Additional good news came from UPS noting higher earnings due, in part, to increased package shipments.  Also, American Express and Capital One both noted increased spending and fewer bad loans from their credit card customers.  Overseas there was positive economic news from the Euro-zone as Germany reported robust growth, which helps offset the weakness of its counterparts such as Greece. 

Offsetting or counterbalancing this good news was the fact that the number of unsold homes in the U.S. is increasing, and the Baltic Dry Index (BDI) just recently rebounded from its longest losing streak in 15 years.  You may ask, what is the BDI and why do I care?  It is important because the index tracks worldwide international shipping prices of various dry bulk cargoes.  The index provides an assessment of the price of moving major raw materials by sea.  Thus a declining (BDI) is representative of lower shipping rates, and reflects lower demand to ship raw materials, which eventually are processed or manufactured into products.  Ironically, the rates for shipping manufactured goods (i.e., container shipping rates) have actually been steadily increasing.  As such, both of these items should be important leading indicators of where global economies are headed.  However, in the short-term, they are sending mixed signals since demand to ship raw materials is weak compared to demand to ship finished or manufactured goods. 

Telling non-for-profits to raise their risk level 

To be a contrarian, and a profitable one at that, one must be able to stick their neck out when others won’t.  This is exactly what Mr. Verne Sedlacek CEO of the Common Fund has recently done in his interview with CNBC (see attached link below – I highly recommend viewing it). 

http://www.cnbc.com/id/15840232/?video=1548330548&play=1 

Mr. Sedlacek’s firm is an advisor to endowment funds, which are long-term oriented and have a goal of earning 5% in excess of the inflation rate.  As such, when it comes to long-term investing for conservatively minded institutions, he knows of what he speaks.  He notes that endowments in his opinion cannot achieve their investment objectives long-term by allocating 100% of their funds to fixed income and bond type investments.  They must consider stocks, real estate, and even alternative investments (that in some cases are not available to the average investor). 

Currently, fear has resulted in investors over-weighted in bonds.  Interestingly, 10 years ago investors were over-weight in technology stocks.  This resulted in stocks being overvalued at the beginning of the last decade.  As compared to now, bonds are considered by many to be overvalued.  It just seems that the herd syndrome just continues, but only to different investment categories. 

I’m not advocating all investors placing 100% in of their funds in stocks or bonds; however, it is interesting to hear Mr. Sedlacek talk about conservatively-oriented, long-term minded endowment funds having as much as 70% – 75% of their allocation in “risk” assets (i.e., stocks, real estate, commodities, etc.).  This type of investment allocation and objective advice from someone who manages tens of billions of dollars for institutions (who want their “nest egg” to continue into perpetuity) seems to get lost on the average investor whose emotions dictate their investment allocations / strategy. 

What history says about what happens after the market bounces off its lows? 

The following chart illustrates that the S&P 500 has been quite resilient for the five-year periods following bear market lows.  Please note, history is no guarantee of future results, but it is reassuring to see that the S&P 500 has averaged 18.95% annually for the five-year period following market downturns of at least 15% and more than 80 days.  This is one case that it would be great if history did repeat!

 I find some the previously noted facts listed in this commentary encouraging, but that doesn’t mean I am not still concerned about some the economic headwinds facing us.  The recovery of the global economies and stock markets are like a marathon.  We’ve made considerable progress; however, we still have the majority of the race ahead of us and some hills to climb. 

Quotes                                 

“As a historian, I think about the past. But, as a parent, I think about the future.”

                            Alice Greenwald, museum director 

“Friends and good manners will carry you where money won’t go.”

                          Margaret Walker, writer poet 

“He who is virtuous is wise; and he who is wise is good; and he who is good is happy.”

                          Boethius, philosopher 

“A single conversation across the table with a wise man is worth a month’s study of books.”

                          Chinese Proverb           

Tony Moeller
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.

In addition to the above items, China reduced the amount of U.S. government bonds it purchased in May, the financial reform bill has been passed and Federal Reserve officials have noted that they see slower growth in the second half of this year for the U.S. economy.  That being said, some Fed officials have mentioned that additional easing or lowering of interest rates may be necessary if this occurs.  And to top things off, Citigroup and Bank of America both announced this week that they may have made accounting mistakes and misclassified billions of dollars of debt in their attempt to “window dress” (i.e., make things look better than they actually are) prior financial statements.

The director of trading and derivatives at the Schwab Center for Financial Research noted in a web interview that he sees no clear direction to the market currently.  Unfortunately, pessimism has crept back into investors (from individuals to institutions) minds.  Warren Buffett met with the President this week to discuss the economy.  It is being reported that Mr. Buffett warned the President that the recession created a huge overhang of excess capacity in the economy that would simply take time to mop up. Unfortunately this resurgence of pessimism from Wall Street to Main Street can negatively affect spending and possibly put a damper on corporate profits in the near term, which does not help investors. 

Outside of some portfolio fine tuning, what can be done?  When it comes to personal finances, I believe prudence is the word of the day.  Taking steps to review and trim living expenses and keeping an emergency fund on hand are key.  Does this mean ignoring our investments?  No.  What it means is that by having a better handle on our day-to-day financial picture then, we can better allocate funds for short-term, intermediate and long-term needs.  Unfortunately, some are caught realizing that they need additional funds for various reasons, but have not budgeted or set the money aside.  As such, money that was initially intended for longer-term investment purposes is prematurely accessed, and oftentimes in down markets, which compounds the problem.  In no way am I trying to downplay declines in account values.  However, not needing to prematurely access those accounts allow them time to recoup when better times arrive.

Creating and sticking with a well thought out budget, along with an emergency or rainy day fund are two of the best things you can do for yourself.  Separately, refinancing a home mortgage (if lower rates can be obtained) is another.  In regards to this, I have spoken with several clients this week who have either refinanced or in the process of refinancing their mortgage.  Almost universally, they are each saving hundreds of dollars a month.  In turbulent times like these, any additional adjustments to your personal financial picture can help.    

Weird News  

You know you are in strange times when unions are hiring non-union demonstrators to picket.  This was actually reported in today’s Wall Street Journal.  Unfortunately, the unions are not alone.  Other advocacy groups are doing the same.  Thus, some of the unemployed are being paid minimum wage to protest various events.  As such, I appreciate the fact that some of the unemployed are earning something to pay for their living expenses, even if it is minimum wage. 

However, the disturbing part of this equation is that some, and in several cases, the majority if not all the demonstrators / protestors have no connection to the organization they are representing.  I find it very unfortunate that some organizations have chosen to create a fall sense of advocacy or passion for their cause. 

Quotes         

“An empty stable stays clean, but there is no income from an empty stable!” 

                         Poverbs 14:4

“Capital is to the progress of society what gas is to a car.”

                        James Truslow Adams, American writer and historian 

“Increased borrowing must be matched by increased ability to repay. Otherwise we aren’t expanding the economy; we’re merely puffing it up.”

                        Henry C. Alexander, famous bank executive 

“Money is a terrible master but an excellent servant.”

                        P.T. Barnum, circus showman 

“Money doesn’t change men, it merely unmasks them. If a man is naturally selfish or arrogant or greedy, the money brings that out, that is all. Money is like an arm or leg-use it or lose it.”

                        Henry Ford, car factory pioneer           

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.

In the financial debacle of late 2008 through spring of 2009, we avoided a depression similar to what occurred in 1932 (i.e., Great Depression).  However, now that we are out of the woods “economically speaking,” are we on track to see an economic relapse like 1938? The following chart is from today’s Wall Street Journal from an article titled, “Why This Isn’t Like 1938 – At Least Not Yet”

Let’s consider the following similarities and differences.  In 1937 the U.S. economy was in a strong recovery.  However, at the time the political powers that be in D.C. took this for granted and enacted various new policies (social security was just one of them) and consumers faced new taxes to pay for them.  In addition, the Federal Reserve raised reserve requirements for banks, which tightened credit and making it much harder for individuals and businesses to obtain credit.  Also during this period the administration took on a very anti-business attitude and imposed a slew of regulation. 

Granted, excessive borrowing, speculation and overindulgence by some individuals, investors and businesses caused the Great Depression, and action was needed to correct these abuses.  However, some of the actions taken (as previously listed above) were not helpful and actually caused the U.S. economy and stock market to collapse. 

For those who may not agree, consider this analogy.  You live in a small village in an emerging country.  You have a load of wood that you are hauling into town to sell, and your mule is pulling is the cart up the final and steepest hill of your trek.  Midway up the hill your mule starts to struggle.  Now what do you do? 

A.      You could stop and let the animal rest, actually grab the reigns  and  help the animal pull the cart up the hill or remove some wood from the cart and make a second trip with a lighter load. 

B.     You add more wood to the cart and begin whipping the poor animal to encourage it to finish the trek. 

In my opinion, option A is similar to lower taxes, offering economic incentives or reducing interest rates to help revive an economy.  However, option B is analogous to raising taxes, increasing regulations and putting policies in place that make it harder for individuals and businesses.  I would consider the second scenario tantamount to animal abuse, because you are punishing an innocent animal, breaking its spirit and possibly inflicting permanent injury.  Then the same can be said for the vast, vast majority of individuals and businesses that will be harmed by all the current actions being considered by our elected officials. 

When anyone advocates punishing businesses or the “wealthy” via higher taxes and more regulation, then be prepared to surrender part of your IRA, 401(k), pension plan, investment or college savings.  You cannot expect to earn reasonable, let alone increasing investment returns when the government is taking a larger share of the profits via higher taxes and putting costly policies or regulations in place.  That being said, does it mean we need no regulation and criminal actions should go unpunished, absolutely not! 

There are several positives that make me believe that we can easily not repeat history. 

• Historically low lending rates. 
• Record levels of cash available for investment. 
• Considerably lower top tax rates (for the higher income brackets) than those of in the 1930s. 
• Incredible technological advances and business innovations. 
• Much more open and freer trading practices. 
• An increasing number of middle class in emerging economies like China, India, Brazil, etc. 
• Hopefully, a return of frugality and common sense based upon the lessons we learned from the excessive borrowing and spending of the past decade. 

Overall, I continue to be cautiously optimistic based upon all that I read and hear.  However, I do get a case of “economic” indigestion based upon the continued mantra for the need of higher income taxes and more government involvement.  Currently, the International Monetary Fund and various European Union leaders are actually taking much more prudent, business-like or capitalistic approaches to solving their economic problems than we are.

I believe that the current investment climate (i.e., stock and bond markets) offers some good values, if U.S. policymakers don’t take what I consider to be a more restrictive policy.  

Think of it this way.  I am that villager in the prior example, and I am facing a “business- friendly” environment.  As such, I may borrow money or bring on investors so I can buy another or several mules and hire workers to load the wood to take into town.  This is economic boon for all involved – more people are employed, more sales resulting in more taxes being paid and profits being shared with the investors.  However, if I am concerned or believe the economic landscape is “hostile” toward my business, then I will not consider any expansion and may actually work the mule even harder to earn the same net income, and as a result I may end up killing it and going out of business.  In this scenario, no more income taxes are being collected by the government. 

As an investor, you need to seriously consider which economic environment you would rather face with your money.  Do we learn from history and take appropriate and reasonable actions as a nation or do we ignore it and let the chips fall where they may? 

Nice rebound! 

Many consider the recent uptick in the U.S. and overseas stock markets a reaction to the overly pessimistic tone that occurred over the last several weeks.  Does this mean it is bull market going forward?  Not necessarily, it just means that the overly pessimistic tone lead to some bargain hunters nibbling at stocks.  As a matter of fact, corporate insiders increased their buying last week.  The coming earnings releases for the second quarter and companies’ outlooks for the remainder of this year will be the deciding factor for what the market does in the near term.  I believe that there are enough negative opinions regarding the global stock markets and economies, that a roaring bull market is not in the cards.  At best, I think we may see a very gradual recovery with starts and stops along the way. 

Quotes 

“It takes two seconds to tell the truth and it costs nothing. A lie takes time and it costs everything.”

                        Randi Rhodes, talk show host 

“The stupid neither forgive nor forget; the naive forgive and forget; the wise forgive but do not forget.”

                       Thomas Szasz, psychiatrist and academic 

“There is a growing sentiment in America that regular saving should be ignored-that the government will take care of people and give them security when they get beyond a certain age or become old and unable to work, but it must be borne in mind that the people who earn and do save, take care of the government! Were it not for the thrifty and the willing workers, the government would be in a bad way.” 

                      George Mathews Adams, newspaper columnist 

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.

I am aware that not everyone is in a position to refinance their mortgage.  However, if you have an outstanding mortgage of over $100,000, a rate over 5.25%, and you don’t plan on moving in the next several years; then you may want to consider refinancing. 

Consider the following refinance example: 

Current            Five years ago someone obtained a $200,000 30-year mortgage at 5.75%.  The monthly payment (excluding taxes and insurance) is $1,167 (approximately $890 is interest) and an outstanding principal balance of $185,524. 

Refinance        The same individual is able to refinance and obtain a new 30-year mortgage at 4.25%.  For this example assume closing costs of $2,200.  The new mortgage balance is $187,724 ($185,524 + $2,200), and the new monthly payment (excluding taxes and insurance) $923 (approximately $665 is interest).  This is savings of $225/month or approximately $2,700/year from lower interest payments.  The savings would pay for your closing costs in approximately 10 months. 

If you applied the extra savings to your mortgage payment, your home would be paid off in 19.90 years (i.e. 5.1 years or 61 months sooner).   The resulting savings from not having to make 61 monthly payments of $1,167 is $71,187 or $3,577/year over the life of the new mortgage. 

The following are the links you can use to do the same calculation for yourself or feel free to contact us and we can assist you. 

http://finance.yahoo.com/calculator/family-home/hom03 

http://finance.yahoo.com/calculator/loans/det02 

IIA nor any of its staff are mortgage professionals; however, we do believe that some of you may benefit from this analysis. 

Losing faith 

Former Fed Reserve Chairman Alan Greenspan stated on CNBC today that the recent stock market decline is “typical” of a recovery and international instability is more a contributor to the decline than problems here at home.  Mr. Greenspan believes that this is a “typical” pause in an economic recovery.  That being said, in past recoveries small businesses do most of the hiring and start to pull the economy out of a recession.  Currently though, small businesses are having a hard time getting loans because smaller banks aren’t lending since they are loaded up with struggling commercial loans. 

Historically, the average American and investment professional are overall optimistic.  Along this line, capitalists and optimists, not pessimists, created the iPhone, air conditioning, MRI machines, jet airliners, and many other items we take for granted today.  Even the Internet, which most businesses and many of us can’t live without, came to be the incredible tool it is today from private investment.  If not for healthy competition, we would not have these luxuries today. 

Nonetheless, there has been a constant drum beat over the last year or two that capitalism and businesses are bad and greedy.  On the other hand, there is an unprecedented dim view of politicians in both parties, and the policies they are promoting.  Let’s be honest, capitalism is not inherently evil, but I will admit there are some evil or misguided capitalists that played a part in our economic problems.  However, that statement does not carry the same weight when applied to the troubles in Europe.  That is a case where lavish governmental programs and benefits far exceeded the respective citizenry’s ability to pay for them.  As these European leaders have discovered, you cannot government-spend your way to prosperity.  Seriously, they are rioting in the streets because the retirement age is being raised from 60 to 62. 

Here in the U.S. I hear various leaders make speeches or statements that I know are patently not true or an incredible stretch, at the very least.  Many of you have voiced the same concern – a loss of faith.  Recently, foreign leaders from the G-20 conference have chastised U.S. leadership for prodding them to maintain or even increase “stimulus” spending.   These foreign leaders realize just like you and I, you can’t spend your way out of a financial problem.  In the same vein, businesses large and small realize that the current economic landscape was improving, but potentially higher taxes and regulations are affecting their outlook. 

I can’t say it enough – the stock market responds negatively to uncertainty.  This is because uncertainty causes businesses to change their practices.  Instead of expanding and hiring more workers and going after market share, many businesses, large and small pull in their horns (i.e. cutback).  Many entrepreneurs, private equity, institutional, and regular investors react similarly.  If they see an extremely uncertain, or in some cases hostile, business environment, (which some have voiced in the Wall Street Journal and other publications and media outlets) then they decide they don’t want to play by what they consider unfair or onerous rules and take their ball (i.e. capital / money) and go elsewhere until they see better conditions.  Wall Street is voicing its displeasure on how our economy is being handled, and at some point, those in charge of policy will be forced to listen or voted out. 

I hope my comments do not offend anyone; however, I would rather say what I believe needs to be said versus being politically correct.  The U.S. economy and stock market should be seeing continued improvement, with temporary setbacks along the way.  Yet, if you want to know why there is so much pessimism about the economy, the stock market and portfolio values are down, then it is my job to explain the macro (big picture) events taking place that have a direct impact on your investments and lifestyles. 

The average American, along with investors and business leaders, is frustrated and that frustration will not be alleviated until we see some straight-talk and true leadership from our elected leaders (from all parties).  The current negative malaise over the economy and stock market is resulting in good, long-term fund managers showing negative, short-term returns.  Nevertheless, I trust anyone of the mutual fund managers we’re currently using for your and my personal accounts to do what is in our best interest than the vast, vast majority of our current political leaders (in both parties) and their policies.  I believe that this market downturn is not permanent and will result in citizens getting increasingly upset, which at some point will result in U.S. policy being altered for the better via modest tax increases, more aggressive spending cuts, fiscal prudence and growth-oriented policies.  Unfortunately, these changes won’t occur in the next 30, 60 or 90 days, but in the months and in the years ahead. 

In the meantime, we have choices to make.  We can decide to just give up and throw in the towel, or stand by and have faith in the investment strategies we’ve implemented.  Remember, a fund’s successful, long-term track record is not reflected in its daily share price, nor does it represent the fund manager’s underlying strategies or tactical moves in the midst of a downturns (i.e., loading up on bargain share prices).  Patience or panic will prevail; it just depends on which you choose. 

Bonds Versus Stocks – What Do The Experts Say? 

Bill Gross of Pimco Funds Group is considered the “bond king” by his peers based upon his stellar, long-term track record.  Ironically, the king recently announced in an InvestmentNews June 27, 2010 article that he and others fund managers in his firm believe stocks are a better long-term investment compared to bonds.  Why is this important statement?  Because when it comes to bond managers, Mr. Gross is the equivalent of Warren Buffett. 

Mr. Gross believes the decades long bond rally will come to an end as nations sell record amounts of debt to fund their deficits, spurring a return of inflation and rising interest rates.  He believes at some point U.S. Treasury returns will fall, and investors will have to look elsewhere and take more risk with high-yield bonds, equities and eventually real estate.

Mr. Gross stated, “If you’re talking about the next 10, 15, 20 years, there’s certainly the recognition that assets will grow faster in those categories,” he said.  “Over the long term, stocks return more than bonds when appropriately priced at the beginning of an investment period.” 

When factoring in these comments, which do you believe will offer better long-term results for your money? 

• Residential mortgage securities backed by the U.S. government currently yielding around 4.0% to 4.25% as noted above.   Knowing that interest rates will go up at some point.
• Or, a diversified investment mix of bonds (government, corporate and convertible), stocks (U.S., international, dividend paying and preferred), real estate, precious metals, commodities, etc. 

When the bond/investment experts at Pimco Fund Group begin offering stock funds and inform their clients that stocks may be a better performing and income-producing option for their money in the years ahead, then it is important to listen.  We have to break out of the mindset that bonds = safety and income versus stocks = risk and loss of money. 

We continue to monitor all holdings and client accounts and will make any changes we deem necessary.  If you are concerned, want an update on your portfolio or have questions, please don’t hesitate to call and Sally will schedule a face-to-face or online meeting.  

 Deserved recognition 

It was refreshing to read this week’s InvestmentNews and see investment professionals and fund managers from five of our clients’ top holdings being recognized for their accomplishments. 

Jean-Marie Eveillard received InvestmentNew’s Lifetime Achievement Award for his excellent track record at First Eagle Funds.  Mr. Eveillard is senior vice president of First Eagle Investment Management, but prior to that he was the lead manager on First Eagle Overseas (SGOIX, SGOVX) and First Eagle Global (SGIIX, SGENX). 

Investment advisors voted the following fund managers as the most influential based on the following criteria:  knowledge of their industry sector; a clearly articulated strategy for managing assets that they’ve adhered to over time; and consistent outperformance of their peers. 

Bruce Berkowitz, manager of the Fairholme Fund (FAIRX)

Bill Gross of Pimco, manager of the Pimco Total Return Fund (PTTRX, PTTDX)

Michael Hasenstab, manager of the Templeton Global Bond Fund (TGBAX, TPINX) 

Quotes 

“No man can think clearly when his fists are clenched.”

                      George Jean Nathan, editor and critic 

“Instead of waiting for your ship to come in, grab two oars and row out to it.”

                        Vance Harver, minister 

“The only way to deal with fear is to confront it directly – to stop and look at it.  Then you can make it go away.  Otherwise, you spend your life running from it, and fears always runs at least as fast as you.” 

                     Carl Hammerschlag, M.D., author and speaker 

Happy 4^th of July Weekend! 

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.

I, (Toan Nguyen Director of Operations for IIA) being 28 years old, can’t say that I’ve put much thought into nursing home or assisted living facilities, and prior to last year I had never even been inside either.  I never knew how much research it takes or what all was involved in selecting a suitable home, until I had to do it for my wife’s grandmother.  During this experience, I learned that there is more to choosing a care facility than a nice building and well manicured landscaping.  I wanted to share my experience and help provide a starting point in case you would ever find yourself in a similar situation. 

After a fall left my wife’s 83 year-old grandmother (let’s call her Anne) with a broken hip, we remodeled our basement to be handicap friendly for her to move into as she recovered.  The intention was for her to eventually move back into her own home. Since Anne was from out of town and my in-laws live out of state, we thought this would be a great solution to have her stay with us until she healed and save her some money at the same time.   We also thought it would be beneficial for her to be around family and have more personal interaction than what she would have received in a care facility.  Luckily, my wife wasn’t working while completing her graduate degree and would be able devote time to taking care of Anne. 

Subsequent to moving Anne into our home, we began to realize that Anne’s senior dementia had progressed further that we originally believed.  It seems as though every time we visited Anne at her home (before the accident); it was always on a “good day.”  The longer she stayed with us, the more it appeared that the bad days outnumbered the good.  She was constantly in a state of confusion and paranoia.  For example, she was continuously suspicious of people coming into her bedroom to steal money out of her purse.  But in reality she didn’t have any money because she only left the house with us and didn’t need to buy anything.  She was also prone to extraordinary delusions.  Anne would also constantly forget that she was staying with us and thought she was in a hotel.  She would regularly criticize the food and how terrible the help was.  I found it a little humorous; however, my wife did not. 

After a few months, we began to realize we would not be able to provide her with the level of care she needed with all her special requirements.  We initially thought that she only needed help with activities specifically relating to her hip, but it turned out that with her dementia she was beyond our care level.  Our hearts were in the right place, but we were not properly trained to treat and deal with all of her symptoms.  We saw that we needed to find her a facility with staff trained specifically to deal with senior dementia patients.  Daily errands became increasingly more difficult because my wife and I were not able to both leave our house at the same time.  We were not comfortable leaving Anne alone for any longer than an hour for fear that she would become confused and delusional.  It almost came down to the point where there would have to be someone there with her at all times.  In our daily routine my wife would stay with Anne during the day and wait to run errands until I got home from work.  As much as we love Anne, it began to feel like we were trapped in our own house. 

Reluctantly, we temporarily moved her back to the nursing home where she stayed while recovering from her knee injury.  We felt that by moving her to a place she was familiar with, it would give us the time we needed to find her suitable facility closer to us.  That being said, this facility was much more than she needed and even though she had the means, it was quite more expensive compared to other facilities and lacked any social interaction among the residents. 

When we started looking for a facility for Anne, we really didn’t know where to begin.  All we knew was that she needed a facility that specialized in senior dementia patients.  We began our search as most people would; through the internet.   The first website we found was the local agency for senior citizens; Johnson County Human Services.  Their website; http://hsa.jocogov.org/aging/aging.shtml was very helpful, they had information on housing, nutrition, senior activities and other resources that are available.  Another helpful website we found was the Medicare Nursing Home Comparison page:  http://www.medicare.gov/NHCompare.  There, you can search Medicare rated facilities by name, city, state and distance.  You are also able to sort facilities by ratings and view any deficiencies a facility may have.  If a facility is self-pay and not Medicare rated, then it is overseen by the state in which it is located.  Several of the facilities we visited were self-pay and overseen by the state of Kansas (KS).  The state of KS does not rate facilities; instead it only lists deficiencies, which later proved difficult when trying to compare Medicare ratings to KS reviews. 

An important step in finding a suitable home is deciding the level of care you need, the level of care varies depending on the type of facility.  Facilities range from retirement communities; where seniors live in their own apartments and generally do not receive any specialized or medical care, to nursing homes; where residents are monitored 24 hours a day and are under the care of trained medical staff.  Assisted living centers are somewhere in between retirement communities and nursing homes.  Assisted living centers generally allow you to pay according to the level of care you need. Available amenities can include prepared meals & snacks, laundry services, entertainment, medication monitoring, transportation, and other daily living activities such as bathing, changing clothes, etc.  Another difference is the amount of medically trained staff on site.  In nursing homes a medical staff is on duty 24 hours a day, typically in assisted living centers there are usually nurses and CNAs (certified nursing assistants) on duty during business hours during the week and on call on weekends and afterhours.  Anne’s needs were between a nursing home and an assisted living center due to her facture, macular degeneration, and dementia. 

While looking for care facilities, we found that there were several facilities that specialized in treating specific residents.  For example, we toured a nursing home that specialized in senior dementia and the sight challenged.   While this facility was properly trained to address Anne’s needs, the building and the living conditions were not a good fit.  This facility was given 4 and 5 star ratings by Medicare in several different categories, however the building was a run down and she would have had to have a roommate.  The only available room was with a resident that would cry for help non-stop even when the staff was right next to her.  The staff would get her what she wanted and turn their back and this woman would begin screaming at the top of her lungs again.  Needless to say, we left there as soon as we possibly could. 

Another facility we toured was a private-pay assisted living center.  This place was immaculate and could be easily mistaken for a high end hotel.  Their facility was gorgeous and everyone was very friendly; however, it did not fit our needs.  This facility did not have the level of care that Anne needed.  This assisted living center was geared more towards residents that were more mobile and able to take care of themselves.  Most of the residents we spoke to were there mainly for senior companionship and not for care.  Another issue we had was that this facility was multilevel and had a big, unattended staircase.  Even though this center had many elevators, we were not comfortable because we thought Anne might forget her current condition and try to take the stairs.   This facility was also an “open facility” that allowed residents to come and go as they pleased.  We needed a “locked facility” that prevented residents from mistakenly walking out.  There was never a concern that Anne would purposely attempt to leave, but she might get confused on a “bad day” with her senior dementia.  We also feared that in the less regimented atmosphere, she would be forgotten about at meal times and would not have enough people checking in on her throughout the day. 

Despite the fact that the second facility we toured was self-pay and not rated by Medicare, we were able to obtain their most recent State of Kansas Review.  I cannot stress enough the importance of reviewing deficiency findings.  This particular facility was cited for having four incidents of the same resident falling within a one-month period.  We also found issues with the facility not reporting sores found and seizures suffered to resident’s families or doctors.  Facilities that are state regulated are required to provide you with their most current review.  If you are looking at a state regulated facility, ask for a copy to review.  Medicare regulated facilities are given star ratings for different criteria along with their deficiency findings.  The different criteria are: health Inspections, nursing home staffing, and quality measures and are also given an overall star rating.   It is important that you do your due diligence and review any deficiency findings and see how they were addressed prior to even considering a care facility.   It’s just like when looking to buy a house or used car, you have to make sure you kick the tires and see what’s under the hood.  Just because a facility may look great from the outside, it doesn’t mean you’ll get the type of care you’d expect.   Conversely, a facility may not have the best amenities, but they may have the level of care you need. 

In our search, we ended up touring seven different facilities and were able to find one that had the amenities that Anne liked, was able to provide her with the level of care she needed and was deficiency free in their last three annual reviews.  The facility we chose is an assisted living center that has more care available than the standard assisted living center.  She has her own apartment that was unfurnished, but she has her own bathroom, mini kitchen and a small living room.  She has three prepared meals a day, daily activities, medication monitoring and help with daily living activities.  We were also able to bring her belongings from her home to furnish it and she is settling in very nicely. 

In the end, we moved Anne from the temporary nursing home that was approximately $6,200/month, to an assisted living facility which is $3,200/month.  Yes, it is nice to save Anne, $3,000/month, but more importantly she is in a facility that that is much closer to our home, provides her the specific level of care she needs and she receives much more social interaction. 

Finding a suitable care facility can be a long and sometimes frustrating process, but if you look hard enough, you’ll be able to find the one that best fits your needs.  You have to make sure you do your part and do the research and use as many resources available to you as you can.  Moving family to a care facility is never easy, but once you find a place that you know can take care of them, you’ll know that they’ll be safe and well cared for. 

Economic and market related comments from someone with a truly global perspective and stellar track record 

Michael Hasenstab is one of the top global bond mutual fund managers, and attached is a link to 2:44 minute interview with Mr. Hasenstab that took place this morning on CNBC.  I believe the information provided in this interview is extremely enlightening for investors who want to know what is occurring globally and how it relates to their investments. 

Before viewing this video, let me give you a little background on Mr. Hasenstab and why you should put some credence in his comments.  He has a PhD in economics, has extensive international travel and business experience, he oversees management of over $80 billion within the Franklin-Templeton Fund Group, and his Templeton Global Bond Fund has been ranked in the top 12% (one –year), 4% (three-year), 1% (five-year) and 1% (ten-year) of funds within its category for the period ending 6/24/2010.  Separately, this fund is the top sixth holding (excluding money market funds) for all combined clients with IIA. 

Please take the time to view the following video. 

http://www.cnbc.com/id/15840232?play=1&video=1530063749               

 Performance reporting improvements           

In our ongoing attempt to better our service to our clients, we will be changing our reporting format for your mid-year performance reports.  Instead of receiving a full set of performance reports (Portfolio Report, Family Summary, and Merged Account Summary) in July, you will receive a Family Summary Report and Merged Account Summary.  If you only have one account with us, you will receive an Account Summary report.  After listening to feedback from clients, we have found that the additional reporting mid-year was excessive.  However, you will still receive full year-end reporting in January.  If you have any questions regarding our streamlined reporting, please do not hesitate to give us a call at 913-897-2074. 

Toan Nguyen, Director of Operations
Integrity Investment Advisors
12721 Metcalf, #202
Overland Park, KS 66213
tnguyen@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.

http://online.wsj.com/article/SB10001424052748704198004575310962247772540.html?mod=ITP_opinion_0 

Anger is not always bad 

CEO and founder of Minyanville.com (an Emmy award winning website that provides an entertaining and educational look at the world of business, money and the financial markets), Todd Harrison has some interesting comments regarding the stock market and current events.  I believe his commentary is rather interesting and really not politically motivated.  Bottom line, he sees a lot of potential for the U.S. and global economies, if the current negative moods and anger being expressed are positively channeled into solutions.  I agree that it is much better to see problems and do something to solve them, than do nothing but grumble.  The following is a link to his commentary. 

http://finance.yahoo.com/tech-ticker/%22there-are-a-lot-of-reasons-to-be-angry%22-says-todd-harrison-05754.html?tickers=dis,txn,hpq,bp,GS,%5Edji,%5Egspc&sec=topStories&pos=9&asset=&ccode= 

Update from Toan Nguyen (Director of Operations) 

Based upon client feedback, we are changing our reporting format.  Our goal is to provide you the information you desire, without overwhelming you with what may be considered unnecessary reports.

Currently, we are sending out expansive performance reports semi-annually.  We are changing our format to provide a performance summary in July and full year-end performance reporting and summaries in January.  These reports are separate of the investment / portfolio analysis we provide via Morningstar®. 

In addition, we are moving to a more proactive client communication strategy that uses our new client meeting scheduling calendar.  This helps ensure that we meet and communicate with you (our clients) as often as necessary.  With more concise performance reporting and expanded investment analysis from Morningstar®, we hope to better communicate how our investment strategies are designed for your specific financial goals and objectives.   More details regarding reporting and what you can expect will be provided in future commentaries.

Quotes 

The following quotes from Thomas Jefferson are quite insightful:

“It is incumbent on every generation to pay its own debts as it goes.  A principle which if acted on would save one-half the wars of the world.” 

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not. 

Thomas Jefferson said in 1802:
“I believe that banking institutions are more dangerous to our liberties than standing armies.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered.”

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. 

This morning stocks started off on a down note due to lower retail sales, which is a major component of the U.S. economy.  However, they reversed course once the Reuters/University of Michigan consumer sentiment numbers were released and showed that consumer confidence grew to its highest level since January 2008.  However, they are on course to end somewhat down today. 

It is my opinion that the stock market is vacillating hourly based upon each nugget of economic or political news released.  As I have mentioned in past commentaries, this is like the weather here in Kansas City.  The morning starts out sunny, it is pouring rain by noon and you have clear skies by the end of the day.  Believe me, you can be rolling dice when you plan a picnic or outdoor event.  However, we know that there are four seasons and what the normal weather patterns are during those seasons.  

Along these lines, I believe the huge swings in the stock market are the result of some large institutional and hedge fund traders, and not long-term investors.   These short-term swings for the most part either induce fear or greed, but have no true meaning as to the actual long-term trends for the stock market or economy.   As such, I am including some items that may have long-term implications for the stock market and economy in the following paragraphs. 

 Where are oil prices headed long-term?  

Earlier this week, former Shell Oil President John Hofmeister appeared on Yahoo’s Tech Ticker and the following are some of his thoughts as it relates to future oil prices. 

“If global demand is going to rise and we’re not going to see any increase in conventional oil (easy to obtain), and the unconventional oil (tougher to extract) which will come along behind it to supply world demand, it’s only going to be more costly.” 

Mr. Hofmeister predicted that, if the world economy recovers at all, oil will surpass $100 a barrel either by the end of this year or during the first half of 2011.  Also, he foresees oil prices staying above $100 a barrel and possibly climbing until an alternative source of energy begins to replace liquid fuel. 

He believes that the production of easily obtainable or conventional oil may peak in the next 5 to 10 years, but there is plenty of hard to obtain and much more costly unconventional oil to offset this loss.  However, we must be prepared for much higher costs in obtaining this unconventional oil. 

Since his retirement, Hofmeister wrote a book titled “Why We Hate the Oil Companies: Straight Talk from an Energy Insider.”  In the book, he points the finger at the energy industry, special interest groups and the federal government regarding who’s to blame for high energy prices and the nation’s unsustainable reliance on oil. 

Oil is a necessity for the U.S. and all nations around the globe and prices almost assuredly will go higher in the years to come.  This is why I have added natural resource mutual funds to client accounts and many managers of diversified stock funds are or will be considering oil companies for their portfolios. 

Things to consider 

Bob Doll, chief equity strategist for Blackrock and manages over $350 billion, stated this week that he believes that the stock market could rebound nicely from its current level by year-end.  This belief is based upon the following: 

• Stock valuations are cheap, and investors are very underweighted in stocks. 
• Investor sentiment is very negative, which is often a great contrarian indicator (i.e., a positive for bullish investors). 
• Interest rates are at historic lows and there is a lot of money on the sidelines. 
• The global economy is recovering and corporate earnings will continue to trend higher. 

If you would like to hear more of his comments, please click on the following link: 

http://finance.yahoo.com/tech-ticker/sp-500-going-back-to-1250-it%27s-a-great-time-to-buy-stocks-bob-doll-says-502095.html?tickers=%5Eixic,%5Egspc,%5Edji,spy,blk,qqqq,iwn 

In addition to Mr. Doll’s comments, the Kansas City Star reported today that a recent survey by KPMG, LLP (an international CPA firm) noted that KC area leaders expect profits to rise this year compared to 2009.  Overall the business leaders interviewed believe 2010 is an economic turning point and profits will improve. 

Also, yesterday I spoke with an area bank professional who noted that he recently met with private equity investors from the east coast looking for businesses / companies to purchase.  Based upon his interaction with them and local private equity investors, he believes there is a huge amount of money in private equity funds looking for investment opportunities.  Similarly, the Wall Street Journal reported today that U.S. corporations have a record amount of cash on hand, which is something I have noted in a prior commentary.  There is still a tremendous amount of cash waiting to be put to work, which can fuel long-term economic growth, jobs, profits, etc.  Unfortunately, much of this money will not be invested until these investors / managers have a much better read on what the political and economic lay of the land will be in the U.S. and Europe. 

As soon as we see some clarity of what lies ahead, especially as it relates to regulatory and tax policies, then these investors / managers can take what they consider strategic long-term investments.  As the ole saying goes, “waiting is the hardest part.”

Quotes 

“The best preparation for work is not thinking about work, talking about work, or studying for work: It is work.”

                        William Weld, statesman and attorney 

“As one goes through life one learns that if you don’t paddle your own canoe, you don’t move. 

                        Katharine Hepburn, actress 

“It doesn’t matter what you are trying to accomplish.  It’s all a matter of discipline.”

                        Wilma Rudolph, Olympic gold medalist 

“A person should be like a watch – open-faced, busy hands, well-regulated, and full of good works.”

                        Roy B. Zuck, religious author 

“Whenever you make a choice, ask yourself two questions: ‘What are the consequences of this choice?’ and ‘Will this choice bring happiness to me and to those who are affected by this choice?’”

                        Deepak Chopra, 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.

Closer to home, I received some conflicting economic news.  I had a conversation last night with a local business owner whose may be shutting down.   Then this morning, my office manager tells me about a local electronics manufacturing company that does work for companies across the U.S.  This particular company is seeing signs of improvement; however, when they go to bid on particular projects, some of the components needed are no longer readily available.  The suppliers have gone through their inventory, and it can be up to a six-month wait for new components.  It’s a double edge sword in that you’ve have the potential for new orders; however, they can’t be completed for many months out because the components are backordered.  Thus, any profits for this local company are now being pushed out for many months (i.e., a sale that normally would have been completed in 30 days is now taking six months or longer).  Thus, the economic recovery is being delayed due to manufacturing backlogs or bottlenecks, and many of these manufacturers are holding off hiring new employees until they feel more certain that the flow of new orders is sustainable and not just a short-term spike. 

In spite of this disappointing employment report and economic problems in Europe, there is some good news. 

• Caterpillar announced this week that it was buying locomotive maker Electro-Motive Diesel.  Essentially, Caterpillar is betting that freight transportation will grow as the economy strengthens.  
• I read two separate articles in yesterday’s Wall Street Journal that illustrated examples of various businesses in the U.S. and Germany that both are experiencing strong orders from various regions of the globe.  In each instance exports (i.e., sales to overseas entities) seemed to be the driver for much of the new orders. 
• Also, Bob Doll, vice chairman and chief equity officer at Blackrock (a large international money management firm) noted in the May 31, 2010 Barron’s Magazine that the recent market volatility has created some attractive valuations that could spur buying once the European debt crisis subsides.  In addition, he still sees the S&P 500 ending the year at 1250, which is approximately 13.34% higher than where it closed last night.  He believes that good corporate earnings will fuel the further rise in stock prices this year, but currently there are other prominent diversions drawing our attention away from this. 

It’s tough medicine to swallow, but you may feel better in the years to come! 

Some nuggets to take away from all the plethora of economic and market news items are: 

• European countries are taking steps to cut spending and get their economic houses in order.
• Across the globe, China has recently put measures in place to cool its overheating housing market. 

These are painful scenarios in the short-term, and we see their respective stock markets decline as a result.  However, it sets the stage for much more stable economies and strong stock markets in the years to come.  Some analysts believe that U.S. political leaders need to find the intestinal fortitude and cut spending, prudently review any tax increases and focus on policies that promote economic growth.  Unfortunately, these same analysts fear that most politicians are too worried about their electability in the short-term to actually implement hard choices now. 

I believe the recent market volatility can shake investor and consumer confidence, and also create bargain hunting opportunities.  Profits avail themselves to those investors whom show patience and/or even make strategic purchases in the midst of this market volatility.  Honestly, I’ve had only two phone calls from clients regarding the recent market decline.  I hope that it is a result of them realizing that a one-month dip is not unreasonable when the stock and bond markets have had a tremendous rebound from their lows of 2009.  Long-term economic recoveries and bull markets are built upon steady advances mixed in with occasional setbacks, whereas bubbles are the result of overly optimistic upward movements with little to no setbacks.  I would rather have the former versus the later. 

The pickup truck indicator 

CNBC reported today that pickup truck sales were up 50 percent year-over-year.  For many investors, they may not care unless they own an auto stock.  However, that’s a huge sign of strength for American small businesses, according to AutoNation Chairman and CEO Mike Jackson. 

“Pickup trucks are bought by small business entrepreneurs who have their finger on the pulse of the US economy…It’s an expression of confidence in future of economy.  They don’t buy until they see the prospects for business are brighter,” Jackson stated on CNBC Squawk Box. 

It’s worth noting that these sales have no impact from government stimulus “Cash-for-Clunkers” money, and some of the hardest hit areas of the country are also seeing outsized gains in sales.  Auto sales in Florida, for instance, jumped 38 percent, while those is California climbed 24 percent. 

Any uptick or pickup in small business is a great sign for the economy and investors! 

Points to Ponder 

“We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend … Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.”

                    Warren Buffett, The Wall Street Journal, March 1, 2010 

“We’re in the early stages of a long-term recovery in global M&A volume. Historically, you see that the upcycles last five to eight years, and the downcycles typically two to three years. We have just come through more than a two-year down cycle, and it is clear to me that we have turned the corner.”

                    Roger Altman, Barron’s, February 8, 2010 

 Quotes 

“You must have long-range goals to keep you from being frustrated by short-term failures.” 

                    Charles C. Noble, naturalist 

“In a few minutes a computer can make a mistake so great that it would take many men many months to equal it.”

                     Merle L. Meacham, professor of psychology 

“There is nothing wrong with making mistakes. Just don’t respond with encores.”                                                    

                     Author unknown 

“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”                       

                    Mark Twain, 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.

Economically, we are seeing improvements in the U.S.  The recessionary clouds are gone and the sun is shining; however, the worries are that problems overseas could bring the bad economic storm clouds back to the U.S. 

It may be a global financial system, but some members are going to need to get their financial houses in order 

Unfortunately, the stock market is trending down today due to a ratings downgrade of Spain’s (government) debt.  This is not a surprise.  Just this week, the International Monetary Fund (IMF) issued a blunt warning to Spain that it needed a “radical overhaul” its labor laws and a “bold” reform of its government pension system. 

Along these lines, many analysts believe that at some point Greece will need to restructure their government debt.  Restructuring means either defaulting on your debt or only payback a portion (i.e., maybe 30 –  50 cents).  This is something that has occurred in the past in other countries.  The stark reality is that the changes taking place in Europe will play out over many months.  The European model of generous benefits is going to be trimmed back dramatically and each country’s respective citizens will realize that like it or not, they will be more and more responsible for their well being. 

Actually, as painful as this cultural change will be, it is good in the long run.  Basically, citizens will find that the training wheels are being taken off their personal financial lives and they will need to learn how to ride without them.  That being said, this may result in individuals becoming much more creative and assertive in bettering themselves financially. 

Just this week, U.S. Treasury Secretary Timothy Geithner was in Europe advising many of foreign counterparts on what actions they need to take to stem their financial problems.  Unfortunately, there are critics that believe that some of Mr. Geithner’s advice will actually cause more problems going forward.  These critics believe that repeated bailouts will only make the problem worse and providing more financing to heavily indebted countries like Greece won’t succeed. 

The current situation in Europe and actions being taken is causing a crisis in confidence as it relates to the global financial system.  The system works when all or the vast majority of parties live within their means (i.e. budgets) and are able to cover their obligations.  Unfortunately, the system breaks down when various members (i.e., countries) don’t spend responsibility and are reluctant to take the hard measures to correct their problems. 

The economic equation is simple:  global economic confidence = stable and increased lending between banks and countries = economic growth = increased jobs = higher corporate profits = investment gains.  If you take out global economic confidence, then the rest of the equation starts to suffer. 

Counter to all this negative news is the announcement this week that the Organization for Economic Cooperation and Development (OECD) raised its forecast for global economic growth this year and next.  The report sighted extremely strong, possibly overheating, growth in Asia, decent growth in the U.S., but Europe lagging. 

Market volatility can equal opportunity? 

I cannot tell you what direction the stock market will take tomorrow, let alone next week.  However, I can tell you that many institutional fund managers are scrutinizing their holdings.  I have spoken with several mutual fund representatives or read their respective manager’s commentaries regarding the opportunity they’ve seen in the recent market volatility.  Some of these managers keep their eyes open for specific price breaks on a particular stock or bond.  For example, they may believe that XYZ stock or bond offers great long-term potential, but won’t buy it unless it hits a price they believe is a bargain.  As such, market drops allow them to nibble at / buy new shares and gradually build a position in that security. 

I believe that investing is a lot like shopping.  You may like a particular car or item of clothing; however, you wait for it to go on sale before you buy it.  For many mutual fund managers, they actually take advantage of market declines to slowly build what they consider sizeable and profitable long-term positions in particular securities.  Trust me, if you are a sales person, you would not want them as a client.  They may visit your store every day over a nine-month period; however, they don’t buy that particular designer suit until it’s marked down 50%. 

Consumers are showing signs of life 

Costco Wholesale Corp. reported a big jump in earnings this week.  The company’s CEO, Richard Galanti, stated the following in a conference call with analysts, “people were frugal last year and some of them are tired of being frugal, and they’re buying things for the home.”  I believe that many consumers caught “Spring Fever” over the last several months and are spending money after being reluctant to do so during the recession. 

Also, from articles I read on several publications, it appears that the U.S. consumer is striking a fine balance between spending and saving.  Unfortunately, a good portion of this savings is due to lower debt payments due to defaults.  Money is freed up since the consumer has defaulted on a credit card, car or home loans.  Banks will continue to struggle from losses from souring loans.  However, this type of purge is needed for the economy to truly recover.

Quotes 

“Investors who seek funds in which managers are willing to invest their own money seem to significantly tilt the odds in their favor. The correlation is absolute and significant. Among equity funds, the correlation of better returns is stronger with manager ownership than it is with low costs.”

Don Phillips, Morningstar Advisor, February 18, 2010 

“U.S. consumers are shedding debt at the fastest rate in more than six decades, largely through a wave of defaults, in a trend that underscores the depth of their financial troubles but could also help clear the way for a stronger economic recovery.” 

Mark Whitehouse, The Wall Street Journal, March 12, 2010 

“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

John Templeton, Legendary mutual fund manager 

A salute to all veterans this Memorial Day Weekend!  

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.

Offsetting some the recent market downturn is the following good news: 

• Inflation is at a 44-year low, is still benign and not currently a threat.  
• Dell and Fortune Brands issued positive earnings reports yesterday.  Dell noted that companies are buying computers and Fortune Brands maker of faucets, windows, cabinets is seeing some rebound in home improvement items. 

Amazingly, up until approximately three weeks ago, you could have thrown any bad news at the stock market and it would shrug it off and continue to climb.  This month, most good news is being ignored. 

What we may see coming out of all this recent market volatility is a test of wills.  How will investors react?  Will there be an overreaction like what occurred in late fall of 2008 through the beginning March of 2009?  Or, will investors sit tight and ride it out and even look for buying opportunities? 

Are there challenges and opportunities ahead for Europeans and Americans?  Yes, but there always have been.  However, institutions and individuals around the world are now realizing and voicing their opinion that some countries have overspent and are having a tough time paying back their debt, and in some cases may not be able to.  This situation is causing economic pain to all involved (i.e., foreign government currencies, their citizens and investors).  

That being said; just ask yourself, will McDonalds, Wal-Mart, Sony, GE, Bank America, Nestle, Garmin, Honda, Apple, Intel, Prudential and Berkshire Hathaway all cease to exist?  No!  The real question is how will investors react?  The upcoming days, weeks, months and years for investors may be a test of wills.  Will they or won’t they panic, find investment opportunities, ride it out or throw in the towel? 

I am not downplaying the decline we’ve seen in our client and our personal portfolios.  However, I am choosing to take the stance that a market correction of 10% – 20% should not be shocker.  Also, the majority of our clients are not anywhere near invested 100% in stocks.  Thus, their accounts will not experience the same volatility as we’ve seen in the market. 

Many U.S. corporations, businesses and Americans learned from this past recession and have become much more prudent with their finances.  The real silver lining to this recent market volatility will be if political leaders in the U.S. and in other countries get a wakeup call.  If they realize that if they don’t take the current events seriously, then their currencies, economies, domestic businesses and citizens will suffer for many years to come.  If they do respond to this “wakeup call,” then the political leaders will begin to implement policies that will reduce spending and allow their economies to grow, which will actually increase taxes paid over the long run. 

Investors are drawn to predictability and stability, and that is something that may be in short supply in the short-term.  However, our investment strategies are not predicated on what may occur over the next several days, weeks or months, but over the next several years.  Thus, I do not see the recent market correction or headlines as a game changer, but just part of the normal ebb and flows of the market and economic cycles. 

Outside of an act of God, I can assure you McDonalds and all the other companies I mentioned previously will all be open for business, and the sun will again rise in the east and set in the west.  We just may experience a period of stormy market and economic conditions before we see truly sunnier days.  If we learned anything from the last bear market, it was patience = profits and panic = losses. 

Twisting the tale 

The U.S. Labor Department this week issued two separate reports on the unemployment situation in the United States.  Ironically, if you read the following two articles (see links below); you’ll see two completely different outlooks for employment and the impact on the U.S. economy.  This is just an example of how you take similar data and give very different observations or opinions on it: 

http://news.yahoo.com/s/ap/20100520/ap_on_bi_go_ec_fi/us_economy;_ylt=A0Kjq7Jlx_ZLBBIATG8PxQt.;_ylu=X3oDMTExN2szY25nBHNlYwNzcgRwb3MDMQRjb2xvA3NwMQR2dGlkAwRsA1dTMQ–

http://finance.yahoo.com/news/Jobless-rates-drop-in-34-apf-3586211343.html/print?x=0

Quotes 

“Thousands of experts study overbought indicators, oversold indicators, head-and-shoulder patterns, put-call ratios, the Fed’s policy on money supply, foreign investment, the movement of the constellations through the heavens, and the moss on oak trees, and they can’t predict markets with any useful consistency, any more than the gizzard squeezers could tell the Roman emperors when the Huns would attack…The key to making money in stocks is not to get scared out of them.”

                        Peter Lynch, legendary fund manager 

“Our favorite holding period is forever…I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

                        Warren Buffet, founder of Berkshire Hathaway 

“Investors repeatedly jump ship on a good strategy just because it hasn’t worked so well lately, and, almost invariably, abandon it at precisely the wrong time.”

                         David Dreman, institutional value investor 

“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.”

                        John Templeton, famous value and international investment manager

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. 

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