Market Notes Feb 6, 2009

Isn’t amazing how numb we simply are now to 2% or more daily swings in the markets? As we enter February, we are experiencing the barrage of bad economic news that we expected.

The market today is reacting to hopes that the stimulus will pass. At the same time the U.S. economy lost 598,000 jobs in January (WSJ Online). As we have repeatedly said the market could see a short term jump from a stimulus package. However, we do not believe that any such possible gains are likely to be sustainable.

With job losses hitting 3.6 million since the recession started (WSJ Online) and picking up steam the pressure will likely mount to pass a stimulus package.

The growing job losses, weak corporate earnings and consumer credit card debt will continue to weigh down the market and economy for some time in our opinion. The stimulus is simply not large enough to make a substantial long term impact in spite of the huge price tag.

Consumers still are not spending and they are not borrowing. Readers of this column know that consumer spending makes up roughly 70% of the U.S. economy. Until consumers feel comfortable spending and borrowing again we are not going to see any sustainable recovery. The mounting job losses are not going to do anything to boost the confidence of consumers anytime soon.

Now that we have delivered that cheerful news what’s next? For our actively managed discretionary accounts our focus continues to be on potential preservation of your assets while taking advantage of potential opportunities as they arise.

This is an unprecedented period of time and as such Lowe fs is taking additional steps to be certain we have the best possible research and ideas for our actively managed accounts.

However, it is not simply status-quo here at Lowe fs. In addition to our active review of the economy and markets we are exploring the following:

  1. It is our belief that in the coming years we will see rising tax rates. If this is the case tax planning and strategies will become more important than ever (especially if the market remains volatile). Lowe fs is exploring the expansion of tax planning resources including a closer working relationship with a local CPA firm. We want to be sure we have ready access to strategies, ideas and resources for our clients if we enter an environment of rising taxes.
  2. We are studying the applicability and concept of “absolute return strategies”. At its most basic level, the difference between absolute return and relative return is a function of the benchmark. Absolute return investing, as we see it, is about generating return that meets or exceeds a pre-determined, regularly updated benchmark that is tied to the client’s need/objective, not the market. Relative return investing, to us, is about outperforming an indentified market benchmark, whether in risk-adjusted terms (i.e. alpha), or absolute performance terms (i.e. going up more or down less).
  3. Our decision to increase our research and link with Steve Shafer 3 years ago has allowed us to develop dynamic strategies and approaches to the market for our actively managed accounts. We are presently reviewing our research process to determine if there are any areas that can be expanded or improved as we navigate through these challenging times.

In other words, Lowe fs is not simply running on auto-pilot. We believe that in order to provide the best advice for our clients we must be forward thinking and we must be willing to make adjustments to our process as needed. We know that you, our clients, expect nothing less.

2008 Tax Data

During the first week of February Lowe fs will be posting your 2008 cost basis and gain/loss data in KeepTrack. You will receive a notice when this data is available. This report should be provided to your CPA in addition to the tax forms from Royal Alliance (if applicable) and Fidelity.

Note: Fidelity Forms are still being mailed and may take up to the 15th of Feb arrive.

Both Royal Alliance and Fidelity have now mailed 2008 tax forms. You need to provide BOTH the Royal Alliance (if you had an account with Lowe fs prior to October 1, 2008) and the Fidelity information to your CPA. If you do not provide both the Royal Alliance and Fidelity forms to your CPA your tax return will not be correct. (accounts opened with Lowe fs after 10/1 will not receive any tax forms from Royal Alliance)

If you or your CPA have any questions regarding data for your tax return please email Lowe fs by clicking here. Please be certain to include your CPA’s return email address. Requests in formats other than email or requests sent to a different email address may cause a delayed response.

Minimum Required Distributions (MRDs) for Certain Retirement Accounts Suspended for 2009

On Tuesday, December 23, 2008, President Bush signed the Worker, Retiree, and Employer Recovery Act of 2008, which suspends Minimum Required Distributions (MRDs) from certain retirement accounts for 2009.

An MRD is an Internal Revenue Service (IRS) regulation that requires individuals, beginning in the calendar year following the year they turn 70.5, to withdraw a minimum amount of money from their retirement accounts (e.g. Traditional IRAs and 401ks). Each year’s MRD is based on the account holders age and year-end balance from the previous year.
Please take note of the following important points:

  • Suspension of the MRD is only for 2009
  • There are no changes to the 2008 MRD regulation. Note that MRDs for 2008, even those not yet taken for people who turned 70.5 in 2008, would still be required to be taken up until April 1, 2009 as per IRS rules.
  • The suspension applies to individual retirement accounts and employer-sponsored qualified retirement plans
  • The suspension does not apply to non-inherited Roth IRAs

KeepTrack Update

The enhancements and maintenance to KeepTrack are now complete. Your 2008 Year End reports are viewable at this time on the system. As a reminder if you have printed a prior copy of your 2008 Year End Report please discard (shred it) and refer to the most current version.

Password Enhancement: As of January 31, 2009 all user passwords will need to be set to a minimum of 8 characters including a combination of letters, numerals and special characters. Users will be alerted if a password does not meet these criteria. You will likely be prompted to enter a new password when you log in. Should you have any difficulty with the password or questions about the system please email Greg or David for assistance.

As mentioned in the prior email, the passwords will be good for a period of three years. However, you can always reset or change your password as often as you wish. This is an option on the left side of the page in KeepTrack.

For additional information about navigating and using KeepTrack please click here.

Making a Deposit into your Fidelity Account
If you wish to make a deposit into your Fidelity account please call us to discuss options and instructions. Deposits should go directly to Fidelity electronically or via check. We would be glad to discuss the various options with you. Please do not send any checks to Lowe fs

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.

Important Disclosures

  • Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
  • No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
  • An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.

*Lowe fs is a registered investment advisor.