Broad market averages had been well ahead early in the session after members of the European Union agreed to move closer to fiscal union and also approved a permanent bailout fund for the Eurozone. In addition, negotiations between Greece and its private creditors over a debt restructuring appeared to be moving toward an agreement. However, investors turned cautious after the Conference Board said its index of consumer confidence declined to 61.1 in January from a revised 64.8 in December. The new level was well below the 68.0 reading generally expected by economists. Adding to concerns was news that U.S. home prices fell again in November, according to the Standard & Poor’s Case-Shiller home-price indexes.

Despite a mixed session at month’s end (the Dow Jones Industrials declined 20.81, or 0.16%;  the S&P 500 fell 0.61, or 0.05%; and the Nasdaq advanced 1.90, or 0.07%. equities finished January with robust gains.

Shareholders were upbeat last week when the Federal Reserve Board said it planned to keep short-term interest rates at exceptionally low levels “at least through late 2014” and also signaled that the central bank may restart a bond-buying program meant to push down long-term rates. The Fed previously had said short-term rates would stay near zero at least until mid-2013. The Fed also adopted a specific inflation target – a 2.0% annual rate in the PCE Price Index, which is similar to the CPI, but adjusts for changing patterns of consumption – and reaffirmed its dual mandate of controlling prices while also achieving maximum sustainable employment. Fed officials have indicated that they believe the appropriate unemployment rate target is currently between 5.2% and 6.0% – higher than it was before the financial crisis.

The behavior of equities in January is closely monitored by market watchers seeking indications of how stocks will perform for the full year. However, a first-month rally does not always hold the promise of later gains. Last year, for example, the S&P 500 advanced more than 2% in January but finished 2011 essentially unchanged.

While a strong start to the year is certainly welcome, investors must remain vigilant as 2012 unfolds since many of the issues that generated volatility last year remain unresolved. As always, a carefully considered long-term strategy is the key. Please feel free to contact me with questions or concerns about your financial plan.

 The opening session’s gains were a welcome change from December, when stocks were flat and from 2011 as a whole, which took investors on a wild ride that included 69 days in which 90% of the S&P 500 stocks moved in the same direction. When the smoke had cleared, the blue-chip Dow was up 5.5% in 2011, while the S&P 500 was off a tiny 0.003% and the tech-heavy NASDAQ lost 1.8%. 

Looking back at 2011, investors were generally optimistic as the year began, citing a record $2 trillion in cash on corporate balance sheets, record profit margins and an improving U.S. economy. Despite higher oil prices and a tragic tsunami and nuclear accident in Japan, stocks reached a three-year high in April. However, things began to unravel after that, as European leaders grappled with a steadily worsening debt crisis and political squabbling over the U.S. debt ceiling took the nation close to default and put investors in a dark mood. Matters came to a head in August when Standard & Poor’s issued a historic downgrade of the U.S. credit rating and markets gyrated wildly, with the Dow bouncing up and down by 400 points or more for four straight days. The Dow dropped 4.4% in August, its worst decline of the year, and stocks moved inconclusively throughout the balance of 2011.

The twin problems of uncertainty and volatility sent investors scurrying for safety in 2011, with U.S. debt remaining a preferred haven despite the rating downgrade. Treasury bonds had their best year since the 2008 global financial crisis, with the benchmark 10-year yield ending 2011 below 2% for the first time since at least 1977, down 1.45 percentage points for the year. Investors also preferred U.S. stocks – foreign markets were off substantially in 2011, with British shares down 5.6% for the year, German equities declining 14.7%, and Japanese stocks falling more than 17%.

Going forward, investors will be focused on U.S. job growth, including the unemployment report due this Friday, fourth-quarter earnings reports, and Europe’s ongoing debt problems. Other factors weighing heavily on the markets include the upcoming U.S. elections and uncertainties regarding taxes.

As 2012 begins, many of the factors that worried investors last year are still with us, and more volatility may lie ahead. In that context, avoiding emotional decisions is a great New Year’s resolution. I will be communicating with you about market events that may have implications for your portfolio. In the meantime, please contact me, or any of our team,  with any questions.

Sincerely,

 Randy

 Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

 Those with a close eye on the stock market are always on the lookout for correlations that might help them take advantage of the next market cycle. With an election year approaching – a time that has boded well historically for equities – you may question whether or not political races should affect your investment strategy.

 Since 1928 there have been 21 Elections Markets have been up 18 of those years.  From 1900 – 2010 the Dow Jones Industrial Average has had an average return of 7.5%. Pre-election years in particular have produced an average annual return of 11.3% since 1900 (Source Ned Davis Research).

 Numerous studies show that the stock market has tended to perform well in the two years leading up to a presidential election.    While substantial evidence suggests that the market does go up more often than not in election and pre-election years, it is my belief that relying on this trend is not a good way for long-term investors to pursue their goals.

 Though the data appears to demonstrate a reasonable correlation between the election cycle and the market’s performance, this does not necessarily prove that one event has always caused the other. It could be coincidence. Nevertheless, various theories have attempted to explain why the stock market might be sensitive to the political seasons.

 One popular theory suggests that the incumbent party leverages economic policies to give the market a slight nudge just before election time, then allows the market to appropriately correct itself once elections are over. Another theory proposes that investor confidence tends to rise based on the lofty promises of candidates vying for office, then tapers off as some of those promises fall by the wayside.

 Regardless of which theory, if any, you choose to believe there are a myriad of factors that affect the markets and isolated factors such as political elections never explain the whole story.

 It’s also important to note that there have been a few major exceptions to this trend in the past – 1987, a pre-election year, saw the worst market crash in U.S. history and in 2008 we saw a decline of almost 38%.  2011 isn’t shaping up to have stellar returns either. 

 While it may be  academically interesting to look at election cycles and market performance is it is clear that investment decisions shouldn’t be based solely on any theory.   Investment decisions should be based on sound fundamentals, and, most important, your individual goals and circumstances.  As always please contact us with questions or to discuss you personal wealth management vision and objectives.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held U.S. companies commonly used to measure stock market performance. Investors cannot invest directly in the Dow Jones Average.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of  Randy Carver  and not necessarily those of RJFS or Raymond James. Past performance is no guarantee of future results.

The Committee was created because congress couldn’t find a way to deal with the budget deficit.   It has been stated that should the committee not reach an agreement there will be dire consequences including automatic spending cuts.  Yet this doesn’t appear to be the case on any level.

If the Super Committee comes up with a plan (which few feel they will) Congress must vote to adopt the plan.  The same Congress which couldn’t come up with a budget agreement in the first place.  Should Congress not adopt the Committee’s plan — then, through a process called sequestration automatic spending cuts of $1.2 trillion are implemented over ten years.  The sequestration cuts must be split evenly between defense and non-defense programs.  When added to defense cuts already agreed-upon, total defense cuts would approach $1 trillion. It appears unlikely that this will be policitally viable.

Let’s consider a few facts.  Even if there is no agreement by the Super Committee and Congress votes to allow the spending cuts to kick in there will be no impact on government spending in 2011 and very little impact on spending in 2012.  The automatic cuts really won’t start until January  2013.  According to the Congressional Budget Office, total federal government outlays in the next 10 years (2012-2021) are expected to be $44 trillion, while GDP will total $195 trillion.  If we assume that the committee does not raise taxes at all, which means the $1.2 trillion is all spending reduction, this would equal just 2.7% of the budget, and 0.6% of GDP.

This all assumes that there is no agreement by the committee and the sequestration actually happens.  Now we have congressmen suggesting a new bill to repeal the automatic sequestration in the event there is no deal! Some legislators — notably Senator McCain — have threatened to seek legislation in 2012 to unwind cuts in defence spending and perhaps nullify last summer’s deficit cutting deal entirely making the entire debate moot.

As usual the media will focus on the sensational, the short term and the negative.  At best you may hear partial facts and at worst fear mongering.  Our suggestion is to ignore it.  We have problems in Washington and the budget deficit must be addressed but the fate of the nation does not ride with the Super Committee.   

Besides there are more deadlines to worry about.  Congress still must pass a budget to run the government in 2012.  If Congress fails to adopt a budget (or to extend the deadline) by November 18, the federal government will shut down on that date.  Perhaps not so much of a deadline as a procrastination line.  Of course this is all just my opinion!

When President Obama announced his jobs package in early September, he proposed paying for the measure with a series of tax increases on individuals making more than $200,000 and families making more than $250,000. Among them was a 28% cap on the tax exemption for municipal bond purchases and a hike in the tax on “carried interest” for private fund managers from the capital gains rate to the individual rate. In their version of the jobs plan, Senate Democrats replaced the Obama tax increases with a 5.6% surcharge on millionaires, S 1660. The tax would apply to adjusted gross income less investment interest deduction above $1 million. Senate Democrats believe that the $1 million threshold more clearly delineates the difference between the middle class and the wealthy.

On the other side of the isle House and Senate Republicans are attempting to set the capital gains and dividends rate at 15% permanently. The bills, HR 3091 and S 1647), attempt to codify the 15% rate that will vanish if the Bush administration tax cuts expire Dec. 31, 2012. If Congress does not extend the Bush tax cuts, the capital gains rate will rise to 20% and dividends will be taxed at individual rates beginning in 2013. Sponsors of the bill are confident that it can win House approval. They’re not certain, however, that it will be considered in the Senate. Meanwhile, the GOP is trying to get rid of a 3.8% Medicare tax that will be assessed on investment income starting in 2013 to help pay for the health care reform law. Sen. John Cornyn, R-Texas, introduced the bill, S 1738.

The other ‘big idea’ being floated by the President and some democrats is the so-called Buffett Rule. Named after Warren Buffett, the Omaha, Neb., billionaire investor, the idea is that middle-class taxpayers should not pay a higher percentage of their earnings to the federal government than the wealthy. The notion is based on Mr. Buffett’s suggestion that it is wrong for him to pay taxes at a lower rate than his secretary- even though he is paying far more in dollar terms. Mr. Obama, however, has not defined exactly what the Buffett Rule is. Rep. Alcee Hastings, D-Fla., has offered a bill, HR 3105, that would impose an additional 5% tax on income from $350,000 to $500,000, 10% on $500,000 to $1 million, 15% from $1 million to $10 million and 20% on income exceeding $10 million. A group of Republicans have put forth a far different concept. Under the Buffett Rule Act, HR 3099 and S1676, taxpayers would be allowed to donate money — beyond what they owed in taxes — to the Treasury Department to help pay down the national debt.

It is likely that the effective tax that most people pay will be going up after 2012.  Whether this is the result of higher rates, less deductions, an additional flat tax or all of the above is not certain.  Tax rates in the United States are at historically low levels and remain low compared to other countries.  As with any other financial planning tax planning should be part of any overall investment strategy.     

At the very least you and your financial advisor will want to pay close attention to what is happening in Washington and at most you may want to contact your representatives to express your opinion.  We recommend against making any changes based upon possible legislation but rather waiting until any bill has been passed into law.  The only certainty about Washington is that things will continue to change!

 Despite the declines just before month end, the S&P 500 posted stellar performance, ending a five-month losing streak. The S&P 500 and Nasdaq climbed approximately 11% for the month, while the Dow Jones Industrial Average was up 9.5% in October. The gains gave all three indices their best monthly performances in decades.

There remains a huge gap between sentiment and economic data.   While people continue to speak about being concerned or a lack of confidence the public is voting differently with their dollars as we have seen record retail sales figures along with record auto sales.   The economic data we are seeing is some of the best in 50 years with record corporate profits,  earnings and productivity levels.  

 In other economic news, the producer-price index (PPI) increased 0.8 percent in September, the most in five months, boosted by gasoline and food after no change in August. Year-to-year the PPI rose 6.9 percent. The National Association of Home Builders/Wells Fargo homebuilder-sentiment index rose from 14 in September to 18 in October, its highest since May 2010.

 We expect continued volatility in the markets until there is more confidence and or clarity about tax and regulatory policy.  Over the next few years many may feel worse off with higher taxes and inflation.  We also feel that we will see very strong growth in the equity markets over the next few years as the fundamentals come into play.   As always investors should have cash and fixed income holdings for short term needs but equity investments for longer term goals. Your allocation needs to be based on both your needs and your risk tolerance. 

 Of course, I’ll monitor the markets on your behalf and communicate regularly with you. If you have any questions about market events or any financial matter, please contact me. I’m here to help.

The Dow Jones Industrial Average (DJIA), is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Inclusion of these indexes is for illustrative purposes only. Individuals cannot invest directly in any index, and individual investor’s results will vary. Past performance does not guarantee future results. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James.

The question when looking at your statement is whether the portfolio dropped because of general market conditions or because of a specific portfolio problem.  If fluctuations are because of the markets then the question is whether your portfolio is still allocated in a manner consistent with both your risk tolerance and your long term goals.   If your needs have not changed then changes to the portfolio should not be made.   We allocated portfolios proactively so that reacting to the markets should not be necessary. 

As we hear all of the doom and gloom consider the following:

Corporate earnings, retail sales, auto sales, manufacturing output and corporate profitability are all at record levels.    

The Fed is holding the funds rate near zero, while nominal GDP is rising near a 4% annual rate.  

American companies are sitting on over $1.5 Trillion in cash at this time.   Ultimately these funds will be invested creating jobs and helping both the markets and the broader economy.

Disposable personal income (income after taxes) is up 3.7% versus a year ago. 

In 2009 Foreign Companies invested $3.1 trillion in the United States – six times the amount invested in China (2011 report by Presidents Council of Economic Advisors).

The United States is still the largest economy in the world – per capital GDP (gross domestic product) was $47,184 in the United States vs. only $4,393 in China (World Bank) and the US is also the world’s most productive economy producing $14.6 trillion in goods – as much as China, Japan and Germany combined! (Source CNNmoney.com 9/23/11)

To listen to the media there are a myriad of reason to be concerned ranging from the European Debt Crisis to the drought in Texas. In my opinion this is simply a crisis of confidence. Both individuals and companies are reluctant to invest until there is more clarity on what the tax and regulatory climate will be in the next few years.    Once the sentiment changes we feel markets will rebound.  Moreover, we feel that while taxes and inflation may increase in the next few years the markets will move substantially higher.  The real risk for those who are retired and are planning on retirement is not market risk but reduced income due to higher inflation, taxes and excessive withdrawals.   We expect that the basic cost of living will increase and therefore it is important that portfolios have a growth component.  Additional growth potential for the long run may add additional volatility in the short run.  There is a difference, however, between volatility and risk.   

We understand that people worry about the markets. Like 1987, the sell-off does not appear to be driven by fundamental factors but rather by perceptions.  In fact, the fundamentals suggest the market is undervalued.   Many investors assume (or wonder) if the sell-off is indicating deep economic problems.   To the contrary the pure economic data is very good.  In our opinion this discrepancy between facts and perception creates and a unique opportunity for long term investors.

Corrections run their course and then end.  With that being said they can still lead to concern – especially  when the media is telling you “this time it’s different”.  As always you should have cash or short fixed instruments for any near term expenses and maintain a broadly diversified portfolio.   While nobody can predict day to day market moves (we wish we could)  a properly allocated investor happily doesn’t need to.  Changes should not be made due to emotions or day to day market changes.  At best investors should take advantage of the lower prices and at least changes should not be made.  We are investors, and the market is more undervalued right now than it was a month ago.   

 If you have questions or concerns please give your financial advisor a call.   We are here for you!   

Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete. summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of  Randy Carver and not necessarily those of RJFS or Raymond James.

Another bumpy day in the markets – some felt it is the emerging debate on income taxes and entitlements, some felt it was the issues with Greece and many feel it is a combination of things. We continue to believe that perceptions are driving the volatility while the fundamentals remain good here in the US.  With regard to the Greek debt situation Brian Wesbury from First Trust wrote the following  in his Monday September 19^th article entitled No Recession, No Panic 

“The catalyst for all this is supposedly Greece and its very real potential of default on its government debt. But as we pointed out two months ago, the five largest US banks have only $54 billion in exposure to the debts of Greece, Portugal, Italy, Ireland, and Spain, combined, versus more than $700 billion in bank capital. In the early 1980s, when Latin and South American countries were defaulting, the eight largest US banks had exposure to those countries equal to 263% of capital.

 In other words, direct exposure is not a problem. So investors and some economists are worried about “counterparty risk,” with our banks coming under pressure if foreign banks with greater direct exposure become undercapitalized. 

But here again, we think the fears are overblown. Does anyone seriously think Germany, France and the rest of the leading countries in Europe would not recapitalize their banks if they were on the brink of failure? Moreover, changes to mark-to-market accounting mean that illiquid markets can no longer spread mayhem like an out of control wildfire.”

As always contact us with any questions or concerns.  If we feel changes should be made to your portfolio we will contact you between regular reviews.   Our philosophy is to be proactive in allocating assets so that major reactive changes are not necessary unless your situation changes.  We  understand the frustration with market fluctuations but this is the reality of investing for the long term.   

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Caver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

We view the current market drop as one due to a lack of confidence, not a problem with fundamentals.   We understand, however, that no matter the cause of the drop it can still lead to making emotional decisions.

 We understand that it is easy to discuss statistics but that it is another thing when you open your statements and see the results of current volatility. No one can predict the future and timing the market is difficult if not impossible. One of the most famous studies regarding market timing was done by Ibbotson Associates and covered a 40-year period. What they found was that a fully invested $1,000 became $86,550; but if you missed the best 1% of the time, you ended up with $4,492. Another study by the U. of Michigan covering the 31 years from January 1963 through December 1993 confirmed that being out of the market for the best 1.2% of the time lost 95% of the profits. Moreover, in the ‘real world’ there may be transaction costs and income taxes involved in making changes that can reduce returns even more for investors who try to time the market.

Perhaps the bigger issue is how much of your portfolio should be in the market. It is important to balance your risk tolerance with your need to keep ahead of taxes and inflation. Once you have an asset allocation that meets both your needs and risk tolerance it is critical to stick with it. Getting out and ‘waiting for things to get better’ means that you may be buying at a higher level. The biggest return days often come right after the largest drops. For example, looking over the past 25 years, three of the 10 biggest days came in the week and a half following Black Monday (10/19/1987), and two more of them occur in close succession at the very tail end of the dot com bust. Thus, these days are concentrated into periods when people are especially likely to have bailed on the market and not gotten back in.

 The most successful investors may follow the day-to-day drama of the markets, but they keep their perspective as long-term investors who are properly diversified, disciplined and relatively conservative in their investment practices and outlooks. Changes should be made due to changes in your situation or a realization that your risk tolerance is not as high as you thought, but not because of market volatility. It is also important to understand that by reducing a portfolio’s potential volatility that you also reduce the growth potential over time. The worst thing someone can due is bail out of the markets when things are down and then get overly aggressive when things are moving up thus setting up a cycle of buying high and selling low. The volatility we are experiencing is not new. This is a normal part of long term market cycles. Some in the media will tell you ‘this time it’s different”. While the underlying concerns may be different the results are the same. We have had fears of missiles in Cuba, flu pandemics, terrorist, weather, the debt ceiling, Europe, sub prime mortgages, Y2K, and the Ozone layer. Markets react and then over time they recover. When someone asks ‘What should I do now?” it is too late. We believe in being proactive, not reactive which is why we utilize broadly diversified portfolios allocated based upon your needs, objectives and risk tolerance. If you have questions about these volatile markets, don’t hesitate to contact any member of our wealth management team. We are here for you and look forward to hearing from you.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Past performance may not be indicative of future results.