Lowe Wealth Advisors wishes you and your family a very Happy Thanksgiving. We are indeed thankful that we have the privilege of working with you and appreciate your trust and confidence during challenging times.
Clearly, the current economic uncertainty is causing many Americans to adjust and reflect about what is truly important.
This week the government announced a new round of bailouts which included Citigroup. According to some estimates the tab for the bailouts is now at approximately $24,000 for every man, woman and child in the United States. (Fox Business Channel) Wall Street celebrated the taxpayers picking up the tab with Citi’s shares gaining 58% (Barron’s).
The question becomes what is America’s credit line limit? Already the cost of insuring against potential default by the U.S. Treasury has increased. What if savings in the U.S. and purchases by foreign countries are not adequate to meet the cash requirements of the government? The Fed would have to step in.
All of this warrants close attention. While the term deflation is routinely mentioned today Lowe Wealth Advisors believes that in the next three to five years inflation will be a more significant problem. Throwing this much stimulus at the economy will at some point cause it to kick into “overdrive”. The Fed believes they will be able to manage this by raising interest rates.
We are hardly convinced that is the case. We believe that an inflationary environment where the dollar is declining is most likely looking out twenty four months. Further, it remains our opinion that the price of oil most has to rise as the global economy begins a recovery.
Today a number of economic indicators were released. With decreasing energy costs would consumers start spending once again? This is a critical question since about 70% of the domestic economy is based on consumer spending.
The data indicate a resounding no. Any savings coming from declines in energy costs is going to pay off debt or into savings. In fact, according to the Wall Street Journal consumer spending declined at the sharpest rate in 7 years. Spending by businesses also declined. Will consumers change their minds over the next several weeks and start spending once again as the holiday season approaches? We believe this is unlikely.
Overall, the projections for the fourth quarter GDP (the U.S. economy) point to a more significant decline than the third quarter.
All of this is consistent with our assessment of the markets and the economy. The economic news is going to get worse before it gets better.
While this may be a sobering and somewhat depressing outlook we believe that opportunities will be present in this market. Active and discretionary management are the keys to taking advantage of potential opportunities in the current environment.
Our focus remains squarely on potential preservation first and foremost. Secondarily, we will look for buying opportunities as they develop. For investors with longer time horizons and higher tolerance for risk we may start putting some cash back to work on days when the market declines.
However, while we believe a short term market recovery is possible Lowe Wealth Advisors believes that it will not necessarily be sustainable. Investors could get lulled back into the market with a false sense of security only to have the other shoe fall.
As 2008 comes to a close Lowe Wealth Advisors will be reviewing taxable accounts to determine if any tax loss selling is appropriate. Realizing any losses could provide the opportunity to offset future potential gains.
Additionally, we will be evaluating taxable positions with unrealized gains. We may be able to sell a position, realize a gain and offset it with losses and then repurchase the position (if appropriate) 30 days later. With the anticipation that capital gain tax rates will be increasing in 2009 these year end tax strategies become all the more important.
Please note that for the year 2008 you will receive tax statements from both Fidelity and Royal Alliance. You will need to provide your CPA with both statements. Lowe Wealth Advisors will provide a summary of any gains, losses and cost basis via our online KeepTrack system.
If you have not had the opportunity to review Harold Lowe and Anirban Basu’s respective presentations from the 18th annual Client Appreciation Breakfast we suggest that you click here (breakfast meeting wrap up) to see the breakfast wrap up and then click on the links to those presentations. They directly address what Lowe Wealth Advisors has been doing in our actively managed account in this challenging environment and the outlook for the remainder of 2008 and into 2009.
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.
- 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 Wealth Advisors is a registered investment advisor.