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Dear Client:
Perhaps the clearest movement over the past quarter has been the movement of the sun higher in the sky as we reach the summer solstice today. Economic climate indicators have been far less resolute, and the stock market has been down, then back up, then back down with each round of news. The media, whose mantra is "bad news sells", are having a field day. When the economy does not fall into recession, everybody starts worrying about inflation. The Federal Reserve (the Fed) starts hinting that it will raise interest rates, then the bond market tanks and the Fed takes it back. We think the big financial institutions are done with subprime mortgage related write-downs and then we get another round. More CFO's get replaced. Oil prices start to fall and then go back up again. The dollar exchange rate starts to rise and then swoons. Frankly, for me it feels like being on a cheese grater - and that may be the good news.
It looks like we will be flat to down in U.S. equity markets for the second quarter; still well above the mid-March lows, but down year to date. It is a similar story for bonds, likely down a bit over the second quarter, and not up much year to date. It is a bit unusual to have both stocks and bonds doing poorly at the same time. Safe havens are hard to find. Energy and materials have done okay so far this year, but look risky given sky high product prices, slowing energy demand and rising supply. Large cap foreign and emerging markets are down about as much as U.S. equities year to date.
There is some positive news. It does not appear that the economy is falling off a cliff - employment declines have been moderate, it looks like GDP will be up again in the second quarter, and inflation, despite soaring food and energy prices, is still fairly low. The Index of Leading Indicators has been up slightly two months in a row. The Fed is meeting next week to set their interest rate target and I expect they will keep it at 2%. Labor productivity has remained strong - controlling business costs and keeping us competitive in global markets. U.S. exports are booming. And did I mention the sun is high in the sky?
On the negative news side, my expectations and hopes for lower oil prices and a convincing dollar exchange rate rebound have yet to materialize. We are seeing falling demand for energy throughout the developed nations, and a number of developing nations - China, India, Indonesia, Taiwan and Malaysia - have lifted energy price caps; I expect this will further slow demand. And energy supply is rising. The Saudi's are hosting a big meeting of producer and consumer nations this weekend and have indicated that they will send more oil to the market, with their oil minister saying that prices are way too high. I rarely find myself in agreement with Saudi oil ministers, but I am with him on this one. The record low dollar is providing U.S. companies and investors with a double advantage. First, it makes U.S. companies very competitive in global markets and second, it makes U.S. assets attractive to international investors. If the dollar would just put in a convincing bottom and begin a slow recovery, I think we would see a return to rising U.S. asset prices, but that has yet to happen.
I think that now is a time for patience. Usually when I have felt the cheese grater it has been around market bottoms. And, while I do not expect a return to a roaring bull market, I do think that there is good value in equities and decent value in bonds at this time. I will be watching the economy and markets closely and will continue to report developments to you. As always, please call me with any questions or concerns.
At Planned Financial Services, we are excited with a few 2008 initiatives:
We have added twenty clients to Wealth PlanSM. Wealth Plan is a fully integrated, comprehensive, and "live" Wealth Plan created for our clients with the help of Your Personal CFOSM, our personal wealth management system. Wealth Plan system uses cutting edge reporting and organizational software developed for clients which enables us to help consolidate and integrate various areas of our clients' financial lives. It pulls ALL financial information together into one cohesive and active financial management system that is readily available to the client. This system allows us to fulfill our greatest expectations for clients, helping them feel in control of their financial life and their goals while giving them the peace of mind they are searching for.
Jeremy introduced Scorecard investment review system to our 401(k) Plus process to independently evaluate investment offerings on 401(k) platforms. Objective advice is what corporate clients are looking for. It uses eight quantities and four qualitative measures to help flag investments for further review. Jeremy is leading an initiative to use this tool with our individual investors.
Expansion of our firm's capacity. Patty will be migrating this summer to position as a full time financial advisor while still maintaining our firm's compliance functions. In her place, we will soon announce the hiring of our new Client Service Manager.
Acquisition of another financial planning firm. We are actively looking for a similar practice to acquire locally and in Florida. We will keep you posted.
Focusing on strengthening our brand: "Your Life, Your Money, Your Way". By the end of July, clients will see our updated website and other materials that better tell who we are beyond the numbers.
We hope everyone is looking forward to an exciting summer with friends and family. As always, if you have any questions, please call me. In our competitive marketplace with all companies having access to the same financial strategies, Integrity, Service and Advice separate the highest quality firms from the average. Thank you for your trust and confidence.
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