ProVise Management Group, LLC, an SEC Registered Investment Advisor
PROVISE BULLETS ©
(September 16, 2008)
- More than Hurricane Ike hit the United States over the weekend. A financial tsunami of its own was taking place, as Lehman Brothers was unable to find a buyer and decided to file bankruptcy in order to liquidate assets in an orderly fashion. It remains to be seen whether this will happen or not. Of even greater surprise was Bank of America’s announcement that they would purchase the venerable Wall Street firm, Merrill Lynch. This is the company that, 97 years ago, brought Wall Street investing to Main Street. This leaves J.P. Morgan and Goldman Sachs as the only remaining independent investment banks. Speculation abounds regarding their futures, including a potential merger. In addition to this, insurance giant American International Group (AIG) is struggling to find a financial lifeline. Government regulators and Wall Street banks are working with AIG, weighing several potential plans to shore up the global insurer which has been crippled by the credit crisis and sub-prime mortgage meltdown. As a result of this turmoil, yesterday was Wall Street’s worst day since markets reopened after the September 11th attacks. Today, despite all of the headline news, the markets were extremely volatile but managed to finish higher with the Dow posting a 1.3% gain, the S&P was up 1.75%, and the NASDAQ was up 1.28%. The Fed left interest rates unchanged, but is taking steps to inject liquidity into the system. On another positive note, the slowing of the economy and the excesses of the oil speculators are bringing down the price of oil, and it is currently trading well below $100 per barrel. All of these challenges present opportunities and, in times like this, it is said that the “money moves from the weak hands to the strong hands”. Investors who fare the best over the long term are those who do not give in to the emotions of fear or greed, but adhere to a disciplined long-term strategy.
- Have you ever stopped to contemplate how long money remains in circulation? It actually depends on the denomination of the bill. Not too surprisingly, the $100 bill remains in circulation the longest, coming in at 89 months or a little over 7 years. You would think that the dollar bill, which lasts an average of 21 months, would be the lowest, but it is actually the $5 bill, which averages only 16 months in circulation. This is followed by the $10 bill at 18 months, the $20 bill at 24 months, and the $50 bill at 55 months. What happens to these bills when they are removed from circulation? They are shredded and then either used as souvenirs or deposited in special landfills. The government could save a lot of money if Americans were willing to adopt a system of coins. This has been attempted on several occasions, but up to this point, it has simply not been accepted. (sources: The Federal Reserve Board and the United States Mint)
- The conventions are over and the elections are a little more than six weeks away. We are all looking for “change” and both candidates are promising to give it to us. One thing that hasn’t “changed” is politicians being politicians. Congress will be leaving in a couple of weeks (that’s probably a good thing) heading home for their own campaigning. Before leaving town, they have some work to do…passing a lot of Bills as quickly as they can, many of which will not be enacted into law, but which will be very popular with voters. For example, tax credits are set to expire at the end of this year for alternative energy like solar and wind. Democrats and Republicans want to extend these credits, so why can’t they agree? The cost for extending the credits is about $1.7 billion per year and somebody has to pay for that. The Republicans refuse to have additional tax revenue attached to the Bill unless the Democrats are willing to allow for more drilling, which the Democrats have opposed adamantly, at least until now. We’re seeing a lot of games being played; i.e., offering ideas that are popular with voters and may get passed by one House of Congress or the other, but which will likely never cross the President’s desk for his signature. Why do politicians on both sides of the aisle play these silly games?
- The word “recession” keeps popping up every other minute by the “talking heads”. The fact is, after contracting slightly in the fourth quarter of 2007, the economy, as measured by gross domestic product (GDP), increased a meager 0.9% during the first quarter of 2008. The second quarter was expected to be better, especially due to the rebate checks and a depressed dollar which made our goods and services cheaper overseas. It lived up to the expectation with a very healthy 3.3% increase making it hard to say that the economy is in a recession. Having said that, it is also very clear that many people “feel” like we are in a recession, with almost 700,000 people having lost their jobs over the past 9 months. We need to keep things in perspective. The dollar has begun to strengthen against many major foreign currencies, which means that exports will become more expensive. While some people will still have some money remaining from their rebate checks, the majority of this money will have been spent, but some of it will have been spent in the third quarter. Thus, we anticipate positive growth during the third quarter at a slower rate than during the second quarter, but perhaps better growth than what occurred during the first quarter. One of the things that could help growth during the third quarter and which will manifest during the fourth quarter is the potential bottoming of the housing market. After almost two years of falling home prices, things are beginning to level off around the country and people are starting to purchase homes. With 30 year mortgage rates now in the 6% to 6.25% range (and it is possible they could decline over the next six months), there could possibly be an uptick in sales over the next couple of months.
- Boy, you can sure count on the U.S. Senate to do an in-depth investigation. As a result of the huge run up in oil prices over the spring and summer, Senator Dorgan, a Democrat of North Dakota and Senator Cantwell, a Democrat of Washington, released a report from hedge fund managers, Michael Masters and Adam White. Guess what they figured out? Speculators were responsible for the run up in oil prices! Imagine that! According to the report, investors poured $60 billion into commodity funds during the first five months of 2008 and managed to withdraw $39 billion in a six week period following July 15th. Here’s the part that this report did not address: What is going to happen to all of those “stupid” contracts with oil at $145 per barrel when it is currently trading well below $100 per barrel? Some investors were obviously on the wrong end of the trade, and it might take a while to find out exactly who.
- As Baby Boomers turn toward retirement, many will find some relief in having their children’s college education expenses behind them. However, staring them in the face could be the need to take care of an aging parent. Thirty-four million Americans provide care for older family members. Of this number, 63% do not have any plan in place to do this. Also of this number, 25% have lost or quit their jobs due to family needs, and 34% spend $300 or more per month helping supplement cash flow for an aging parent. One of the most staggering statistics is that 53% provide 40 or more hours of care each week. (Source: agingcare.com)
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
©9/16/08 ProVise Management Group, LLC
This material represents an assessment of the market and economic environment at a specific point in time. Due to various factors, including changing market conditions, the contents may no longer be reflective of current opinions or positions. It is not intended to be a forecast of future events, or a guarantee of future results. Forward looking statements are subject to certain risks and uncertainties. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in these Bullets,, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any discussion or information contained in these Bullets serves as the receipt of, or as a substitute for, personalized investment advice from ProVise. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Information is based on data gathered from what we believe are reliable sources. The information contained herein is not guaranteed by Provise Management Group, LLC as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. The indices mentioned are unmanaged and cannot be directly invested into. . If you do not want to receive the ProVise Bullets, please contact us at: info@provise.com or call: (727) 441-9022. Please visit our Web Site at: www.provise.com.
Notice: This e-mail message and any attachment to this e-mail message may contain information that is confidential, proprietary, privileged, legally privileged and/or exempt from disclosure under applicable law. If you are not the intended recipient, please accept this as notice that any disclosure, copying, distribution or use of the information contained in this transmission is strictly prohibited. National Financial Partners Corp. reserves the right, to the extent and under circumstances permitted by applicable law, to retain, monitor and intercept e-mail messages to and from its systems. Any views or opinions expressed in this e-mail are those of the sender and do not necessarily express those of National Financial Partners Corp. Although this transmission and any attachment are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by NFP, its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you have received this e-mail in error, please immediately contact the sender by return e-mail or by telephone at 212-301-4000 and destroy the material in its entirety, whether electronic or hard copy format.
(c) ProVise Management Group, LLC
www.provise.com |
