The Year In Review

Winter 2007

This quarter’s newsletter will be somewhat abbreviated as we prepare to move our offices. Moving will be less of a change for you since our address, suite number and telephone number remain the same. It is a move nonetheless, as we have to box up – pack up and move our offices laterally across the hallway. We hope to be fully operational by January 22^nd, in time for tax season. We are doing our best to make this a seamless move, but after spending 17 years in architecture and construction, I’ve learned to hope for the best and then make a contingency plan. Please call ahead if you plan on dropping in before the 22^nd.

News

2006 was a year of surprises for the market. As you might remember, we told many of you not to expect more than solid single digit returns for your portfolios. That was right if you were invested in bonds alone with a 4.5% return for the year.¹ For the more adventurous types, US stocks went up 13.6%² for the year. However the biggest returns came again from overseas as the foreign index was up a whopping 23.5%.³ This was the year to be “diversificated” as Jim Cramer is fond of saying on his show Mad Money. So “booyah” to 2006 and bring on 2007.

This was a year we saw the Senate and House change political control. We said goodbye to FedHead Greenspan and added the new name Bernanke to our vocabulary. It was also a year that we said goodbye to one of the 20^th century’s most influential economists Milton Friedman, golfer Byron Nelson, Enron’s former chairman Ken Lay, war criminals Saddam Hussein and Slobodan Milosevic, soul men James Brown and Wilson Pickett, and our 38^th president Gerald Ford.

2006 was a banner year for mergers, acquisitions, private companies taken public in IPO’s, public companies being taken back private and deal making in general. There was just plain a whole lot-o’-money in the capital markets this year. This was partly due to the availability of cheap money, the high cash balances companies had on their books at the beginning of the year and hedge fund and private equity activity. Evidence of this came in the reports of the huge bonuses granted to investment bankers and partners in the biggest Wall Street firms in 2006.

This was not the year for manufacturing or housing. 145,000 housing industry jobs were lost between May and November alone.⁴ “For Sale” signs popped up everywhere and unlike the prior couple of years, stayed up longer. Analysts are mixed in their assessment of the impact of the end of the housing boom, but I think Greenspan may have given the right view. He said, paraphrasing from our Fall newsletter, that we had avoided the crisis and that the worst was likely behind us. My view is that it will take time to work off the excess inventory, a period when prices readjust, what economists call “reversion to the mean”. But it was a year for inflation worries to cool, the Fed to stop raising rates and for oil to cease making new highs – all good.

Commentary

Now, for the 2007 crystal ball… sorry, there is no crystal ball. We are heading into the fifth year of a bull market and the guys that keep stats on this stuff tell us that only a few bull markets make it through the fifth year unscathed. It’s also the longest bull market in history not to have a pullback of 9% or more.⁵

The positives are a backdrop of low interest rates, historically low mortgage rates, a neutral Fed policy, the third year of a second term President after a midterm election, still lots of cash in the hands of the private equity folks and CEO’s projecting corporate profits to be high single digits.

Probably the best advice I can offer is to remind you that markets do trend upward generally tracking US GDP growth. But the line is not without its dips and valleys. So stocks are probably due for a rest at some point this year. Remember, we developed your financial plans based on your needs and then implemented them based on your comfort level of taking risk in the stock markets. This is the long term perspective, not one based on reactions to short term movements in the markets. So hang tight and have a great New Year!

Ideas: Erratum⁶

Every year a little college in Michigan, Lake Superior College University, publishes their list of banished words for the New Year. As in all good comedy, there is an element of reality in these banishments as well. So as a light-hearted public service, we thought you might like to know some of the phrases to avoid this year.⁷

1. AWESOME – This word was given a one year moratorium in 1984, but has stubbornly persisted in its overused and meaningless form. For example, your shoes look awesome. The kind of shoes, no matter how nice, will never fit the majestic design of the word.
2. GONE/WENT MISSING – sounds like a place you can visit, such as the Rockies.
3. WE’RE PREGNANT – grounded for 9 months
4. UNDOCUMENTED ALIEN – a drug dealer is then an undocumented pharmacist.
5. CHIPOTLE – “Chipotle” everything – give it a rest
6. i-ANYTHING – ditto to i-Everything – two year rest
7. BOASTS – as in real estate listings “the master bedroom boasts his & her fireplaces”

 

 

¹Total return for the Lehman Brothers Aggregate Bond index for the 12 months ending on 12/31/2006 www.lehman.com.
²Return of the Standard & Poors 500 Index for the 12 months ending on 12/31/2006. Barron’s Weekly, Jan. 1, 2007
³Total return for the MSCI EAFE index for the 12 months ending on 12/31/2006. www.MSCIBarra.com
⁴“Economy on Comeback Trail in New Year”, InvestmentNews.com Jan 2, 2007
⁵Barron’s Weekly, Jan. 1, 2007
⁶“erratum - a statement of an error and its correction inserted” The American Heritage® Dictionary of the English Language, Fourth Edition, Houghton Mifflin Company, 2004. 04 Jan. 2007, www.Dictionary.com
⁷Lake Superior State University 2007 “List of Banished Words” www.lssu.edu, Jan. 1, 2007

Registered Representative offering securities through FSC SECURITIES CORPORATION, member NASD/SIPC and a registered broker-dealer not affiliated with Clarus Financial LLC. Investment advisory services offered through Clarus Financial, LLC, a Registered Investment Advisor.

The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. With any investment vehicle, past performance is not a guarantee of future results. Material discussed herewith is meant for general illustration and/or informational purposes only, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.