Separately, retailers said yesterday that store sales rose in February by the largest amount since November 2007.  Also orders to U.S. factories in January posted their sharpest rise in four months.  Overseas, both Greece and Spain had auctions for their respective countries five-year bonds and each was oversubscribed, with more buyers willing to buy more bonds than were put up for sale.

I find all of the above facts unexpected.  First the U.S. news is surprising especially in light of the bad winter that affected a large portion of the country, which you would think would have dampened consumer spending.  Also, I would not have anticipated such a strong appetite for Greek and Spanish bonds based upon all the negative news regarding their economies.  This may be a sign that institutional investors are becoming somewhat more confident that these countries will find a way to turn their economies around and make good on their debt at least in the near term.

Buffettisms

“What do you think the best year for the market has been since 1942?  The answer is 1954.  In 1954, the Dow, counting dividends, was up 50%.  Now if you look at 1954, we were in a recession a good bit of that time.  The recession started in July of 1953.  Unemployment peaked in September of 1954.  So until November of 1954 you hadn’t seen an uptick in the employment figure.  And the employment figure more than doubled during that period. It was the best year there was for the market.  So it’s a terrible mistake to look at what’s going on in the economy today and then decide whether to buy or sell stocks based on it.”

Warren Buffett, CNBC Town Hall Event at Columbia University, November 12, 2009 

Warren Buffett can be controversial in many ways; however, his long-term investment results and common sense approach to investing are legendary.  The following are two links to short articles where he shares some of his thoughts and insights that you may find of interest:

http://online.wsj.com/article_email/SB10001424052748704089904575093401496767956-lMyQjAxMTAwMDAwNDEwNDQyWj.html#printMode

http://blogs.wsj.com/marketbeat/2010/02/27/warren-buffett-shareholder-letter-this-years-quips/tab/print/

What you need to know about social security

The following is a link to a Kiplinger Magazine article on five interesting facts regarding social security benefits:

http://www.kiplinger.com/magazine/archives/what-you-need-to-know-about-social-security.html

Old habits die hard

South Koreans were told for decades to sacrifice everything to build the country’s economy, and it resulted in them becoming a nation of workaholics.  In 2007 South Koreans worked an average of 2,316 hours versus 1,794 in the U.S.  The situation has come to a point that the government issued a directive this year for workers to submit plans to their bosses to take 16 days off this year. 

As admirable as the country’s work ethic is, South Korea’s productivity ranks below most other developed countries.  As such, some executives believe that workers may need time off to recharge their batteries and spur creativity.  Reminds you of the old nursery rhyme, “All work and no play makes Jack a dull boy” and a burned out and less productive worker. 

Quotes

“Sooner or later, we’re all going to let somebody down.  We’re all going to screw up.  But life is about how you come back from it, how you learn from it, and how you use it to make yourself a better, stronger person.”

                        Matthew J. Darnell, sports columnist

“If you don’t distinguish yourself from the crowd, you’ll just be the crowd.”

                        Rebecca Mark, executive

“Confidence is keeping your chin up; overconfidence is sticking your neck out.”

                        Author unknown

 “The happiest people don’t necessarily have the best of everything.  They just make the best of everything.”        

                        Author Unknown

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

 If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

City, state and federal agencies have trillions of dollars of debt outstanding, and it appears that they may not be taking these obligations seriously.  Secondly, tax increases are a moot point when government spending is rising at seven times the rate of household incomes.  Fears of unmanageable government debt have negatively impacted Greece’s stock market over the last year, and we in the U.S. need to be aware that these concerns could start impacting us personally via higher interest rates, slowing economic growth and stagnant investment returns.   Ben Bernanke reinforced these concerns in comments he made in his semi-annual economic report to Congress this week, “I’m not anticipating anything in the near term, but it is conceivable that it could lead to a loss of confidence in aspects of the U.S. economy.  It could affect the value of the dollar.  And those things could directly or indirectly affect the state of the economy.”

 Things that could benefit you

 Not all is lost!  The following are some statistics illustrating the strength of the U.S. economy:

• As of 10/31/2009, 15 of the 20 largest public companies in the world are based in the U.S.
• The U.S. is the world’s largest (single-country economy) and produces 23% of the world’s total output.
• Foreign based companies employ more than 5 million workers in the U.S. and pay them more than $400 billion in wages and benefits.
• Americans have won four times as many Nobel Prizes in sciences and economics as researchers from any other country.
• Recessions can be the catalyst for new business and innovation.  For example, Burger King (1954) FedEx (1973), GE (1876) and Microsoft (1975) are companies that started during recessions.  In addition, Diet Coke (Coca-Cola, 1982) compact fluorescent light bulbs (GE 1970s), the iPod (Apple 2001) and ketchup (Heinz, 1870s) are examples of just a few products that were created during recessions. 

There are dramatic transformations taking place in the world that can have a profoundly positive impact for the U.S. and investors.  The following are some examples taking place around the globe that can have a huge positive impact on us in the U.S.:

• Last year, China became the world’s largest car market and first-time buyers were responsible for at least 70% of car purchases in China (in 2008).
• Ten years ago, 1 out of 100 Russians had a cell phone account.  Today, there are more cell phone accounts in Russia than people.
• From 2003 to 2008, India’s toothpaste usage increased roughly 40% per person.  With a population of over 1 billion, in one year that would amount to 43 Olympic-sized swimming pools of toothpaste.
• Apple, Exxon Mobil, GE, IBM, Johnson & Johnson, Proctor & Gamble are examples of just a few U.S. companies that derive over 50% of their sales from outside the U.S. as reported by Factset (Reuters Fundamental database).
• Consider that in 1988 worldwide there were 189 companies with over $1 billion in sales, and 83% of them were U.S. companies.  In 2008 there were 3,641 companies with over $1 billion in sales, however; only 28% of them were U.S. companies.  As reported by Factset (Reuters Fundamental database – and figures being adjusted for inflation to 1988 dollars).
• McKinsey Global Institute estimates that over the next decade over 450 million newcomers are expected to enter the middle class in China and India alone.  This surge of new consumers should provide a huge demand for many U.S. companies whose products are sold around the world. 

 Overseas economic growth can result in many new U.S. jobs and give our economy a tremendous boost in the years to come.  In addition, as innovation and technological advances continue, they can provide solutions to such problems as energy dependence, the need for more food worldwide, better health care, etc.

Consumer confidence and the stock market in the U.S. are intertwined.  One is dependent upon the other for sustainable advances.  Thus, in 2010 patience is extremely crucial because we may see fits and starts as we begin to emerge from the economic malaise we’ve encountered over the past 18 months.  The various economic challenges that face us were years in the making and a long-term / sustainable recovery will take time as well.

 Quotes

 “…the stock market has survived all kinds of difficulties – severe bear market, scandals, and events indirectly related to it like events of 9/11.  So while the past decade was very tough, going forward, I’m very confident that equities will not just survive, but prosper.  I think that stocks will remain constant with their historical role of building wealth over the long term and that diversified investments are the soundest method for investors to try and realize their goals.”

                        Charles Royce, President and CIO of Royce Funds 4^th Quarter 2009 Advisor Review

 “The soil will produce abundantly when fertilized well with elbow grease and good sense.”

                         Jacob Kindleberger, entrepreneur and statesman

 “There are two things over which you have complete domination, authority, and control–your mind and your mouth.”

                         Molefi Asante, scholar

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

 If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

“Come 2010, only 16 cents of every dollar of global economic growth will come from the U.S., nearly half the level of 1980.  While GDP is tied to the American consumer, S&P profits are boosted just as much by corporate spending and overseas growth.”

            – Kopin Tan, Barron’s, December 19, 2009 

“Advocates of the new normal cite the large U.S. indebtedness as one of the factors behind slow future growth.  However, there’s a vast cache of unused purchasing power in the rapidly growing middle classes in emerging economies, especially India and China.  These rising middle classes represent the largest untapped markets the world has ever known and will drive demand in the next decade.  And they want quality goods and brand names that are produced by firms based in the U.S.”

            –  Jeremy J. Siegel, Kiplinger’s Personal Finance, December 2009 

“What do you think the best year for the market has been since 1942? The answer is 1954. In 1954, the Dow, counting dividends, was up 50%.  Now if you look at 1954, we were in a recession a good bit of that time.  The recession started in July of 1953.  Unemployment peaked in September of 1954.  So until November of 1954 you hadn’t seen an uptick in the employment figure. And the employment figure more than doubled during that period. It was the best year there was for the market.  So it’s a terrible mistake to look at what’s going on in the economy today and then decide whether to buy or sell stocks based on it.”

            – Warren Buffett, CNBC Town Hall Event at Columbia University, November 12, 2009

“Don’t run with the herd.  Being surrounded by people who are doing the same thing as you offers a false sense of protection.  Being a loner is extremely uncomfortable, but it’s far better.”

            –  Bob Rodriquez, First Pacific Advisors, Kiplinger’s Personal Finance November 2009

1099s

1099s (taxable accounts) and 1099Rs (retirement accounts) have gone out later this year than in the past.  The IRS extended the deadline until February 15^th for financial institutions to mail them out.  If you have not received your tax reporting documents from TD Ameritrade, then please don’t hesitate to call the office and we can forward you a copy.

Quotes

“Income tax has made more liars out of the American people than golf.”

                                    Will Rogers, humorist

“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.”

                                     Sam Ewing, humorist

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
 
If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

Kansas City Saves Organization presents this FREE education program

Your money, retirement, next career move and family depend upon how you manage this life transition.

• Learn what to start doing and what to stop doing
• What to do, and not do, with your 401k
• Protect your family

 Friday, February 26

12 pm – 1 pm

Location: YMCA Express inside Cleveland Chiropractic College

8205 W 108^th Terrace, 1^st Floor Conference Room

Overland Park, KS  66210

RSVP to Sally or Debra at 913-897-2074

Program donated and taught by:

Debra Kunz, MBA, CSLP
Strategic Life Planning Director
Integrity Investment Advisors
913-897-2074 (w); 913-219-9635 (c) or dkunz@iia-kc.com
www.iia-kc.com
 

Thanks to the YMCA for providing the location.  www.ymca-kc.org

KANSAS CITY SAVES WEEK
February 22 – February 27, 2010

www.kansascitysaves.org
Kansas City Saves Purpose:  Educate and motivate Kansas City residents to increase the rate and amount of savings in order to build a sound financial future.

Greece is a member of the European Union (EU) (i.e. an economic and political union of 27 European nations).  Greece’s population and economy are both very small in comparison to the entire union of nations; however, it is having a dramatic impact on all EU nations.

Fears of the Greek government not being able to pay off its debts is rooted in the fact that this country has a history of out of control spending, and the inability to get its financial house in order.  This has resulted in investors worldwide concerned that Greece can only meet its obligations via other EU nations bailing them out.  Unfortunately, Germany, France and other EU members’ are struggling from the recession.  As such, they are concerned that if they guarantee or take on Greece’s obligations, then other economically challenged EU members will consider doing the same. 

This is resulting in the Euro (EU currency) and member nations’ stock market both declining this year.  As was noted in today’s Wall Street Journal, a Harvard study has shown that once a nation’s debt rises to more than 90% of its annual economic output, it faces tremendous challenges and long odds of ever recovering.  Currently, Greece’s debt exceeds this threshold.  The fears associated with Greece’s economic predicament has resulted in its stock market being hammered and interest rates climbing dramatically in 2010.

The lesson the U.S. and other countries need to learn from this is that once your nation’s debt reaches a certain level, no amount of guarantees will stop that nation’s currency from declining, interest rates increasing and its stock and bond market from being hit.

The United States is not nearly in the same predicament as Greece, and we are a much more robust, innovative and growth-oriented economy.  As such, I believe we can take steps to avoid what occurring in Greece.  Greece should not become the poster child of moral hazard and any default on its sovereign/ government debt would be much more of a crisis in confidence than economic.  However, such an event would make investors worldwide wonder who may be next, which would result in them demanding higher interest rates on any government bonds.  This would directly raise the borrowing costs for all individuals and businesses, which only puts an additional drag on their economies. 

I believe if Greece wants any help, it must receive a dose of tough love.  This would entail huge spending cuts.  I am not one to favor tax increases; however, Greece is notorious for its inability to collect taxes and its citizens take pride in evading taxes.  Maybe one good starting point is not only enforcing the tax laws on the books, but for every $1 of tax increases, the government must reduce spending by $3.  This may sound extreme, but I have yet to meet, talk with or read about any individual who’s been able to spend their way out of debt.  Thus, how realistic is it that a government could do any better.   

China is also causing investors indigestion

China’s economy and stock market have been the envy of most nations over the past year.  Unfortunately, the Chinese government implemented a large stimulus package and there has been an explosion bank lending.  This has resulted in a run up in not only Chinese stock and real estate prices.  We all know what happens when too much money at artificially low interest rates makes its way through an economy – bubble! 

The Chinese government is taking steps to correct this situation by tightened lending.  This has made global investors nervous that either a new bubble could be occurring or economic growth will be hurt by these measures. 

Winter doldrums – What does it mean for Spring?

I had lunch with a commercial real estate and economically astute professional today and his motto for 2010 is “Flat is up!”  I believe this could be very accurate.  This year could be year of slow recovery.  Along these lines, the severe winter weather that has hit many parts of the U.S. could actually result in unfavorable economic numbers for the first quarter of this year.  Many areas of the east coast have been paralyzed by snow, and if you can’t get to work, then productivity takes a hit.  In addition, other than the snow removal industry, many other businesses are seeing a lull. 

The bright spot is people are getting sick and tired of this weather.  As such, there will be a pent up demand once spring and warmer weather returns.  I believe people will respond to frustration of being homebound via spending (i.e., going out to eat, movies, travel and spending money on various other items).  It could be we experience a very lackluster first quarter and see more positive numbers in the second quarter. 

 Quotes

“If all the pessimists of the past had been right in speaking of their society’s running out of creative possibilities, or going to ruin, civilization would indeed have ground to a halt long ago.”

                                     Sissela Bok, philosopher

“You can think about your problems or you can worry about them, and there is a vast difference between the two.  Worry is thinking that has turned toxic…Thinking works its way through the problems to conclusions and decisions.”

                                    Harold Walker, author

“Happiness is not a reward–it is a consequence.  Suffering is not a punishment–it is a result.”

                                    Robert Green Ingersoll, orator and attorney

“The longer I live, the more deeply I’m convinced that the difference between the successful person and the failure, between the strong and the weak, is a decision.”

                                    Willie E. Gary, successful attorney

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.  

If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

 Long-term vs. short-term

or

Patience and persistence vs. emotions and reaction

Do emotions affect our investment decisions?  Yes!  Ironically, we react differently to declining stock prices as compared to declining home values.  

Almost everyone’s home has decreased in value over the last two years.  However, we don’t receive monthly statements showing the decreased value.  Also, it can be a cumbersome process to list our home, eventually sell it, and move, versus simply making a phone call or placing sell orders online.  Most importantly, I’ve heard many clients state, “I would be crazy to sell my house in this environment.”  

This same thought process may not transfer over to our investments.  It is much easier to exert what we consider “control” in an emotional period by moving all or some of our investments to cash.  It gives us sense of relief in the short-term and very little effort is needed when compared to the sale of a house.

The following illustration shows exactly how most of us react in Bull (up) and Bear (down) markets.

Unfortunately, the bear markets following the dot.com bubble of the late 90’s and the recent housing bubble inflicted fear, and for many, investment losses.  

Instead of focusing on what occurred just recently or in each of these separate market events, I want to illustrate a long-term perspective.  As such, I took the top 15 holdings (excluding money market funds) for IIA clients as of 1/31/2010.  This is a mix of income, bond, balanced, U.S. and international stock funds.  The combined value of these holdings represents over 72% of all assets under IIA’s management (i.e. our clients’ mutual funds.)

I went back approximately 15 years to 12/31/1994 and invested $10,000 into each of these funds.  It should be noted that 5 of the top 15 funds did not exist then, so for them I went back to their inception date.  Then I ran the following scenarios using information provided by Morningstar and not deducting any advisor or discount brokerage fees for purchases or sales.  The investment mix used in these illustrations is not representative of any client portfolio and past returns are no guarantee of future results. 

Scenario 1)

• Invested $10,000 into each of the funds on 12/31/1994 or the fund’s inception date for those funds that didn’t exist at that time.  All dividends and capital gains were reinvested.
• Under this scenario, the portfolio earned 11.42% per year for the period 12/31/1994 through 1/31/2010.

 Scenario 2)

• Invested $10,000 into each of the funds on 12/31/1994 or the fund’s inception date for those funds that didn’t exist at that time.  All dividends and capital gains were reinvested.
• All shares were sold at the bottom of each of the previously mentioned bear markets (i.e., low for the S&P 500) and moved to cash.
• Then the cash was reinvested equally amongst the 15 funds one year later.
• Under this scenario, the portfolio earned 6.85% per year for the period 12/31/1994 through 1/31/2010.

The above scenarios involved the same funds and time periods.  The only difference was patience, persistence and continuing a long-term investment strategy versus letting fear drive your choices and selling near market bottoms; then letting greed drive your choices and buying back a year later. 

I realize it is much harder to remain steadfast and committed to one’s investment plan in the face of what appears to be a run-away decline in your portfolio.  I am using the above illustration to make the point that there will be future bull and bear markets and emotions will rise and fall with them.  However, we need to use history as our guide.  We have what I believe is a solid mix of investments with proven long-term track records.  That being the case, then all that is necessary is for us to stay focused and not give in to greed or fear is to stay the course. 

 IRA Required Minimum Distributions (RMD) for those over age 70 ½ 

Some clients are required to take distributions from their IRA each year.  In 2009, the IRS waived this requirement; however, it is back in play for this year.  As such, TD Ameritrade provides us a list of all clients who must take a withdrawal from their IRA and the minimum amount required to avoid any penalties.  

We review all client accounts (who are required to take a RMD) and verify that they satisfy the requirements.  Sally Gradinjan will contact only those clients (via phone or e-mail) who need to withdrawal additional funds to meet this requirement.  If you do not hear from Sally, then it means that you are in compliance and not action is necessary on your part. 
Please note, we cannot provide this verification process for any IRAs not held at TD Ameritrade.  If you have other IRAs outside of TD Ameritrade, please contact that custodian for assistance.  Feel free to contact the office if you have any questions on this subject.

Quotes 

“When we put ourselves in the other person’s place, we’re less likely to want to put him in his place.”

                                    Farmer’s Digest 

“Everyone only goes around the track once in life, and if you don’t enjoy that trip, it’s pretty pathetic.”

                                    Gary Rogers, author 

“Frustration is your worst enemy.  You have to continue to stop yourself from letting it drive you to make irrational decisions.”

                                    Henry R. Kravis, American business financier 

“You’re not rewarded for having brains.  You’re rewarded for using them.”

                                    Mordecai Johnson, clergyman and educator

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

 If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

Currently, all three major U.S. stock indexes, the Dow, S&P 500 and NASDAQ have lost money year-to-date, and some believe a weak January bodes ill for stocks the rest of the year.  According to Ned Davis Research, in years when the Dow has risen in January, the median rise for the rest of the year is 10.4%.  In years when the Dow has fallen, the median rise for the next 11 months is just 0.28%.  However, this predictor is not fool proof.  Last year, the Dow, S&P 500 and NASDAQ were all down in January and all three indexes came roaring back to end the year with nice gains.

Along these lines, which team wins the Super Bowl has been a remarkably accurate predictor (79% accuracy rate – 34 out of 43 Super Bowls) for the stock market.  It is based on whether or not an “original” National Football League team (i.e., any NFL team that existed prior to the merger with American Football League in 1970).  The premise is if an original team wins the market will rise for the year.  However, if an original team loses, then the market will fall for the year.

Ironically, both the Indianapolis Colts and New Orleans Saints are “original” NFL teams.  In no way do I believe either of the above mentioned predictors should impact your investment decisions.  However, this year’s Super Bowl predictor is offering better historical odds for investors than you’d find in Vegas.

For more details on this interesting piece of trivia, please click on the following link.
http://online.wsj.com/article_email/SB20001424052748704194504575031472377532074-lMyQjAyMTAwMDIwOTEyNDkyWj.html

Real world issues to consider

• The economy grew for a second straight quarter from October through December, posting a better-than-expected 5.7 percent annual rate, the fastest quarterly pace since 2003.  Companies have worked through most of the inventory and need to replenish their stockpiles.  For example, Caterpillar recently told its steel suppliers it will more than double its purchase of metal this year.  Economists call this the “bullwhip effect.”  Even small increases in demand can cause a big snap in the need for parts and materials further down the supply chain.  This is a huge boom for the hundreds of companies that supply Caterpillar with parts.
• Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade.  Many estimate the nation’s gross domestic product will slow to a 3 percent rate in the current quarter and to about 2.5 percent for 2010.
• Microsoft and Amazon both reported huge jumps in profits for last quarter.  This is a sign that corporations and consumers are spending.  Along these lines, P&G and Colgate noted they are seeing consumers return to names brands versus store brands.  In addition, they are seeing sales growth in emerging countries like China and Brazil.
• U.S. companies have taken steps to rebuild and stabilize their finances.  The Wall Street Journal reported this week that Gimme Credit (a corporation that monitors changes in companies’ credit scores) noted that 70% of changes in 2009 were upgrades compared with 12% of the changes in 2008.
• The International Monetary Fund sees a global economic rebound in 2010; however, the U.S. and other “rich” countries lag developing countries.
• Chief Financial Officers are gaining confidence in their economic outlook, according to findings from the fourth quarter “CFO Outlook Survey” conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business.  CFOs are looking up, but remain committed to utilizing some of the important lessons learned during the downturn and keeping companies streamlined. 

 What does all this mean?

Some businesses are beginning to see sunnier days ahead; however, others are still struggling to survive.  If you want to get a read on the health of the economy, just ask a local CPA.  He/she has their finger on the pulse of the local economy.  They may not be dealing directly with Wal-Mart, IBM or Caterpillar; however, many of their clients are small businesses whom are suppliers to much larger companies.  As such, they hear first hand if new orders are coming in or not. 

Currently, many small business owners will tell you the recession is not over, and this may be the case for them.  However, there is a large amount of cash currently on the sidelines.  Many institutions, individuals of substantial means and large corporations have stockpiled cash.  With today’s extraordinarily low interest rates, many remain skeptical and would rather earn next to nothing than invest.  At some point their skepticism will turn to optimism and money will be deployed into real estate, business expansion, investments, etc.  Once this occurs, the implications will be felt all throughout the economy from large multinational corporations to mom and pop stores. 

As I have noted in prior commentaries, globally there is enough uncertainty and skepticism regarding economic and political climates that the stock market may continue to see staggered up and downs and very little progress.  For the time being, do not be surprised to see the U.S. and foreign stock markets drop even in the face of what would normally be considered good economic news.   

As such, I believe a very strong message from U.S. leaders regarding sensible and serious steps taken to address / reduce our national debt would be a catalyst for other countries like Japan, Greece, Portugal, Ireland, Spain, and others to get their financial house in order too. 

If policies in the U.S. can be enacted to stabilize our nation’s finances, then it would put pressure on other nations with large deficits to either follow our example or be left behind.  I can assure you, whatever country steps to the plate with “real” solutions will see foreign investors and corporations increase capital investment within its borders, a stronger currency, new and expanding businesses, dramatically lower unemployment and a robust economy.  The U.S or any government can take the necessary and “painful” steps to reduce spending and raise revenue (i.e., and this does not necessarily mean large tax increases) and thus reduce their debt.  Investors are going to flock to a country where they perceive a sense of certainty, stability and prudent financial policies. 

Just ask yourself, would you rather partner with someone who’s working hard and making sacrifices to pay their bills on time and pay down their outstanding debts or someone who is continually borrowing from others to pay their bills?  In the years to come, investors around the world will be putting much, much more consideration into this factor.   

Semi-annual reports
 
Semi-annual performance reports are being sent out this week.   If you received yours via e-mail and are experiencing problems viewing your PDFs (portable document format) reports, please download the latest version of Adobe Reader by going to: http://get.adobe.com/reader/

Adobe Reader is free to download and allows you to view PDFs.

If you continue to experience problems after installing the latest version of Adobe Reader, please contact Toan (pronounced Tawn), our Director of Operations and he will walk you through the process.  Also, if you did not receive your reports (either by mail or email), please contact us at 913-897-2074.
 
Quotes
 
“Good sense is at the bottom of everything: virtue, genius, wit, talent and taste.”
                                    J.J. De Chenier, institutional investor
 
“Worry does not help tomorrow’s troubles, but it does ruin today’s happiness.”         
                                    Unknown

 “The only people you should try to get even with are those who have helped you.”  
                                    Unknown

 “They tell you that you’ll lose your mind when you grow older.  What they don’t tell you is that you won’t miss it very much.”
                                    Malcolm Cowley, author
 

“Strategic planning is worthless unless there is first a strategic vision.”
                                     John Naisbitt, author

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
 
If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

 As part of this dynamic gathering of business leaders, you’ll discover:

• The blunders even good leaders make, and what those blunders cost
• How to vaccinate ourselves against leadership blunders
• The practical ways we can make excellent leadership more a “way of life”  

 Wednesday, February 24, 2010

11:30 AM – 1:00 PM (check-in, 11:15 )

Garozzo’s Ristorante, 9950 College Blvd, Overland Park, KS 

Early registration is $20 per person, includes lunch

***Click here to register now***

Space is limited. Last day to register is Friday, Feb 19.

About the Panel:  Four veteran business owners will share their stories.

• Jeff Olsen, President, Pass the Torch, business transition company, will facilitate.
• Patti Banks, CEO, Patti Banks Associates, a landscape architecture and planning firm.
• Peter Sykes, CEO, AB Express, an overnight delivery company.
• Kierstin Spencer, serial entrepreneur.

 Invite a colleague and/or client to join us for this informative event.

Giving Back

At each event, we recognize a charitable organization that provides service to our community.  Turning Point is a family support center in Kansas City offering many programs to address the social, psychological, emotional and physical needs that accompany a serious or chronic illness.

About ACA Leadership Council

The ACA Leadership Council provides business owners and business leaders a strong professional network.  We come together to share experiences, learn from each other, and “give back” to our community. 

Board Members

Jeff Olsen – President  
Tony Parker – Vice President, Membership Director
James O’Brien – Secretary, Treasurer
Debra Kunz – Communications Director
Brendan Rittel
Becky Oliver

As such, the market doesn’t voice its opinions at the voting booth; it voices it in the up or down movement of security prices.  None of us wants to face making a major purchase (e.g. a new car) in the midst of company layoffs.  As such, businesses don’t like making hiring, new equipment or other plans when faced with a shifting landscape.  This uncertainty weighs heavily on analysts and ultimately investors, which results in them reducing their perceived value of company stocks (i.e., lower stock and bond prices).

Today’s hot story is the government’s potential, corrective action against Wall Street firms’ and large banks’ for their roles in the housing bubble, market and economic meltdown.

•  Separately, the following are just a few nuggets taken from this week’s headlines:
•  Wells Fargo, one of the largest banks in the U.S., sees signs of life in consumer lending
•  Home construction dips four percent in December; wholesale prices up 0.2 percent
•  World Bank: global recovery may wilt as stimulus fades; funds scarce for developing countries
• China’s growth accelerates to 10.7 percent in 4^th quarter, adding pressure to fight inflation
• Stocks fall as China clamps down on bank lending

All of the above may be why Warren Buffett said this week that the U.S. economy is suffering from past excesses and won’t recover quickly.  In prior years many people and companies spent beyond their means and “the hangover is sort of proportional to the binge.”  On the flip side of the coin, Tom Hoenig, president of the Federal Reserve Bank of Kansas City, said last week that he relies on the “preponderance of evidence” about the economy’s path.  He sees the economy tipping toward a much stronger recovery than most do.

Just like children, the stock market likes certainty.  If it perceives too much change and can’t get a clear picture of what lies ahead, then it will lose momentum until clearer skies prevail.  As this year progresses, businesses will get a better understanding of the landscape ahead (good or bad).  Ultimately, they will adjust accordingly and proceed forward.  Once this occurs, confidence will return to the market and the economy, unfortunately, we may see some wild swings until then.

Believe me, as bad as it was and may still be for many, there are that many or more businesses digging in for the long-term and are emerging even stronger and more competitive as a result. 

Many of these business owners and their staff live by the motto, “I have not yet begun to fight,” and it is that type of unbridled determination that allows me to continue to have faith long-term in the U.S.

One fund company’s investment strategy through all this uncertainty

I listened to a recent conference call with First Eagle’s Global and Overseas Fund portfolio managers, two of our larger investment holdings.  Without going into great detail, the following were some of the main themes:

They are using gold and precious metal mining stocks as insurance against economic uncertainty.

• They came through the recent bear market very well in comparison to their peers, which is a testament to them not changing their investment strategy one bit during all the short-term turmoil.
• Currently, they don’t believe that overall U.S. stocks aren’t under or over-valued, but priced appropriately for the current economic environment. 
• In Japan however, they are finding companies priced below their net worth and some trading at the cash they have on their books.
• They try and invest in companies that either have strong growth fundamentals or their stocks trade at prices below their net worth.  In either case, they avoid companies that are over reliant on borrowed money, or industries that are experiencing tremendous and unsustainable growth (bubbles) long-term.
• They did mention that China and India and other emerging economies offer great growth prospects long-term.  However, they did voice concerns about China’s explosive growth in bank lending, real estate and stock prices.  Too much of a good thing can be bad for you, which is why the Chinese government is restricting future bank lending to try to let some air out before another bubble pops.

Both First Eagle Global and Overseas incurred losses in 2008; however, the funds respectively returned 7.96%/year and 11.38%/year for the 10-year period ending 12/31/2009.  During this same period the S&P 500 returned -0.95%/year.  This is a true testament to the objective, unemotional and analytical investment style the portfolio managers’ practice and is exactly what is needed in the type of stock market environment we are experiencing.    

Quotes

 “The risks of luxury must be balanced against the costs of necessity and proof of utility.”

                                    Arthur C. Frantzreb, philanthropic consultant 

 “Money is like sea water.  The more we drink, the thirstier we become.”

                                    Arthur Schopenbauer, philosopher

 “Who is wise?  He that learns from everyone.  Who is powerful?  He that governs his passions.  Who is rich?  He that is content.”

                                    Benjamin Franklin, printer, diplomat, scientist

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

 If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.

• Separate of this, JP Morgan (the second largest bank in the U.S.) reported better than expected earnings this morning.   JPMorgan also warned investors today that losses on mortgages and other loans have not yet peaked.  Also, the weakness in JPMorgan’s consumer business is hurting other financial stocks.

• Bank of America and Capital One Financial Corp, two large credit card issuers, reported jumps in U.S. credit card charge-offs for December of last year, suggesting consumers were stressed through the holiday shopping season.  However, delinquency rates slipped at those companies as well as at Discover Financial Services. Customers delinquent on their credit card payments are declining, but the banks are realizing that some of these credit card debts will never be collected and they are writing / charging them off.

• A disappointing report on consumer sentiment is also hitting stocks. The preliminary Reuters/University of Michigan most recent monthly consumer sentiment index has come in weaker than economists had forecast.

How do the above items affect my investments

Basically, the stock market has had a nice run, but it needs continued positive economic news to go higher long-term.  In the short-term (i.e., six – twelve months) we should see more improvement for the U.S. and foreign economies.  However, we are not completely out of the woods.  As a matter of fact, a CNBC article earlier this week purported that a potential wave of new regulation and higher taxes could be scaring many businesses from hiring, which will drag out a rebound in employment. I participate in a CEO roundtable and bank advisory board.  Between the two groups I have interaction with approximately 15 – 20 local CEOs / business owners.  Across the board, it is almost unanimous that new regulation (and the associated costs) along with potentially higher taxes will negatively impact their businesses. 

For example, when a large corporation faces these same issues, it will turn to its vendors, in many cases medium to smaller size businesses and ask them to reduce their fees / costs.  The small businesses either acquiesce or possibly lose the client.  In either case, the small businesses must find a way to cut costs.  Many times this means new equipment purchases, plant expansions, and new hires are taken off the table.  In addition, existing employees incur no wage or benefit increases and even decreases.

The net of all this is a reduction in company profits and less take home pay – especially for the rank and file workers.  Less pay means less money to spend and invest, which is just the opposite of what you want for a strong stock market and economy.

I am not a gloom and doomer; however, human emotion overrides everything else.  As such, if upon analyzing the future economic landscape CEOs and business owners see tougher times ahead, then they will pull in their horns.  Some of this is good and results in prudent and necessary cost costing and improved efficiencies, especially through innovation.  But that can only go so far.  Once they have reached their limits, then companies will have lower profits, which results in less dividends for shareholders.  Also, employees will see stagnant if not declining wages, which diminishes their ability to spend and invest in their 401(k) and retirement plans.

In addition, increasing taxes and decreasing spending is now the new mantra for all levels of government.  Thus, we may all see increased taxes (e.g., sales tax, personal property, real estate, city, state, federal, etc.) and fewer services provided or services that were free are now being charged for.  Other than state and federal income taxes, all the others are stealth taxes that politicians don’t talk about and won’t immediately jump out on your tax return.

In addition, more and more respected professionals are warning of the implications of an ever-increasing U.S. deficit.  We all know this has been an ongoing problem, and most politicians are too worried about re-election to adequately address it.  Thus, we are faced with a situation that individuals and the government need to deleverage (i.e. reduce their debts), and the vast majority of those working individuals need to increase their savings for retirement at the same time. 

The housing / credit crisis didn’t happen overnight.  An ultimate solutions and recovery will take time.  That being said, it is not the end of the world.  All it means is that we need to adjust our expectations.  The S&P 500 averaged 18.20% per year in the 1990s and -0.95% per year in 2000s.  I don’t expect it, nor our portfolios, to experience either of these extremes in the next decade.  We should see moderate returns that may cause us and many Americans to become more modest in our wants and lifestyles.

The U.S. is not becoming a third-world nation; however, we are becoming a more humbled nation that needs its citizens and leaders to make tough, sensible choices for the benefit of all and especially our kids and grandkids.  In general, if a policy negatively impacts a company’s profitability and bottom-line, then it is going to negatively impact your personal finances – it all trickles down. 

Quotes

“You gain strength, courage, and confidence by every experience in which you stop to look fear in the face.”
                      Eleanor Roosevelt,  First Lady 

“Mistakes are part of the dues one pays for a full life.”
                     Sophia Loren, actress 

“The only thing that ever sat its way to success was a hen.”
                      Sarah Brown, author 

“The world has a way of giving what is demanded of it.  If you are frightened and look for failure and poverty, you will get them, no matter how hard you may try to succeed.  Lack of faith in yourself, in what life will do for you, cuts you off from the good things of the world.  Expect victory, and you make victory.”
                   Preston Bradley, minister

Tony Moeller, President
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only.  It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.  

If you enjoy the commentary and believe others may benefit or find it of interest, please feel free to forward it on.  Also, interested individuals can contact us, and we will be happy to add them to our mailing list.