regions, BB&T, and Fifth Third are also likely pegged to need additional capital.  On another front, the FDIC announced the closings of four more banks, all of which were community banks, bringing the total to 29 for the year, which is a higher number of bank closings than for all of 2008.  The consolidation of the banking industry, along with additional failures is expected to last into 2010. 

• The day after the Madoff scandal broke, many people who had previously invested with Madoff probably breathed a sigh of relief.  They were the people who had withdrawn all or most of their money from their Madoff accounts.  What they were unaware of, however, is the “claw back” procedure permitted under New York state law.  In this case, the trustee can recover up to six year’s worth of withdrawals.  The concept is simple:  They were not repaid with their money - they were repaid with someone else’s money.  The idea is that all of the investors should be treated equally and should share pro-rata in the losses.  Once again, probably the only people who will make money at the end of all of this will be the lawyers.  At the end of the day, the investors will most likely have to pay up. 

• There was gloomy news about GDP shrinking 6.1% in the first quarter, following on the heels of a 6.3% decline in GDP during the fourth quarter of 2008.  We have not seen this type of negative performance in GDP in 50 years.  All of this came in spite of the consumer returning to purchasing goods and services at the fastest pace in two years and companies reporting better than expected earnings almost across the board.  While negative growth is expected to continue for another quarter, it will likely be at a significantly lower (better) number and perhaps by the end of the year we will see positive, albeit small, numbers.  Looking for any real positive news, one only had to turn to the Federal Reserve, who seemed to confirm our suspicion that things were turning in the right direction as the recession eases.  Certainly everyone must be impressed with the rally that the market has sustained over the past 7 weeks from when the Dow hit a low on March 9th at 6547, finishing at 8168 at the end of April.  This represented a return from the lows of 24.7%.  The Dow was up 7.35% in April and the S&P 500 was up an impressive 9.4%.  Does this mean the volatility is over?  Probably not.  We remain watchful of the market and of the triple digit point swings that seem to occur, with perhaps less frequency, but for us, with still too much frequency.  Given this impressive run-up, investors should not be surprised to see a pull back.  The longer term outlook, however, remains positive from these levels.    

As always, we encourage you to give us a call if you would like to discuss anything further.  We will visit again soon.

RAY, KIM, ERIC, BRUCE, and LOU

©5/1/09 ProVise Management Group, LLC

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