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Monthly Archives: March 2009

The Dollar Takes a Dive

Last week the relatively calm markets masked a proactive event. The Federal Reserve joined the Bank of England and the Bank of Japan with a plan to buy government debt. The measure adopted by the Fed and its counterparts in Japan and the U.K. are part of a series of tools known as "quantitative easing", because they tackle the quantity of money in the financial system rather than its cost, or interest rate. This approach is intended to boost economic activity by providing an abundance of nearly free money for lenders to tap, encouraging them to make more loans.

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Riding Out the Bumps

While short-term fluctuations may make you nervous, looking at the bigger picture can help you ride out the bumps and eventually reach your goals. It’s easy to stay invested when your account balance is growing. It’s a fact, however, that the market will suffer unexpected dips and, as a result, investments may go down. At those times, it’s important to maintain your long-term perspective.

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Time, Not Timing is the Best Way to Capitalize on the Market!

"Time, not timing, is the best way way to capitalize on the stock market’s gains. By trying to to predict the best time to buy and sell, you may end up missing the market’s biggest gains". Please click on the link below to view this Putnam article regarding market timing:


LPL Financial Update

"The unprecedented events of 2008 and the ongoing market volatility of 2009 have raised serious questions about the stability of several well-known financial services organizations. At times like these, it is natural you might have concerns about the financial strength of the firms through which you invest. Although this has been a difficult time for many in our industry, LPL Financial remains financially sound and continues to maintain the strongest committment to providing resources and support that help LPL Financial advisors to serve the needs of their clients. To help address a few questions you may have, I would like to share with you some information about our business model, our financial performance and liquidity position, the steps we take to help protect client accounts, how we are regulated, and how we assess risk from other parties with which we do business".

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Economy Still Tracking to Base Case; Still Awaiting Policy Traction

In last week’s Weekly Economic Commentary, we wrote that while the "front-end" of the U.S. economy – consumer spending – which accounts for two-thirds of real gross domestic product (GDP), had stabilized thus far in the first quarter of 2009 relative to Q4; while the "back end" of the U.S. economy – business spending on plant, equipment and inventories – was decelerating to the downside. We also noted that because the "back end" of the economy was still in free fall, the risk was rising that a massive inventory drawdown in Q1 could make the decline in Q1 real GDP worse than the 6.2% drop in real GDP recorded in Q4.

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Stocks Catch Up

In last week’s commentary, we offered Five Reasons Not to Panic (http://www.mwboone.com/library/Weekly_Market_Commentary_3_10_09.pdf) and suggested that the stock market was due for a bounce, rewarding those that stayed invested. After last week’s bounce of greater than 10% this week we would like to see a pause with the market holding on to the gains. That is because big up or down moves in the markets are often quickly reversed leading to a volatile, rollercoaster ride that fails to inspire the confidence of long-term investors.

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Thinking About Munis? Make Sure You’re Making Wise Picks

Municipal bonds have long been a safe haven for higher-income investors looking for safety and greater tax efficiency. The credit squeeze put the municipal bond market through its paces like other competing markets this year, but it may be time to take a second look at both municipal bonds and muni bond funds.

Let’s start with a definition of what a municipal bond is. A municipal bond, or muni, is a bond issued by a local government or their agencies to raise funds for a host of reasons tied to keeping the government going.  The potential issuers may include cities, counties, redevelopment agencies, water and sewer projects, school districts, publicly owned airports, seaports and other transportation entities.  They pay for everything from immediate government expenses to new roads and various public projects. Municipal bonds come in two flavors—general obligation bonds and revenue bonds. General obligation bonds are intended to raise immediate capital to cover government expenses; revenue bonds are the ones that fund infrastructure projects.


Is Your Child Headed To College Next Fall? It’s Time for Both of You to Take a Crash Course on Borrowing and Spending

Even if you’ve planned relatively well for your future college student’s expenses, the credit crunch and downturn in investment income for colleges have changed the game for financial aid at many schools. That means both parents and students need to approach the college financial aid scene with unprecedented caution. 

Harvard University, the world’s richest school, announced in February that it was slashing 25 percent of its investment staff after its $36.9 billion endowment lost 22 percent of its value in the previous four months and could decline as much as 30 percent by the end of June.  In two separate surveys released in January, the Commonfund Institute and TIAA-CREF, in a survey done for the National Association of College and University Business Officers, reported that college endowments fell on average 23 percent in the five months ended Nov. 30, 2008.


Front End of the Economy May Be Stabilizing, but Back End is Still a Mess

In our 2009 Outlook, we stated in our base case scenerio that:

"We expect that real GDP growth in both the first and second quarters of 2009 will be negative – close to the fourth quarter 2008 decline in the first quarter, and less negative in the second quarter. We expect real GDP growth to be roughly flat in the second quarter".

In recent weeks, we have been writing that based on the incoming data, the pace of decline in real GDP Q1 2009, would not be as severe as the 6.2% drop recorded in Q4 2008, and that is still largely the case, but only if we only refer to the "front-end" of the economy – Consumer sector. Accounting for two-thirds of GDP, consumer spending appears to have stabilized in early 2009 relative to the fourth quarter 2008, as evidenced in recent reports on real personal spending in January, retail sales in January, and the chain store sales data for both January and February. The February retail sales report from the U.S. government is due out later this week.

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5 Reasons Not to Panic

The urge to panic has not been this intense in a generation. If you are willing to stay invested we think there are five reasons why you may benefit:

1) Investors braced for the worst. Measured from one year before the start of each one of the past 13 recessions, the current recessionary bear markets hold the record for the worst overall decline in the S & P 500 at 50%. It is even worse than the Great Depression. That sounds bad. But while the current recession may be referred to by future historians as the Great Recession, market participants may have priced in even this dire scenerio. A record-breaking 70% of investors surveyed by the American Association of Individual Investors bearish on the stock market last week, showed pessimism may be nearing a peak and the stock market may be due for a bounce.

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