The Market

Political uncertainty and some disappointing earnings reports led the markets to a three-day decline last week. President Obama’s proposal to prohibit banks from owning, sponsoring or investing in hedge funds for proprietary profit raised concerns for some major banks. In addition, Ben Bernanke’s confirmation to a second term as Fed chairman seems uncertain, and the Democrats lost their hold on the Senate super-majority after the election of a Republican to fill Ted Kennedy’s seat in Massachusetts. Disappointing earnings from Google and warnings from several other companies also brought the markets lower, according to Reuters. For the week, the Dow lost 4.09 percent to close at 10,172.98. The S&P fell 3.88 percent to finish at 1,091.76, and the NASDAQ dropped 3.61 percent to end the week at 2,205.29.

 

Strong Lead, Weak Jobs – The Conference Board reported last week that eight of the 10 components of the leading economic indicators index showed improvement last month, causing the index to rise 1.1 percent compared to the 0.7 percent increase that economists expected, according to a Thomson Reuters poll. Job creation, however, has lagged, with the Labor Department reporting that new jobless claims rose slightly for the week ending Jan. 16. Economists had expected a small decline, according to Thomson Reuters. Companies have been cutting fewer jobs but have not yet ramped up hiring, the news source said. Down & Up – The NASDAQ Composite was up 45.3 percent (total return) in 2009 after losing 40.0 percent in 2008. The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system (Source: BTN Research).    

When the Fed Acts – The last time the Fed started tightening interest rates (i.e., a first rate hike) was June 30, 2004. In the six months prior to that June 2004 Fed rate hike, the S&P 500 gained 3.4 percent (total return). In the six months after that June 2004 Fed rate hike, the S&P 500 gained 7.2 percent (Source: BTN Research).      Lonesome Highway – American auto sales (i.e., cars and trucks) in calendar year 2009 totaled 10.4 million, down from 13.2 million in 2008. The 2.8 million fewer sales (i.e., 2009 vs. 2008) is equal to 234,000 fewer autos sold per month in 2009 when compared to 2008 (Source: Autodata).  

 

WEEKLY FOCUS – Helping

Haiti While Avoiding Scams

 Disasters – whether man-made or natural, at home or across the globe – seem to bring out the best in Americans, who quickly mobilize to send money, supplies and manpower to distressed areas. Unfortunately, the eagerness to help and the urgency of the response create a perfect storm for the unscrupulous to launch their schemes. The FBI and computer-security companies have issued warnings about emails and websites asking for donations to

Haiti relief efforts. According to Proofpoint, a computer-security firm, suspicious links to websites rose by 400 percent in the days following the initial earthquake on the island. These emails can look legitimate – some report to come from the British Red Cross and include the London address of the Red Cross where responders can wire funds via

Western Union. The email contact is wrong, however, and the British Red Cross does not accept donations via

Western Union.

 In addition, online searches for terms like “Haiti relief fund” or “

Haiti donations” can yield results for scammer websites intended to collect

information like your credit card number or deliver malware that can compromise your computer. The FBI recommends that consumers make contributions directly to known organizations. You can find lists of legitimate websites for donations at www.whitehouse.gov, the United Nations at www.un.org/en/ and the Red Cross at www.redcross.org.

 Making charitable donations has become easier in an electronic age. Unfortunately, so has fraud. Protect yourself by ensuring your donations are being made through a legitimate relief organization. If you choose to make donations online, be proactive and use one of the sources above. Do not respond to email or telemarketing solicitations, even if they appear to be from reputable organizations. If you have any questions about sending money to

Haiti relief efforts, or any charitable organization, please feel free to call our office.

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe,

Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific

Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 302834
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The Market

The Dow and S&P rose to their highest levels in over a year on Thursday, ending the day at 10,710.55 and 1,148.46, respectively. Investors received mixed news as companies began issuing quarterly earnings reports, with JPMorgan Chase announcing heavy mortgage and credit card loan losses. Disappointing reports on retail sales and consumer sentiment also contributed to market declines for the week. For the week, the Dow lost 0.05 percent to close at 10,609.65. The S&P fell 0.77 percent to finish at 1,136.03, and the NASDAQ dropped 1.26 percent to end the week at 2,287.99.

Fat Fed – The Federal Reserve generated a $45 billion profit for 2009, money that goes back into the U.S. Treasury. According to a Jan. 11 report in the Washington Post, the Fed had the highest earnings in its 96-year history. The largest previous profit was $34.6 billion in 2007. The Fed’s earnings for 2009 exceed those of most financial institutions, “easily topping the expected profits of Bank of America, Goldman Sachs and JPMorgan Chase combined,” the Post said. Most of the Fed’s earnings came from buying bonds to hold down interest rates and stimulate the economy. The Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities at the end of 2009, compared to $497 billion a year ago. (Source: Washington Post).

No Bank Bonus – Despite the Federal Reserve earning a record $45 billion profit in 2009, Chairman Ben S. Bernanke will receive no bonus. He did receive a small cost-of-living increase, bringing his salary to $199,700. (Source: Washington Post). 

Flat Inflation – The consumer inflation rate rose just 2.7 percent in 2009, according to a Labor Department report issued Jan. 15. The decline in food costs offset increases in energy prices. The Consumer Price Index rose just 0.1 percent in December. The Labor Department reported separately that inflation-adjusted weekly wages for the year declined 1.6 percent, the largest drop since 1990.  WEEKLY FOCUS – Donor-Advised Fund Channels Dylan In an apparent first for the music business, the international royalties from Bob Dylan’s “Christmas in the Heart” album will be channeled into a donor-advised fund benefiting Crisis of London, a British charity that provides meals to the homeless, according to CAFAmerica, the company that established the fund.  A donor-advised fund, according to the IRS, is an account maintained and operated by a 501(c)(3) nonprofit organization, referred to as the sponsoring organization. Each account is funded by contributions from individual donors. The sponsoring organization has legal control over the accounts, but the donor is allowed to advise on the investment of the assets, which can include cash, securities and even art, and the distribution of funds.  

According to an April 22, 2009 article in the Wall Street Journal, donor-advised funds can cost significantly less to maintain than private foundations and are not required to make distributions as often as a foundation. The National Philanthropic Trust reported that the number of donor-advised funds rose 11 percent in 2008, after a 13 percent increase in 2007. In addition to a lower maintenance cost, a donor-advised fund may offer additional advantages over a private foundation, including a higher limit for deducting contributions, a lack of taxes on investment gains, and no requirement to make annual distributions. Also, the tax forms for donor-advised funds are not made public, as foundation returns are, allowing donors to retain their privacy. 

Donor-advised funds may have disadvantages as well, including relinquishing control of contributions. The sponsoring organization is not required to act in accordance with the donor’s wishes, although such a situation is rare, according to the Wall Street Journal. Also, the donations are irrevocable and must be used for a qualified charitable organization. Before selecting any vehicle for fulfilling your philanthropic plans, you should consult with your tax professional and estate planning attorney. Because your charitable gift planning may impact your retirement investment and income distribution plans, we are happy to work with your other professionals to ensure a cohesive plan. Call our office to schedule a joint appointment. 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 302678
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The Market

The Labor Department gave investors a good news-bad news report on Friday; revised numbers for November showed employers added 4,000 new jobs, the first job gains in almost two years. At the same time, December’s report showed a loss of 85,000 jobs, far higher than the 8,000 that economists expected, according to the Associated Press. Despite unemployment remaining at 10 percent, the Dow and S&P ended the week at their highest levels since Oct. 1, 2008. For the week, the Dow gained 1.91 percent to close at 10,618.19. The S&P rose 2.74 percent to finish at 1,144.98, and the NASDAQ increased 2.12 percent to end the week at 2,317.17.

Making More – The Institute for Supply Management said December’s manufacturing index reading of 55.9 was the highest growth rate in three years, up from November’s reading of 53.6. Analysts had expected a reading of 54.3, according to a Thomson Reuters poll. The index for new orders, which signals future manufacturing activity, rose from 60.3 in November to 65.5 in December (Source: USA Today). 

Highs And Lows – The S&P 500 has gained at least 20 percent (total return) in 18 of the past 50 years, or 36 percent of the time. The stock index produced a positive total return in 38 of the past 50 years, or 76 percent of the time. The best year for the index in the past half century was 1995 when the S&P 500 was up 37.6 percent, and the worst year was 2008 when the index suffered through a 37.0 percent total return loss (Source: BTN Research).    

Inside the Index – Forty-nine of the 500 stocks (i.e., 10 percent of the stocks) in the S&P 500 gained at least 100 percent (i.e., the stock price doubled) in 2009; 81 stocks in the index (i.e., 16 percent of the stocks) gained at least 75 percent last year; 146 stocks (i.e., 29 percent of the stocks) gained at least 50 percent; and 71 stocks (i.e., 14 percent of the stocks) finished the year with a stock price lower than where it started the year (Source: BTN Research).    
 

WEEKLY FOCUS – Turning Resolutions Into Habits 

Making New Year’s resolutions has become almost cliché, because, let’s face it, most of us can’t make it to the end of January. The trick is tying your resolution to your current behavior and making it a habit. 

Let’s say you have resolved in 2010 to increase your 401(k) contributions. With your current budget, you may not have extra cash readily available, so you need to look for an expense you can cut to free up funds.  

Denying yourself something you count on or truly enjoy can be the first step in failing to keep your resolution – just ask a chocolate lover who has tried to quit cold turkey as part of a diet, only to boomerang the next week by eating a whole box of truffles. You need to be creative to find expenses you can live without, without feeling denied. For example, maybe you love the silver screen and you reward yourself at the end of each work week with a night out at the movies. Using round numbers, you and your spouse will spend $20 for tickets.  

What do you spend on snacks? Two drinks and a tub of popcorn can easily run $15 to $20 at most theaters. Instead of giving up movie night altogether, what about having that snack before you leave home? Cost of two 20-ounce bottles of pop and a bag of microwave popcorn – less than $5. You’ve saved $10 to $15. Do that every week, and you’ve saved $40 to $60 a month – approximately $500 to $700 a year – without giving up your movie night completely. 

This is just one example of habits – like buying snacks at the theater – that can be eliminated without losing the things you need or love – like movies. If you can’t eliminate it entirely without feeling deprived or resentful, try reducing or making it a reward. For example, if you stick to your movie snack goal for three months, reward yourself for one night with those two sodas and popcorn – extra large with extra butter! 

Your financial resolutions for 2010 may be bigger than an extra $500 in your 401(k) this year. We can help you find ways to achieve your dreams this year, and for many more, no matter how big or small. Call our office to schedule time for discussing what you want to accomplish this year. 
 
 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America. SAI# 302544

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The Market

After two years of negative returns, U.S. equity markets ended 2009 with their highest gains since 2003. The S&P gained 26.46 percent for the year compared to a loss of 38.5 percent last year, rebounding 65 percent after hitting a 12-year low on March 9. For the fourth quarter, the Dow gained 7.5 percent, the S&P gained 5.5 percent and the NASDAQ gained 6.9 percent. For the four-day holiday week, the Dow lost 0.85 percent to close at 10,428.05. The S&P fell 0.97 percent to finish at 1,115.10, and the NASDAQ declined 0.72 percent to end the week at 2,269.15. 

Retail Sales A-Leaping – Initial reports on holiday retail sales show a 3.6 percent increase from Nov. 1 to Dec. 24, a much brighter story than the 3.2 percent drop in the same period in 2008, according to MasterCard Advisors’ Spending Pulse. Adjusting for the extra shopping day between Thanksgiving and Christmas 2009, sales gains were closer to 1 percent. Online shopping, however, leapt 15.5 percent for the season, compared to a year ago, although it accounts for only 10 percent of total retail sales. (Source: USA Today) 

$100 Butter – If grocery prices had risen at a comparable rate to health care since the 1930s, consumers would currently be paying $107.90 for a dozen oranges, $24.20 for a roll of toilet paper, $64.17 for a pound of coffee and $102.07 for a pound of butter. (Source: American Institute for Preventive Health, Blue Cross and Blue Shield Association) 

Green Taxes – States are increasingly looking to save money by cutting back on distributing paper income tax forms and encouraging electronic filing. Mississippi has become the second state (after New York) to completely discontinue mailing tax forms at an estimated savings of $90,000 annually. California has stopped mailing forms to non-residents and part-year residents, saving more than $259,000.

Kansas has cut distribution of forms at libraries and grocery stores and some instruction forms will be available only online, saving $710,000. According to the IRS, of the 141 million returns filed in 2009, more than 67 percent were filed electronically, compared to 59 percent in 2008. (Source:

USA Today)

 
WEEKLY FOCUS – Beware 2010 Retroactive Tax Resurrection A Forbes website article posted the final day of 2009 caught our eye this week: When the U.S. Senate recessed for the holidays, its members left 50 tax breaks to expire at the end of the year. The House on Dec. 9 had passed a bill extending most of the breaks (but notably not the alternative minimum tax or AMT), but the Senate never addressed its similar measure. On Dec. 29, with less than three days remaining in the year, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Charles Grassley (R-Iowa) pledged in a joint letter to extend the provisions retroactively as soon as possible.We’ve become used to the annual extension of the AMT patch, but Congressional procrastination this year led to a number of other taxes winding up in limbo, most notably the estate tax, which effective Jan. 1 has been repealed for 2010. Don’t celebrate yet – Democrats have promised to resurrect it retroactively.Other tax breaks that expired New Year’s Eve:

• the deduction for state and local sales tax for those who itemize
• the extra $1,000 deduction for real estate taxes for filers who claim the standard deduction
• the $4,000 deduction for college tuition
• the Research & Development credit for companies – which has been extended 13 times since 1981 without Congress making it permanent

Congress has made such a habit of leaving taxpayers guessing by letting tax breaks lapse and then issuing temporary patches that such tax law provisions have become known as “extenders,” according to Forbes. Rather than making a decision to eliminate them or make them permanent (and thereby recognize their actual costs), Congress continually extends them until the patch itself becomes the rule, rather than the exception.Your tax situation can impact your overall investment plans, and vice versa. With so many pieces of the tax puzzle in limbo, it’s more important than ever that you consider the assistance of a professional tax advisor and estate planning attorney to help you stay abreast of tax law changes that may impact you. We are happy to work closely with your accountant and attorney to assist you in developing plans for your personal situation. Call us to schedule a joint appointment. 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific

Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 302365
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The Market  - The equity markets hit new highs for the year on Thursday after positive news from the Labor and Commerce departments. Despite a disappointing new home sales report for November released on Wednesday, the markets rallied around a drop of 28,000 in new unemployment claims for the week ending Dec. 19, and a 2 percent jump in durable goods orders, excluding transportation. The markets will be open regular hours on New Year’s Eve (Dec. 31), but will be closed all day on New Year’s Day (Jan. 1, 2010). For the week, the Dow gained 2.06 percent to close at 10,520.10. The S&P rose 2.80 percent to finish at 1,126.48, and the NASDAQ climbed 3.35 percent to end the week at 2,285.69.

Subprime Switch – In February, the Credit Card Act will take effect, limiting the annual fee that card providers can charge to 25 percent of the credit line. First Premier Bank, a subprime credit card issuer affiliated with Premier Bankcard of Sioux Falls, S.D., is testing a way to make up for the loss of its $256 in first year fees for a $250 credit line. The company has raised the interest rates on the card from 9.9 percent APR to 79.9 percent – that’s right, just under 80 percent interest. The company, which targets people with credit scores below 700 who can’t get approved for lower-rate cards, said it is simply pricing its product based on the risk associated with its market. The rate hike comes just less than two months before the Credit Card Act would also limit the bank’s ability to raise interest rates. (Source: USA Today) Boomer Rebound? – The number of unemployed baby boomers rose in November to 7 percent compared to 6.6 percent in October. Unemployment may become a permanent condition for many workers in that age group, with an estimated 378,000 baby boomers potentially forced to retire instead of resuming working, according to economists with Wellesley College. The number of Social Security applications for the fiscal year ending Sept. 30 was 21 percent higher than the prior fiscal year.
 Make More, Spend More – The Commerce Department reported last week that personal incomes rose by their fastest pace in six months during November, and spending marked its second consecutive increase. Personal income rose 0.4 percent in November, boosting spending by 0.5 percent. Both increases were slightly less than analysts had predicted, according to the Associated Press. Taking into account inflation, after-tax incomes are increasing at a 1.2 percent annualized rate. WEEKLY FOCUS – Five Tips For Keeping Your Financial Resolutions Financial resolutions can be especially difficult to stick with because, like eating and exercising, our spending, saving and investing habits tend to be tied to our emotions more than our logic. Here are Five Tips For Keeping Your Financial Resolutions: 

1.   Form new habits by tying them to current behavior. If you have a regular system for paying bills, make a “bill” from your retirement plan and pay it (by making a contribution to your IRA) while you pay the other bills.  2.   Put them on autopilot. One of the easiest ways to keep saving and investing goals is to set up automatic deposits or investments. Payroll deduction for 401(k) contributions is a great example – you never have possession of the cash, so you don’t feel the pain of taking it out of your spending money. Contact your human resources department now about starting or increasing your contributions.  3.   Make your resolutions achievable and realistic. Many people make resolutions without much planning or forethought – and fail the same way. If you are serious about your financial resolutions, do some homework, crunch some numbers and put your plan in writing.  4.   Break them down into small steps. Trying to keep too many resolutions at once will leave you feeling overwhelmed. Instead of making resolutions for the whole year now, break them down and add one or two each quarter.  5.   Work with an accountability partner or coach. Anyone who has tried to implement a weight loss or exercise plan knows that a buddy system increases the odds of success. If you need help sticking to your financial resolutions, we can work with you to create a plan for keeping your resolutions, whether they include college planning for your child or funding your retirement.Call our office for an appointment to discuss your financial resolutions and how we can work together to make 2010 a happy and prosperous new year!  * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe,

Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific

Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 302262
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