Newsletter & Articles – Farmand Investment Services, Inc.

Quarterly Investment Update - 1st Quarter 2026

Fri, 03 Apr 2026 11:41:51 GMT

Dear Clients and Friends,

The first quarter of 2026 generated much volatility and ended the rally of the bull market. The volatility was due to a radical change in the market sentiment, because of the issue of spiking oil prices. The market has gone from having the benefits of lower taxes, big incentives for capital spending, moderating inflation, lower interest rates, and economy that is broadening and sustainable. Now the sentiment has moved to higher inflation, potentially higher interest rates and an economy on the brink.

The reason for this surge in oil is geopolitical. Escalating conflict involving Iran has created fears that energy infrastructure and tanker routes in the Middle East could be disrupted. Markets are suddenly pricing in the risk that shipping through the Strait of Hormuz could be severely restricted or halted. This route carries roughly 20% of the global oil supply. When investors believe the world’s most important oil corridor might close, crude oil prices don’t rise slowly, they spike! That spike is exactly what we are seeing now.

Crossing $100 per barrel is not just a technical milestone, it is a psychological one. Oil above $100 historically signals that something unusual is in the global economy. The last time crude oil spent meaningful time above that level was during the energy crisis that followed Russia’s invasion of Ukraine in 2022. Before that, you have to go back to the commodity supercycle of the late 2000’s. The reason is simple: Oil above $100 starts to break things. It increases costs for airlines, trucking companies, shipping firms, chemical producers, and manufacturing supply chains. Eventually, it works its way into inflation numbers. That’s why equity markets often react negatively when oil spikes suddenly. When oil jumps this fast, the market immediately is asking the question - Is this a temporary shock or the start of an energy crisis? We are hopeful that this will be a temporary shock.

The issue, in our opinion, was partly due to Iran but it was mostly due to a hot Producer Price inflation report, followed by a bizarre Federal Reserve meeting, removing the odds of rate cuts but more importantly Powell stating he is not leaving in May, due to the investigation. We do not like this type of friction at our Central Bank.

During the quarter, we added several new positions, and some were owned before. We added Kraft Heinz Company (KHC), and Disney, which are positions that we owned in the past. We also added new positions in Pool Corp. (POOL), FactSet Research Systems (FDS) and Once Upon a Farm (OFRM). As far as sales for the quarter are concerned, we sold two positions with a nice rate of return. We sold Millicom Int’l Cell (TIGO) and Sixth Street Specialty Lending (TSLX).

Quarterly Investment Update - 4th Quarter 2025

Mon, 05 Jan 2026 17:51:14 GMT

For months, the headlines have been trying to take this market down. First it was surging bond yields and “higher for longer” interest rates. Toss in weak earnings from some of the big names, geopolitical flare-ups, and talk of a looming recession. Then came the fears around AI froth – overstretched valuations, overbought tech stocks, traders too euphoric. If you followed the mainstream media, you would expect this market to be on its knees. But every time we have seen a pullback this past year – whether it has been a 3% four-day slide, or April’s “Tariff Tantrum” 20% correction – this market has come roaring back to set new highs. The market is sending a message – and it is not subtle. The foundation is stronger than the headlines want us to believe. All of this happened before the Federal Reserve made one of its most important announcements in years. On October 29, the Fed confirmed that Quantitative tightening has ended. As of December 12, the Fed stopped shrinking its balance sheet. They began reinvesting maturing Treasuries and mortgage-backed securities, reversing the slow liquidity (i.e. cash) drain that has been weighing on the system since 2022. That means billions of dollars will start flowing back into U.S. stocks as the Fed shifts from draining money out of the system to putting it back in. More liquidity typically gives investors more confidence – and that can lift stock prices across the board.

While many global economies continue to struggle, the U.S. is showing renewed signs of strength – and the outlook for 2026 is getting clearer. Recent data shows U.S. Gross Domestic Product (GDP) is expanding at a 3.9% annual pace, with some forecasts expecting growth to accelerate next year. Rate cuts appear energy prices are softening, and the onshoring of data centers, semiconductors, pharmaceutical and automotive industries are poised to fuel continued momentum. Meanwhile, inflation pressures are easing, with deflationary trends in places like China and Europe helping to keep domestic prices in check. All of this paints a very different picture than we have seen in recent years and we look forward to 2026.

During the quarter, we added a couple of names that we owned before – Pfizer, Inc. (PFE) and Rayonier, Inc. (RYN). We also added one new name, Camden Property Trust (CPT), a real estate company primarily engaged in the ownership, management, development, acquisition and construction of multifamily apartment communities. As far as sales for the quarter are concerned, we sold Oscar Health (OSCR), Westrock Coffee Co. (WEST), Solstice Advanced Materials (SOLS), Compass Diversified (CODI) and Amazon (AMZN).

Quarterly Investment Update - 3rd Quarter 2025

Thu, 02 Oct 2025 14:52:17 GMT

Approximately two weeks ago, the U.S. Federal Reserve just did exactly what Wall Street expected in the short term: cut interest rates by 25 basis points and projected two more cuts by year’s end.

At first glance, a rate cut should have fueled a rally – but the Fed’s forward guidance flipped the mood. Markets had been pricing in two or three rate cuts in 2026 – but the central bank only penciled in one. It also revised 2026 GDP expectations higher, called for steady unemployment levels, and nudged inflation estimates upward. In other words, the Fed is saying that the economy remains strong, and inflation is not fully vanquished and therefore, it will not commit to an aggressive cutting cycle just yet. Federal Reserve Board Chair Powell reinforced this message in the post – meeting press conference, calling this a “risk-management cut”: a signal that the Fed is not racing into an easing cycle but keeping optionality open. That spooked traders into thinking this is not the start of a sustained easing campaign. And stocks, which had rallied hard into the meeting, promptly sold off in classic buy-the-rumor, sell-the-news baseline. But here is the thing: none of what Powell said was bearish. The Fed did not slam the door shut on more cuts. It simply refused to pre-commit. That is central banking done right: going one meeting at a time, driven by data, not promises.

Last week, the Federal Reserve’s favorite inflation barometer, the Personal Consumption Expenditures (PCE) Price index showed that inflation remains a challenge, even though there was no major curveballs. Headline PCE rose by 0.3 month-over-month, lifting the year-over-year figure to 2.7%. Importantly, all of these numbers matched the Dow Jones consensus forecast.

We feel that the data is trending in a direction that supports further easing. Inflation is steady – not exploding. Labor markets are softening around the edges. And growth, while solid, is not running away. Altogether, the case for further cuts remains intact, that is plenty of juice to sustain a strong market rally into 2026.

During the third quarter, we added one new name to our portfolios, Albertsons Company shares Class A (ACI). We also added to other positions, including Stanley Black & Decker (SWK). As far as sales were concerned, we sold Affiliated Managers (AMG) for a nice profit. We also sold Angi Inc. (ANGI), Anywhere Real Estate (HOUS), Prosus NV (PROSY). We also sold the remaining shares in Atlas Corp. Pfd (ATCO-H), which were earlier called in for “redemption”.

Quarterly Investment Update - 2nd Quarter 2025

Tue, 01 Jul 2025 14:31:49 GMT

Dear Clients and Friends,

The second quarter ended on a positive note with all the major stock indexes rising to all-time highs, despite the uncertainties due to tariffs, the Israel – Iran conflict, the Russia – Ukraine war as well as other issues that may have an effect on our economy. Stocks made a swift and historic comeback from the market’s April bottom, with the Standard and Poor 500 closing at a record high. Now, as the first half of 2025 draws to a close, overarching risks are all but removed. From tariff-driven inflation pressures to conflicting economic signals and murky data, what lies ahead is anything but straightforward. According to EY chief economist Greg Daco, “we are going to see an inflation reacceleration that will be tariff-induced. There’s more pressure to come into the economy and that will lead to income erosion and a consumer spending slowdown. That is really the picture that we should expect in the second half of this year”. The latest reading of the Federal Reserve’s preferred inflation gauge reflected some of those concerns, with price increases accelerating in May as inflation remains above the Fed’s 2% target amid underlying signs of slowing economic growth.

Those economic concerns, however, have yet to weigh heavily on investors. Markets have powered higher, led by strength in Tech and Financials, as consumer sentiment rebounds and traders digest growing clarity around trade policy.

As far as interest rates are concerned, we have had several Federal reserve Governors come out and talk about cutting interest rates. It seems likely that we will get a cut in September and a small chance of a cut in July. This would be bullish for both stocks and bonds if the market feels that the Federal Reserve believes inflation is not an issue. As these uncertainties get resolved, we feel that there is more upside in the markets for the rest of the year.

During the past year, we were holding high cash levels than normal. Most of that cash was invested in one-year U.S. treasury Bonds that matured May 31, 2025 and June 30, 2025 respectively. We have been investing most of the cash proceeds in Fidelity Corporate Bonds ETF (FCOR), which pays out a dividend of 4.5%. The remainder of the cash was invested in the Schwab Value Advantage (SWVXX) fund with a similar yield.

During the quarter, we purchased back HF Sinclair Corp (DINO) into most of our portfolios. We also purchased a small position in Pool Corp. (POOL). As far as sales for the quarter, we sold Dominion Resources (D) and Easterly Government Properties (DEA).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives. Lastly, we hope you have a safe and happy Independence Day weekend!

Quarterly Investment Update - 1st Quarter 2025

Thu, 03 Apr 2025 16:42:39 GMT

Dear Clients and Friends,

Before we get to our investment update, we would like to point out that we have changed the format regarding the content of this and future quarterly reports. In the past, we sent you the “combined” portfolio balances of all the accounts including the combined performance report as well as the list of individual holdings. We want to expand on the performance report and eliminate the inclusion of individual holdings. These individual holdings are set up to be automatically sent directly to our clients from Schwab. So, there is no need to duplicate this effort. However, we do want to expand on the performance of the portfolios by including the “combined” performance report, but also the “individual” performance report of each account. Everything else will remain the same. We hope you enjoy our new format and we would welcome your input.

As far as our investments are concerned, the volatility brought the stock markets down this quarter. This volatility is due to the uncertainty of the effects of tariffs as well as finally understanding that the economy is slowing and perhaps significantly. In effect, all of stock gains made since Trump was elected in November have been erased and we are back at pre-Trump levels.

U.S. retail sales rebounded marginally in February as consumers pulled back on discretionary spending. Reinforcing the growing uncertainty over the economy against the backdrop of tariffs and mass firings of federal government workers. Nonetheless, the February report from the Commerce Department last month suggested the economy continued to grow in the first quarter, though at a moderate pace. It sketched a picture of a cautious consumer, with sales at restaurants and bars declining. With consumer sentiment sinking to a near 2 ½ year low in March, sales could struggle in the months ahead.

President Donald Trump’s raft of tariffs, which has unleashed a trade war, has ignited worries about inflation as well as job and income losses, developments that could undercut consumer spending. Mass layoffs of public workers as part of an unprecedented campaign by the Trump administration to shrink the federal government are also seen hurting spending. A stock market sell-off could curb spending, predominantly driven by high-income households, while rising food prices could squeeze low-income households.

At the last meeting in March, the Federal Reserve did what we expected, which is nothing as far as interest rates. However, the Federal Reserve’s quarterly updated summary of economic projections anticipates two quarter-point rate probability that the central bank will drop its rate by 0.75 or less this year. Also, they cut the runoff of their balance sheet, which could let the bond market yields come down. Overall, we continue to feel cautiously optimistic about how the stock market should continue to advance.

During the quarter, we took advantage of the volatility by buying one new position in CSX Corp (CSX). We also purchased HF Sinclair Corp (DINO) in most of the taxable accounts but we sold it for a short-term loss for tax purposes. We may want to buy it back after 30 days. As far as sales as concerned, we sold Warner Brothers Discovery (WBD) and PVH Corp (PVH).

Quarterly Investment Update - 4th Quarter 2024

Wed, 08 Jan 2025 15:59:54 GMT

Dear Clients and Friends,

First of all, we hope everyone had a Merry Christmas and wish everyone a Happy New Year. As far as stocks are concerned, we did not get a “Santa Claus” rally as we were hoping. Instead, December’s performance was the worst month of the quarter. However, as you can see, all of our portfolios are up for the quarter and the year. So now that 2024 is behind us, how do we plan for 2025? Given the broadly healthy economic conditions for a soft landing, we feel that 2025 will produce good earnings reports, which should help the stock market to go higher.

At their last meeting, the Federal Reserve did what we expected, they cut interest rates by .25%. However, the tone of the chairman’s voice changed at his news conference. Jerome Powell said that the committee had to readjust expectations due to inflation remaining higher than expected. Inflation reaccelerated in October and November, and core CPI is staying higher than expected and remaining higher than 3%. The expectation for the Federal Reserve is to cut interest rates for 2025 twice by .50%. This lowers the target interest rate range between 4.25% to 4.5% and reflects the Fed’s ongoing commitment to achieving its dual goals of maximum employment and price stability. Thus, there is not much price to earnings (P/E) multiple expansion expected, which implies that the market should be driven by earnings in 2025. The market over the past two years has been driven mostly by P/E multiple expansion due to the very concentrated move in the technology sector. During 2025, it is expected that all sectors of the market will experience earnings growth, especially smaller companies. We feel that the market wants some new stocks to rotate into other than technology.

During the quarter, we continued to take advantage of the stock market’s strength by trimming some over weighted positions and some entire positions. We sold our full position in Compagnie Financière (CFRUY) and Alliances Bernstein Holding LP (AB). We also sold one-half of the position in CNX Resources (CNX) and Amazon (AMZN). We put cash proceeds from the sales right into the Schwab Value Advantage Money Fund (SWVXX). The Schwab Money Value Advantage Money Fund is a fund that we use for investing excess cash or for specific restrictions. As far as purchases were concerned, we added one new equity position, Westrock Coffee (WEST).

Quarterly Investment Update - 3rd Quarter 2024

Tue, 01 Oct 2024 16:22:16 GMT

Dear Clients and Friends,

A couple of weeks ago, the Federal Reserve cut interest rates by 50-basis points, making the first interest-rate cut since 2020. It was also the first time there was a dissent from a Fed Governor since 2005, as Michelle Bowman preferred a 25-basis point cut.

To make sure we are on the same page, let’s see what the Fed’s updated Dot Plot reveal about where interest rates go from here. The Dot Plot is a graphical representation reflecting each committee member’s anonymous projection of where they believe rates will be in the future. The Fed members update the Dot Plot once every three months. In both the December and March FOMC meetings, the Dot Plot showed a median forecast of three-quarter point rate cuts in 2024. The June Dot Plot pared that back to just one rate cut this year. The latest consensus projection now calls for two more 25-basis-point-cuts this year followed by four more quarter-point cuts next year, then two more quarter-point cuts into 2026.

Also, the Fed’s summary of Economic Projections (SEP) sees core inflations peaking at 2.6% this year before cooling to 2.2% in 2025 and 2.0% in 2026. The Fed slightly lowered its previous forecast for U.S. economic growth, with the economy expected to grow at an annual pace of 2.0% this year and remain at that level through 2025 and 2026.

Given the broadly healthy economic conditions for a soft landing, investors have front-run anticipated rate cuts all year long, which has pushed the S&P up 18% so far in 2024. As expected, this heavy buying pressure has driven the S&P 500’s valuation materially higher. One would question whether these valuations will continue to go higher. Based on the past rate-cutting cycles, we feel that the stock market valuations will continue to go higher. How much higher? And how does that compare with the valuations at the beginning of prior rate-cutting cycles?

To contextualize where we are today, let’s begin with prior valuations. The highest S&P 500 valuations at the beginning of rate-cutting cycles over the last 40 years came in 1998, 2001 and 2019. Their average price-to-earnings ratio was 23.6 and their average price-to-sales ratio of 3.0. Specifically, today’s price to earnings ratio is 25% more expensive than the average of the prior three most expensive starting rate cut valuations, and 50% more expensive on a price-to-sales basis. This does not mean stocks cannot or will not soar from here, but it does suggest we should recognize the implications for longer term returns. That forecast may end up being overly pessimistic given the potential for a further structural shift higher in valuations as in prior decades,

but it does suggest that another decade of double-digit annualized returns, which investors have enjoyed over the past 10 years, is unlikely. However, we minimize any risk by investing in selective individual stocks that are undervalued, especially for retirement accounts.

During the quarter, we added one new equity position, Park Hotel & Resorts (PK), which we previously owned. We also sold four additional equity positions and two REITS. Among the equity positions, we sold Alibaba Group Holding ltd (BABA), Kering SA (PPRUY), Kellogg (K), and B Riley Financial (RILY). In addition, we sold two real-estate investment trust positions Douglas Emmet, Inc. (DEI) and Tanger Factory Outlet (SKT). As far as the Fixed income area, we continued to buy short-term Treasury Bonds as the old ones matured.

As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to maintain substantial exposure to common stocks (and mutual funds) as long as there is reasonable prospect for double – digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in cash as well as the fixed income portion of our portfolios. During the quarter, we continued with our average asset allocation mix of 40%-50% Equity, 40%-50% Fixed Income and 0%-20% Cash for most of our portfolios.

Mid Year Investment Update - 2024

Mon, 22 Jul 2024 15:54:11 GMT

Dear Clients and Friends,

We are sending you this special investment update to evaluate the first half of 2024 and project into the second half of 2024. The end of the previous quarter marked the midpoint of the year. Let us get an overall perspective on what happened during the first half of the year, then shift our perspective to what we expect will happen during the second half of the year.

The top headline is the Standard & Poor’s (S&P’s) monster 14.5% return, the best first half to an election year in almost 50 years, punctuated by 31 different record-high closes. Now, if you are not seeing a similar return in your portfolio, there is a good reason – a select few Tech / AI stocks are behind most of these gains. For example, Nvidia’s 149.5% surge was responsible for roughly 30% of the S&P’s climb. Throw in Microsoft, Apple, Google, and Amazon, and that group of five tech dominators accounts for 62% of the S&P’s gains. Meanwhile, the average stock in S&P, as illustrated through the S&P 500 Equal Weight Index, climbed just 4% in the first half. Over in the tech-heavy NASDAQ, the first half gains were even bigger – an 18% return. However, here too, there was a wide differential between the top stocks and “all the rest.” The Equal Weight NASDAQ 100 Index added less than 5%. Of the major three indexes, the Dow Jones brings up the rear, climbing less than 4% as big names such as Nike, Intel, and Boeing all collapsed more than 30% in the first half of the year. In the small-cap area, the underperformance continued as the iShares Russell 2000 ETF climbed barely to 1.5% after spending much of the first half of the year underwater.

If we break down the market’s overall performance into quarters, we see a “tale of two markets.” During the first quarter, the market as a whole did very well. The percentage of the S&P stocks making 12-month highs topped out in March. But in the second quarter, the performance narrowed. The reason for the shift is because it was in late March/early April when Wall Street realized that the Fed was not going to have an avalanche of rate cuts that had been priced into the market. You will recall that the first three months of the year featured inflation data that came in “hotter than expected.” It was this March/April stretch when Wall Street finally begrudgingly concluded that the inflation data were not playing nice.

As far as Treasuries were concerned, yields were volatile, but shifted higher overall. The 2-year Treasury yield climbed 50 basis points to 4.75% while the 10-year Treasury yield added 52 basis points to 4.40%. As to the Federal Reserve’s interest rate policy and the timing of the rate cuts, Wall Street came into the year with high hopes. In early January, the going expectation was for the six quarter points cuts this year. That prediction aged about as well as “transitory inflation.” The first half of 2024 saw AI continue winning. Using S&P measures for the US, momentum’s tear on the back of artificial intelligence is on a scale never seen before – its relative performances at least surpassed the high set during the dot-com bubble in 2000. But as we look ahead, increasing caution appears to be needed. Last week, reports leaked suggesting that the Biden administration is looking to improve even stricter controls on sales of semiconductors and related equipment to China. Meanwhile, former President Donald Trump sounded negative in his comments about Taiwan, the semiconductor manufacturing capital of the world. Investors net takeaway was that no matter who wins the White House in November, there will likely be increased scrutiny on the exchange of AI products and equipment between the U.S and Asia.

Though we are optimistic about the second half of 2024, we maintain an undercurrent of caution. There are growing red flags and signs of weakness in both the economy and various corners of the market. We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives.

Quarterly Investment Update - 2nd Quarter 2024

Tue, 02 Jul 2024 15:02:46 GMT

Dear Clients and Friends,

The Standard and Poor 500 index is up over 14% year – to – date and hitting all-time highs. So, is it time to push more chips into this market? Or should we be taking profits off the table to sidestep the risk of a looming pullback? In order to answer this question, you need to look back to last summer. The U.S. Federal Reserve stopped raising rates after its most fast – and – furious rate – hike cycle in history. From March 2022 to July 2023, the Fed hiked by 525 basis points – all in just about 18 months. Since then, the stock market has been anxiously awaiting the central bank’s first rate cut.

For the past several months, the U.S. Federal Reserve has consistently expressed its willingness to cut interest rates once it feels confident that inflation is on a sustainable trajectory back to 2%. U.S. inflation tracked sideways this quarter and consumer spending weakened, mixed signals for the Federal Reserve that provided little clarity on whether the U.S. central bank will be able to begin cutting interest rates in September. The data suggested the elevated pace of price increases could last longer than expected but also the prospect that more tepid consumer spending may keep a lid on price increases in the months ahead.

The Commerce Department’s Bureau of Economic Analysis reported that the personal consumption expenditures (PCE) index increased 0.3% in April. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased by 0.2% in April after a downwardly revised 0.7% rise in March. Revised gross domestic product data showed consumer spending moderating to a 2.0% pace in the 1 ^st quarter.

The biggest headwind facing the global and investment markets in recent weeks has been the climbing 10 – year Treasury yield. It has been climbing steadily over the past several months. The 10 – Year Treasury Note was yielding approximately 3.75% last summer. The yield kept rising to over 4.7% in late April and has been volatile since then and currently has a yield of a little over 4.35%.

The Fed presently does not feel any urgency to cut interest rates. But recent economic data suggests that they should get some urgency soon. A couple of weeks ago, we learned that jobless claims in the U.S. economy soared to a nine-month high. We also learned that consumer sentiment in the U.S. economy plunged to a six-month low and is currently in the midst of its biggest three month drop since summer 2022. That data adds to a long list of evidence that the U.S. economy is slowing rapidly right now.

Last Thursday, we had the first of two scheduled Presidential debates. Unfortunately, it lived up to its expectations. Both candidates are deeply unpopular and nothing happened on Thursday that changed either candidate’s popularity. However, betting markets interpreted the debate as a huge “win” for Trump and a huge “loss” for Biden.

Meanwhile, May’s Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation report, was released last Friday. It showed that PCE inflation fell from 2.7% to 2.6% in May, while the core PCE rate dropped even more from 2.8% to 2.6%. Core PCE inflation is now running at its lowest level since March 2021 and it is expected to fall further in June.

During the quarter, we added some new equity positions such as Fortune Brands Innovations Inc. (FBIN), Kellanova (K), (formerly Kelloggs) and Bio – Rad Laboratories, Inc. (BIO). We also purchased CVS Health Corporation (CVS) after we sold our Walgreens (WBA) position. As far as the Fixed Income area, we continued to buy additional short-term Treasury Bonds as the old ones matured.

As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to maintain substantial exposure to common stocks ( and mutual funds) as long as there is reasonable prospect for double – digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in cash as well as the fixed income portion of our portfolios. During the quarter, we continued with our average asset allocation mix of 40%-50% Equity, 40%-50% Fixed Income and 0%-20% Cash for most of our portfolios.

We want to wish you a happy and safe Independence Day Celebration this weekend.

Quarterly Investment Update - 1st Quarter 2024

Thu, 04 Apr 2024 12:22:37 GMT

Dear Clients and Friends,

Stocks just wrapped up a solid first quarter with all the major stock indexes approaching new highs. Stocks have been up five consecutive months of solid gains, led by an especially strong rally in A.I. (Artificial Intelligence) stocks. Most of this rally is due to the Federal Reserve and their view of the economy and interest rates.

Back in December, the Federal Reserve penciled in three interest rate cuts for 2024, which was a big deal. Throughout 2022 and 2023, the central bank embarked on the fastest rate – hiking path in our economy’s history. All those rate hikes were stifling both economic growth and the stock market. Investors were desperate for the hikes to end and, better yet, for the rate cuts to start. During its recent March meeting, the U.S. Federal Reserve updated its Summary of Economic Projections for the 1 ^st time since December and almost nothing changed. They also confirmed that three rate cuts are coming this year. Just as important, Fed Chair Jerome Powell’s language shifted in his press conference after the meeting from “we need to see inflation come down to 2% before we cut rates” to “we’re pretty confident that inflation is going to come down to 2% and so we’re pretty confident that we’re going to be cutting rates multiple times this year”. He seemed entirely unphased by the recent relative “stickiness” in inflation. But since then, inflation has consistently surprised us to the upside and the overall U.S. inflation rate has stopped falling. Instead, it has stabilized right around 3%, which is above the Fed’s 2% target. Consequently, investors were worried that because inflation is flat lining above that target, the Fed would walk back the rate cuts. During their recent March meeting, they confirmed that three rate cuts are coming this year.

Going back to 1950, the “average” inflation rate in the U.S. economy is 3.5%. we are below that right now. Therefore, even though inflation is stabilizing above the Fed’s target, it is more importantly stabilizing below the long-term average inflation level. This should not worry the Fed and should proceed with the rate cuts this year. This should be super bullish for stocks.

For all of 2023, the economy grew a healthy 2.5%, defying predictions that the Federal Reserve’s aggressive increase in interest rates to fight inflation would tip the nation into a recession. However, economists said a pullback is likely in 2024 as high interest rates and inflation take a bigger toll on growth and a burst of post pandemic consumption runs dry. As a result, some experts believe that a mild recession will finally happen this year as layoffs spread beyond household names that already have cut jobs recently, such as Google, Amazon, and Wayfair.

Broadly, however, the outlook for 2024 has recently brightened. Inflation has eased more swiftly than anticipated, even as consumer spending has stayed resilient. The inflation slowdown has led the Federal Reserve to signal it is likely done hiking its key interest rate after raising it to a 22- year high of 5.25% to 5.5%.

During the quarter, we added to some of our existing holdings and sold off most of our underperforming holdings. We added one new equity position, Kering (PPRUY). However, it pays a dividend above 3%, which should currently be classified as a fixed income position. We also purchased additional U.S. Treasuries (6to 9 months) to replace the ones that expired on December 31, 2023. We plan to purchase additional U.S. Treasuries. We sold off many underperforming small holdings, such as Appharvest, Inc. rights (APPHW), as well as XOS Inc. rights (XOSWW). We also sold small positions in Danimer Scientific, Inc. (DNMR), Liberty Broadband Co. (LBRDK), Lucid Group, Inc. (LCID), Lumen Technologies, Inc. (LUMN), Opendoor Technologies (OPEN), Nio Inc. (NIO), Walgreens Boots (WBA), Lanxess Ag (LNXSF).

In addition, we sold one-half of our position in Oscar Health, Inc. (OSCR) in all of our portfolios after it more than doubled. We also sold our entire position in Fairfax Financial Holdings (FRFHF) after a considerable gain. Selling Fairfax Financial Holdings was a very tough decision for us because we feel there is still more value in this position. We continued to put most of the cash proceeds from the sales right into the Schwab Value Advantage Money Market Fund (SWVXX), which currently pays in excess of 5%. The Schwab Value Advantage Money Fund (SWVXX) is a fund that we use for investing excess cash or for specific restrictions as set forth by the client.

Quarterly Investment Update - 4th Quarter 2023

Thu, 04 Jan 2024 14:16:38 GMT

Dear Clients and Friends,

The 4 ^th quarter ended on a positive note with all the major stock indexes up for the quarter and year. A strong market rally has been in force since the end of October with the major indexes on a nine-week win streak. The Standard & Poor 500 Index closed just below its all-time high.

After rising and then moving sideways in recent months, inflation emphatically resumed its decent in October. Since reaching a 40-year high of 9.1% in June 2022, inflation has come down substantially. The Federal Reserve is winning its fight over inflation, boosting Americans’ spirits and offering greater reassurance that the U.S. economy can avoid a recession while bringing prices under control.

The Commerce Department recently reported that the Fed’s preferred inflation measure, the personal consumption index, fell 0.1% in November from the previous month, the first decline since April 2020. Prices were up 2.6% on the year, not far from the Fed’s 2% target. Core prices, which exclude volatile food and energy costs, rose just 1.9% on a six-month annualized basis, suggesting the Fed is well on its way to reaching that target.

Consumers, after dealing with crushing price increases and recession fears over the past two years, are adopting a sunnier outlook. A measure of consumer sentiment from the University of Michigan released recently rose 14% to a five-month high in December from the previous month as households brought down their expectations for inflation in 2024.

These developments at least raise the prospect of some longer-lasting relief for Americans who have struggled to keep pace with rapidly rising prices triggered by pandemic-related supply chain troubles and consumer demand surges for more than two years.

The Federal Reserve’s December meeting brought us a “Gift from Santa Powell”. The Federal Reserve not only held rates steady for a third straight time (as expected), but also surprised investors with an indication of three rate cuts in 2024 (.25% each). In addition, the Fed’s “dot plot” (committee member expectations) also suggested an additional four cuts in 2025 ( a full percentage point). The stock and bond market’s reaction helped the Dow Jones Industrial Average (DOW) surpass 37,000 for the first time ever. Chairman Powell discussed some of the developments which may have led to their decisions:

· Healthy jobs growth

· Lower inflation rate

· Higher economic growth

Overall, a strong labor market supports economic growth while lower inflation supports the idea of lower interest rates in the future. In terms of the markets, a stable – to – lower interest rate environment is supportive for both stocks and bonds.

As always, Farmand Investment Services recommends staying balanced, diversified and invested. Despite short term market pullbacks, it is more important to stay focused on the long – term (3-5 years), improving the chances for clients to reach their goals.

During the quarter, we continued to take advantage of the stock market’s strength by trimming some over weighted positions and selling some entire positions. We sold our entire position in General Electric (GE), Walt Disney Holdings (DIS), and Park Hotels and Resort (PK). We put the cash proceeds from the sales right into the Schwab Value Advantage Money Fund (SWVXX), which currently pays over 5.00%. The Schwab Value Advantage Money Fund (SWVXX) is a fund that we use for investing excess cash or for specific restrictions. We also sold some of our municipal bond funds (BLE, NVG & NZF) for a tax loss and purchased another municipal bond fund, First Trust Managed Municipal ETF (FMB) to avoid the “wash sale” rule.

As far as purchases were concerned, we added one new equity position, Oscar Health, Inc. (OSCR), which operates as a health insurance company in the United States. The company offers Individual and Small Group and Medicare Advantage plans, as well as +Oscar, a technology driven platform designed to help providers and payors directly enable their shift to value-based care. It also provides re-insurance products.

Quarterly Investment Update - 3rd Quarter 2023

Tue, 03 Oct 2023 12:13:12 GMT

Dear Clients and Friends,

For the quarter, the S&P 500 fell about 3.6%, the Dow fell 3.5%, and the Nasdaq shed 4.1%. In September alone, the S&P 500 dropped 4.9%, the Dow fell 3.5%, and the Nasdaq declined 5.8%. The third quarter ended with the S&P 500 and Nasdaq posting their biggest monthly percentage drops of the year, while all three major indexes had their first quarterly declines in 2023. Data showed the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 3.9% on an annual basis for August, the first time in over two years it had fallen below 4.0%. The Federal Reserve tracks the PCE price indexes for its 2% inflation target. The data revealed a “better than expected but still elevated inflation picture”, said Eric Freedman, chief investment officer at U.S. Bank Asset Management.

During their September meeting, the Federal Reserve, again, did what all of Wall Street had anticipated and “paused” on raising key interest rates. However, the Federal Open Market Committee (FOMC) statement was very hawkish, leaving the possibility of one more future increase in key interest rates. According to the Federal Reserve, this will be based on future economic data and determined on a meeting-by-meeting basis. However, even though inflation is on a downward trend, it did spike up during the quarter. Powell’s view also changed by saying that interest rates could stay higher for a lot longer than anticipated. Powell’s baseline case is no longer for a “soft landing”, which means recession. Obviously, the markets did not like the large change in expectations and all of the major indexes fell. In addition, the threat of a federal government shutdown suddenly lifted late Saturday night as President Joe Biden signed a temporary funding bill to keep agencies open with little time to spare after Congress rushed to approve the bipartisan deal. The bill funds the government until November 17.

The U.S. economy continues to show resilience in the face of steadily higher interest rates resulting from the Federal Reserve’s 18-month long fight to bring down inflation. Estimates from the Commerce Department indicate that the gross domestic product – the economy’s total output of goods and services, is picking up in its growth rate. Driving this growth was a burst of business investment. Companies plowed more money into factories and equipment. Increased spending by state and local governments also helped fund the economy’s expansion. Consumer spending, the heart of the nations economy, continues to be solid. Investment in housing, though fell, weakened by the weight of higher mortgage rates. The bottom line is that U.S. economy is still growing above trend, and the Fed will be wondering if they need to do more to slow the economy.

During the quarter, we took advantage of the stock market’s strength by trimming some overweighted positions and selling some entire positions. We sold our entire positions in Sofi Technologies (SOFI), Vimeo, Inc (VMEO), Quantumscape (QS), and Alphabet Inc (GOOG). After successfully owning Alphabet from 2015 to 2020, we purchased the company again in 2022 as tech stocks broadly faced weakness. We put the cash proceeds from the sales right into the Schwab Value Advantage Money Fund (SWVXX), which currently pays over 5.00%. The Schwab Value Advantage Money Fund (SWVXX) is a fund that we use for investing excess cash or for specific restrictions. As far as purchases were concerned, we added one new position, Fidelity National Information Services, Inc. (FIS), which is a provider of technology solutions for financial institutions and businesses of all sizes.

Quarterly Investment Update - 2nd Quarter 2023

Wed, 05 Jul 2023 16:18:40 GMT

Dear Clients and Friends,

We hope that everyone enjoyed their celebration of the Fourth of July. For us, the Fourth of July is a celebration of everything that America stands for – independence, freedom, liberties, and most of all families.

The quarter ended on a positive note with all the major indexes advancing nicely for the quarter and mid-year. During their June meeting, the Federal Reserve, again, did what all of Wall Street had anticipated and “paused” on raising key interest rates. However, the Federal Open Market Committee (FOMC) statement was very hawkish leaving the possibility of two future increases in key interest rates. According to the Federal Reserve, this will be based on future economic data and determined on a meeting-by-meeting basis. Long story short, inflation is on a downward trend, the labor market is cracking, and financial stress measures are spiking – a potent combination which will inevitably force the Fed to end its rate-like campaign.

The global economy has managed to avoid a recession at mid-year, thanks to resilient consumers, a surge in travel and leisure activities, and the reopening of China’s economy following pandemic-related lockdowns. That is likely to change in the second half of the year as the impact of high interest rates, inflation and a banking sector crisis combine to possibly tip the world into a mild recession. Many economic indicators are pointing to a recession in the United States, not the least of which is an inverted yield curve. That happens when yields on short-term U.S. Treasury bonds are higher than long-term bonds, indicating that investors expect tough economic times ahead.

It may not feel like it at the grocery store, but inflation is on a downward trajectory in the U.S., Europe and across many other markets. That is largely due to lower energy prices, fewer supply chain disruptions and aggressive interest rate hikes by central banks. Interest- rate sensitive industries, such as housing, are already feeling the effects, with home prices falling in some formerly hot markets. Rate hikes meant to fight inflation has also triggered a crisis in the banking sector. A sharp selloff in the bond market last year hammered the portfolios of numerous regional banks. The next shoe to drop could be commercial real estate. Office vacancy rates are on the rise as more companies embrace work-from-home business models. Given these mounting risks, the interest rate outlook has changed dramatically since early March, when the banking crisis first hit. Investors no longer feel that the U.S. Federal Reserve will raise rates as far or as fast as previously expected, largely due to a tighter lending environment stemming from the banking turmoil. Most everyone knew there would be consequences to one of the most aggressive tightening campaigns in history. The dislocations we are seeing in the financial markets signal a painful new phase for the Fed. It has clearly exposed some vulnerabilities and as a result, we feel we are nearing the end of this rate-hiking cycle.

In the meantime, the economy is showing surprising resilience in the face of higher interest rates. The U.S. economy grew at a 2% annual pace from January through March as consumers spent at the fastest pace in nearly two years. The economy has been slowed by the Federal Reserve’s aggressive drive to tame inflation through a series of interest rate hikes beginning early last year. The Fed has raised its benchmark interest rate ten times since March 2022 in its attack on inflation, which hit a four-decade high of 9.1% last year but has since slowed to 4%. In the current April-June quarter, the economy is believed to be slowing further but still managing to maintain its growth. Therefore, over the next few months, we feel that we will continue to get falling inflation with a dovish shift in Fed policy and rising earnings.

During the quarter, we took advantage of the stock market’s strength by trimming some overweighted positions and selling some entire positions. Our biggest trimming came from the partial sale of Nvidia. We sold one-half of the Nvidia position in each of our portfolios for a nice gain. We sold our entire positions in GE Healthcare (GEHC), which was spun off from General Electric (GE), which we still own. We believe the remaining company is still undervalued, while CEO Larry Culp has reduced leverage, cut costs, streamlined operations and improved overall morale. In the first quarter of 2024, GE will separate aviation and power, which we believe will highlight the underlying values of each as the strong, defensive growth businesses they are. We also sold all three of our positions in the Inflation Protected Bond-The iShares TIPS Bond ETF (TIP), the SPDR Portfolio TIPS ETF (SPIP) and the iShares 0–5-year TIPS Bond ETF (STIP). In addition, Cowen, Inc. 7.75% Preferred stock (COWN) was “called” in at $25.00 a share, which caused the liquidation of our entire position. We put the cash proceeds from the sales right into the Schwab Value Advantage Money Fund (SWVXX), which currently pays around 5.00%. The Schwab Value Advantage Money Fund (SWVXX) is a fund that we use for investing excess cash or for specific restrictions. It can be easily liquidated within one day. However, it is important to note that this fund is not a permanent place to invest your funds.

Quarterly Investment Update - 1st Quarter 2023

Fri, 07 Apr 2023 15:00:53 GMT

Dear Clients and Friends,

After a red-hot start to the year, the stock market has stalled out in February and March and now some investors are questioning whether we are going back into a bear market.

The S&P 500 rose 6.2% in January, one of its best January performances ever. In fact, since 1950, the S&P 500 has risen 6% or more in January in just ten separate years. The results are even better when stocks popped in January after having a bad showing in the previous year, which is exactly the situation we have in 2023. That has happened four times since 1950. Each time stocks rose by more than 20% through the entire year. Barring a black swan event, history says it has a very good chance of being the start of a big stock market breakout that lasts for at least the rest of this year.

During the last few weeks, three important pieces of economic data were released. We are talking about February’s Consumer Price Index (CPI), the Producer Price Index (PPI) and February retail sales. The CPI was up 0.4% in February and is now reviving at a 6% annual pace. That is down from 6.4% in January and is the smallest increase since September 2021. The PPI fell 0.1% in February, below the estimate for a 0.3% increase. Year-over-year prices rose 4.6%, which is down substantially from 5.7% in January. Then the Commerce Department reported that retail sales fell 0.4% in February, which was in line with expectations.

During their March meeting, the Federal Reserve did what all of Wall Street had anticipated and raised key interest rates by twenty-five basis points. However, the big news was the Federal Open Market Committee (FOMC) statement. The previous FOMC statements typically had the phrase “we are going to have ongoing rate increases.” However, this phrase was missing from the March FOMC statement. In addition, the Federal Reserve has not ever discussed “tightening credit conditions” during this rate-hike cycle. Yet, Powell mentioned it about a dozen times in the post-meeting press conference. He kept saying repeatedly that because of the bank failures, credit conditions are tightening. He wanted to emphasize to everyone that bank lending standards are tightening. Tighter credit conditions mean it is harder to get access to capital. The harder it is to get access to capital, the less capital consumers and businesses have at their disposal. The less capital they have at their disposal, the less they spend. The less they spend, the lower inflation goes.

Inflation and falling stock prices were the prevailing themes of 2022, but in 2023, disinflation and rising stock prices are the prevailing themes. Also, leading indicators of labor market strength have weakened over the past two months, implying that the stubbornly hot labor market is finally cooling. In addition, while the banking crisis appears to be contained for now, it has put banks on edge. Historically speaking, whenever financial stress measures spike to levels like this, the Federal Reserve typically supports financial markets with either a rate pause or rate cuts. Stocks tend to follow that action with big rallies. Given falling inflation trends, deteriorating labor market conditions and spiking financial stress measures, it appears very likely that the Federal Reserve will pause its rate-hike campaign very soon. We are hopeful that a Fed pause in May or June will spark a big stock market rally that will spill into a new bull market.

To understand our investment strategy, we need to first understand the behavior patterns of stocks. In the short-term, stocks are driven by several factors such as geopolitics, interest rates, elections, recession fears and so on and so forth. In long term, however, stocks are driven by one thing, fundamentals. That is, at the end of the day, revenues and earnings drive stock prices. If a company’s revenues and earnings trend upward over time, then the company’s stock price will follow suit and rise. Conversely, if a company’s revenues and earnings trend downward over time then the company’s stock price will drop. Therefore, the historical correlation between earnings and stock prices is about as perfectly correlated as anything gets in the real world. At the end of the day, earnings drive stock prices.

During the quarter, we took advantage of the market volatility by reducing our Equity portion of our portfolios and increasing our Fixed Income portion of our portfolios. We sold some overweighted equity positions and invested the proceeds by adding more U. S. Treasury Notes and Bills that have one-year maturities.

Quarterly Investment Update - 4th Quarter 2022

Fri, 07 Apr 2023 14:56:34 GMT

Dear Clients and Friends,

The fourth quarter ended on the same tone as the prior three quarters, with much volatility.
In fact, the year 2022 started out on a collision course between Congress and the Federal Reserve. Congress kept passing more “spending” bills that increase the deficit as well as inflation and the Federal Reserve kept raising interest rates to curb inflation. During their last meeting in December, Federal Reserve Officials predicted that they will need to raise interest rates more than they had planned in 2023 to bring down inflation. The Federal Reserve’s final interest rate hike of the year, while historically large at half a percentage point, marked a step down from four straight three-quarters of point increases.

Some economists say the Fed is more worried about the buoyant stock market and long-term interest rates that fell sharply as inflation pulled back. A vibrant stock market makes consumers feel wealthier prompting them to spend more. Also, lower long-term rates such as for mortgages lead consumers and businesses alike to borrow and spend more. Such developments bolster the economy but could well fuel more inflation.

Some economists are also puzzled because the Fed’s inflation forecast does not seem to jibe with its economic projections. The Fed expects the economy to grow just 0.5% next year, weaker than the 1.2% it forecast in September. It also says that the 3.7% unemployment will rise to 4.6% by the end of 2023, above the 4.4% it had estimated. Normally, a softer economy and higher unemployment lead to less inflation because fewer shoppers are buying products and fewer employers are hiring, curbing pay increases.

During the fourth quarter, stocks reduced their losses for the year. October was a stunning month for the stock market, with the S & P 500 jumping 8% and the Dow soaring 14%. The NASDAQ rose nearly 4%. Inflation also cooled, with both Consumer Price Index (CPI) and Produce Price Index (PPI) reports coming in lower than economists had anticipated. The slowdown in inflation had investors optimistic that the Federal Reserve would dial back on its aggressive key interest rate hikes in December. However, stocks pulled back sharply in the wake of a surprisingly hawkish Federal Open Market Committee (FOMC) statement in early December. The language was not dovish, and the Fed’s dot-plot survey showed that the Fed plans to raise interest rates up to 5.1% in 2023, which was above its previous goal of 4.6% in September.

Bonds have recorded their worst year in 2022 since the early 1930’s. With the Bloomberg Aggregate Bond Index down more than .15% for the year through mid-October, losses are more than double any prior retracement back through the 1970’s. In combination with the stock market rout, this has made investing especially difficult for traditionally diversified portfolios, where allocations to bonds have significantly softened the blow in the past. Even in 2008 when the S & P 500 Total Return Index was down -3.7%, the Aggregate Bond Index posted a +5.2% gain for a total 60/40 blended portfolio loss of just -20.1% on the year. This historic “flight to safety” quality of bonds has simply not held true in 2022.

So what will the Fed do in 2023? Despite its forecasts, economists expect the Central Bank to halt its rate hikes sooner if inflation continues to ease and the economy weakens in the coming months. The issue now is that the economy is again contending with stubbornly high inflation resulting from the massive Covid stimulus programs and supply chain disruptions as well as legislative spending bills. Further, the Federal Reserve has once again declared war on inflation by aggressively raising interest rates. In addition to higher rates targeted ahead, “Quantitative Tightening “is on the horizon whereby the Federal Reserve plans to reduce its balance sheet by selling bonds into the marketplace.

Quarterly Investment Update - 3rd Quarter 2022

Fri, 07 Apr 2023 14:31:13 GMT

Dear Clients and Friends,

The third quarter ended on the same tone as the prior two quarters, with much volatility. Most investors were rattled by all this volatility, and this can be nerve racking. This was particularly troubling for all our investors, especially those who are not comfortable with all this volatility. In fact, the year 2022 has been one of the most volatile years in decades, with everything from inflation to global conflict hurting the market. During this quarter’s volatility, our portfolios went up and down along with the stock and bond markets. As your investment advisor, we were very busy reviewing and analyzing each of our portfolios to make sure of the proper asset allocations as well as to make sure it meets each client’s investment goals.

The quarter began on a positive note until Federal Reserve Chairman Jerome Powell surprised the stock market with his hawkish comments at the Kansas City Federal annual conference in Jackson Hole, Wyoming during its August meeting. As a result, stocks got crushed and wiped out most of the gains. Powell also implied that “with inflation running far above 2% and the labor market extremely tight, “additional rate hikes may be necessary which they did after the September meeting. At the September meeting, the Federal Reserve provided a clear outlook for the rest of the year, and it was a little shocking. As expected, the Federal Reserve officials noted unanimously to raise key interest rates by 75 basis points for the third straight time. What was surprising was the Fed expects key interest rates to reach 4.25% by the end of the year, which implies two more sizeable rate hikes. Even though the Fed has never raised interest rates right before any election, we feel that we will see a 0.75% rate hike at the November meeting and a 0.50% increase at the December meeting. We also feel that he will pause in raising any more interest rates for a while in 2023.

As a result of the Fed’s latest rate hike, Treasury yields spiked higher with the two-year Treasury yield breaching 4% and the 10-year Treasury yield rising to above 4%. The one thing that Wall Street is afraid of is rising Treasury bond yields. The higher Treasury rates soar, the more the Fed must raise key interest rates to get to “neutral.” Higher rates will destroy the interest rate-sensitive parts of the U. S. economy and will eventually ripple through the rest of the economy. Given the surge in Treasury yields, virtually all of the stock markets’ gains since mid-June have now evaporated. In September alone, the S & P 500 dropped 11.6%, and the Dow declined 11%. The S & P has successfully “retested” its June lows. Now, this also creates a very strong U. S. dollar, so foreign capital should pour into U. S. Treasuries and shove the Treasury yields back down.

Treasury yields are basically the interest you earn when you own U.S. Treasury bills, notes, bonds, or inflation-protected securities. The U.S. Department of Treasury sells these securities as a way to pay for the U. S. debt. The first thing to know about bond yields is that they move inversely to bond prices, just like a dividend stock. If the price of the bond goes down, you are earning a higher rate of return because you paid less. The opposite is true when bond prices go up. So, whenever you see the yields rise, the price of the bond is falling. The second thing to know is that Treasury prices fluctuate with supply and demand. Treasury bonds are sold at auction initially, but they can be bought and sold in the secondary markets after they are issued.

As we discussed in the past, the latest inflation data crushed any hope that the Federal Reserve would back off its aggressive key interest rate hikes. As you may recall, the August Consumer Price Index (CPI) rose 0.1% month-over-month, missing economists’ expectation for a 0.1%% decline. The CPI shocked Wall Street as energy prices dipped 5% in August, with gasoline prices dropping 10.6%. On the other hand, food prices rose 0.8% in August. Excluding food and energy, core CPI climbed 0.6% in August, which means that inflation is now embedded in many service costs. The next big inflation data to hit the tape will be October 13 with the September CPI. Even though there has been much discussion in the news about “recession”, the real buzz word should be “inflation”. We are hopeful that the economic data will reflect that inflation is being controlled, which should stabilize interest rates. In addition, in less than five weeks, we will have the opportunity to vote and possibly change our government’s structure so that we may grow the economy. We feel that we will have a nice rally in the fourth quarter.

During the quarter, we took advantage of the market volatility to purchase new businesses that have been left behind by the market as well as added to our existing position. We added Alphabet, which we previously owned and sold for a nice gain. We also purchased more of Nvidia Corp. (NVDA), which we currently hold but added to our position. We also added to the energy sector, especially for those portfolios that did not have a full allocation. We added a position in Devon Energy (DVN) as well as Cenovus Energy (CVE).

In the fixed income portion of our portfolios, we added U. S. Treasury Notes that have a yield in excess of 4.2%. They have a one-year maturity.

As far as sales are concerned, we sold Biogen (BIIB), W. P. Carey, Inc. (WPC), Matterport, Inc. (MTTR) and Zoetis, Inc. (ZTS) and Fiserv, Inc. (FISV).

Quarterly Investment Update - 2nd Quarter 2022

Fri, 07 Apr 2023 14:23:21 GMT

Dear Clients and Friends,

First of all, I hope you and your family had a great July 4 ^th Independence Day celebration weekend.

Let us start with the bad news. The first six months of 2022 mark the S & P 500’s worst performance in 52 years. As you are already aware, our stocks and bonds in our portfolios were not spared from the selling. The United States began 2022 with great promise. We expected GDP growth of more than 4% in real terms, ongoing monthly job gains in the hundreds of thousands, and decelerating inflation pressures. We recognized the risk posed by a Russian troop building on Ukraine’s border, but our base-case scenario did not anticipate that Russian President, Vladimir Putin would order an invasion of Ukraine given the consistent, unified warnings about the consequences from the United States and its European allies.

The second quarter continued with much volatility, and it was exasperated on June 15 after Federal Reserve Board Chair Jerome Powell delivered a 75-basis point hike. Jerome Powell also said another huge move is likely in July. Higher interest rates mean slower-economic growth. Slower growth means that inflation may be under control. When inflation gets under control, stocks will rebound. So long as inflation remains out of control, stocks will keep falling. Over the past few months, the Fed’s actions did not provide much support to help calm inflation. Quarter-point hikes do not do much when you are starting at zero and inflation is above 8%. But 75-basis-point hikes do a lot, and when strung together, they should pack a powerful enough punch to stomp out inflation. It is important to note that inflation (not the Fed) is the driver behind the recent stock market declines. The Fed did not start hiking rates until March 2022. This current market selloff started well before that, in November 2021.

The last and arguably the most important implication of the last Fed decision is that Treasury yields have likely topped out. A spiking 10-year Treasury yield has been causing harm to stocks all year long, mostly because higher bond yields mean lower equity valuations. So long as yields keep surging, stocks will keep falling. If all goes according to plan, then the Fed’s target interest rate should top out at around 3.4%. Historically speaking, the 10-year Treasury yield tends to top out at levels largely in line with the maximum interest rate in any given rate like cycle. If that proves to be 3.4% in the current cycle, then the 10-year Treasury yield has topped out and is ready for a pullback.

By now, you have certainly heard that a recession over the next 12 months is very likely. The Fed aggressively hiking interest rates into an already slowing economy, and historically, that combination almost always leads to a recession. Recently, we received another batch of data which illustrated that, indeed, the U. S. economy is falling into a recession. Industrial production growth slowed in May, the leading economic indicators index dropped for a second straight month. However, inflation is a tough sucker to kill quickly. In order to do that, we need all the help we can get. We need current labor shortages to abate. We need economic demand to fall. And we may even need a recession. Investors understand that priority number one right now is killing inflation. So, if we want to kill inflation quickly, we are going to need a recession. Not a big one like 2008 or the 1930’s. But we need a short, shallow, regular, run-of-the mill recession like the early 2000’s and early 1990’s.

As we all know, inflation is a function of supply and demand. If supply is improving and demand is falling, inflation should subside over the next few months. On the supply side, multiple economic data points are showing that the COVID – related supply chain disruptions of 2020 and 2021 are gradually subsiding in 2022. On the demand side, the growth in the volume of money circulating in the U. S. economy is slowing. Specifically, M2 money supply growth is moderating. M2 is measure of the money supply that includes cash, checking deposits, and easily convertible near money. During the post-COVID money printing boom, the year-over-year growth in M2 money supply averaged north of 20% throughout 2020 and north of 10% throughout 2021. But in recent months, M2 money supply growth has dropped into its historically normal ranges of 5% to 10%. With demand falling and supply rising, we feel that the stage is set for meaningful deceleration of inflation for the rest of the year.

During the quarter, we added several positions in the equity portions of our portfolios including Vimeo, Inc. (VMEO), MGM Resorts International (MGM), Realogy Holdings Corp. (RLG), which we previously owned and Warner Bros. Discovery, Inc. (WBD), which was formed by liquidating Discovery Holdings (DSCA) as well as the partial spinoff from AT &T. As far as sales were concerned, we sold several positions, including Disney (DIS), Kraft Heinz Company (KHC) and Prosy (PROSY), which we sold for tax purposes. We added a new sector in the Fixed Income section called Treasury Inflation Protection Securities (I Bonds, ETF’s), which include all publicly-issued United States Treasury inflation – protected securities that have at least one year remaining to maturity, are rated investment-grade and have $300 million or more of outstanding face value. We established several positions in the performance of the inflation protected public obligations of the U.S. Treasury commonly known as “TIPS”, including iShares TIPS Bond ETF (TIP), SPDR Portfolio TIPS ETF (SPIP), iShares 0–5-year TIPS Bond ETF (STIP) and Vanguard short-term inflation – protected securities Index Fund (VTIP).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Quarterly Investment Update - 1st Quarter 2022

sfarmand1@gmail.com (Steve Farmand) — Fri, 07 Apr 2023 14:11:25 GMT

Dear Clients and Friends,

Well, the first quarter was full of volatility and much uncertainty. Part of that uncertainty was lifted once the Federal Reserve Board Chairman, Jerome Powell announced the beginning of the interest rate cycle by increasing interest rates by .25% a couple of weeks ago. The voting members reduced their 2022 GDP growth guide from 4% to 2.8%, hiked their inflation guide from 2.6% to 4.3%, and raised the number of rate hike projections in 2022 from three to seven rate hikes.

After the cold winter months, April is often when the seasons change, and everyone’s mood improves as spring brings in warmer temperatures. It is a time of transition when everyone also looks to make a few changes at home, decluttering and deep cleaning. Wall Street is no different, especially after a very rough quarter in 2022.

While none of us has a crystal ball and can predict what will happen between Russia and Ukraine or where the market is headed next, there is one thing that we know for certain – Inflation will remain elevated for the foreseeable future. The latest Consumer Price Index (CPI) and Producer Price Index (PPI) revealed just how hideous inflation is right now. The CPI is now running at an annual pace of 7.9%. Wholesale inflation is even worse, with the PPI up 10% in the past twelve months. Even when you strip out the volatile and soaring food and energy prices, core CPI and core PPI were up 6.4% and 6.6% respectively, during the last twelve months.

The Federal Reserve is finally admitting that inflation is no longer “transitory” and started to take steps to combat it with its recent 0.25% key interest rate hike in March. However, many analysts feel that it is too little, too late. They are not entirely wrong, because even if the Fed would raise interest rates another six times this year, with a few half-percentage-point increases in the mix, key interest rates would still be well below inflation come year end. Plus, we suspect the Fed will be a little more hesitant on further interest rate increases this year. The yield differential between the two-year Treasury and the ten-year Treasury is now too close for comfort.

Right now, we have dramatically rising interest rates with a relatively flat or inverted yield curve. On top of that, we are experiencing hideous inflation that will persist for the foreseeable future, ongoing supply chain issues, a new round of COVID-19 lockdowns in China, and crude oil is still up significantly from last year. That does not even account for the ongoing effects of the conflict in Russia and Ukraine. Under no circumstances does the Fed want to invert the yield curve, as it would cause undue stress on the banks that it regulates.

So, what does an inverted yield curve mean and how does it affect our portfolios? Investors tend to get worried about yield curve inversions because it has served as a precursor for a recession in the past. However, it is important to note that yield curve inversions are infamously early in predicting recessions. That is, they tend to happen about twenty months before the stock market hits a peak. Also, during those twenty months, Wall Street tends to party like there is no tomorrow. A yield curve is the relationship between short-term and long-term interest rates of fixed-income securities, like bonds, from the U.S. Treasury. In a healthy bond market, long-term interest rates are higher than short-term rates. When the yield curve inverts, it means short-term interest rates have moved above long-term rates. This suggests that bond investors are worried about the economy’s long-term prospects. As investors, the best way to benefit from surging inflation is to continue to invest in stocks with pricing power in the current market, which is what we own in our portfolios.

During the quarter, we reduced our Equity portfolio’s cash position, which averaged between 15% and 20% over the course of last year but ended the quarter at less than 10%. We added several equity positions including Nio Inc. (NIO), Millicom Int’l Cell (TIGO), Madison Square Garden Co (MSGS), Renaissancere Holdings Ltd (RNR), Liberty Broadband Co (LBRDK), Fiserv Inc (FISV), Biogen (BIIB) and QuantumScape Corp (QS). As far as sales were concerned, we sold Comcast (CMCSA) for a nice gain as well as Erickson (ERIC) for a small loss. We also sold Lucid (LCID) in January but re-purchased it a month later. In the Fixed Income section of our portfolios, we sold our entire positions in Vanguard GNMA Fund.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Quarterly Investment Update – 4th Qtr. 2021

Mon, 07 Feb 2022 15:06:00 GMT

Dear Clients and Friends,

Well, we have just closed the books on 2021 and it was another year filled with highs and lows. The broader indices climbed to new record highs, and the Dow broke 36,000 for the first time ever. Companies reported record earnings and there was a record number of stock buybacks. The Wall Street Journal noted that in the third quarter, stock buybacks rose to $234.5 billion, an all-time record. The year 2021 was the third successive year of double-digit returns for the broader indices.

However, there were some lows, including the violent sell off in Chinese stocks in the early part of the year. That was due in large part to the “blowup” of Archagos Capital Management family office, which held inventory of several brokerage firms. As a result, many Chinese stocks were hit with relentless selling pressure. To add insult to injury, a coordinated slander campaign against Chinese stocks by the financial media ensued, which triggered even more selling. Investors also had to contend with new COVID-19 variants, port bottlenecks, supply chain glitches, the semiconductor chip shortage, a ban on drilling on federal land and the Federal Reserve pumping too much stimulus into the economy. Put it all together, and it led to one of the biggest stories of the year; inflation spinning out of control.

Wall Street was laser-focused on the December 15th Federal Open Market Committee (FOMC) statement, as investors hoped they would finally receive clarity on what the Fed’s next moves would be to rein in inflation. Well, we got our answer, and it was what we anticipated: The Central Bank will quicken its pace of reducing economic stimulus in the form of monthly bond purchases and begin raising interest rates in the new year. Fed officials said they would trim bond purchases by 30 billion dollars per month starting in January and end the bond purchasing program by March, unless the economic outlook changes, ahead of increasing the short-term benchmark interest rate to help tame inflation. Fed officials’ projections also show the Fed anticipates implementing as many as three rate hikes in 2022, two in 2023, and two more in 2024.

The United States economy grew at a 2.3% rate in the third quarter, slightly better than previously thought, according to a recent report from the commerce department. But prospects for a solid rebound going forward are being clouded by the rapid spread of the Coronavirus. The 2.3% third quarter gain follows explosive growth that began the year as the country was emerging from the pandemic, at least economically. Now, with the appearance of the Omicron variant, coming on top of high inflation and lingering supply chain issues, there are concerns that growth can be constrained heading into 2022. Those fears have sent the stock market on a turbulent ride recently, although new optimism that the Omicron risks will be manageable sent the Dow Jones Industrial average up for a year end Santa Clause rally.

The stock market corrected after Thanksgiving and has retested these recent lows on several occasions. We have experienced more 300-point swings on the Dow than I care to count. The uptick in volatility in December can be attributed to several factors. Primarily, Wall Street has been focused on the Federal Reserve, raging inflation and the COVID-19 Omicron Variant. However, the Fed remains accommodative and is starting to take steps to curb inflation with the goal to squash inflation late next year and get it back to its 2% target in 2023. Also, the Omicron Variant has been reported to be not as deadly. In fact, in South Africa where it was first reported, it is not a problem anymore because it already spread through the population and folks recovered. While the market’s gyrations have been gut wrenching in December, the volatility we experienced was merely an opportunity to add to or buy into some new equity positions.

All major United States markets rallied towards the end of the year to close at all-time highs, but all were in negative territory the 30 days prior to that. It is the uncertainty of what is to come, however, that is now concerning economists. Rubeela Farooqi, Chief U. S. economist at High Frequency Economics recently said, “The Omicron variant poses a downside risk in the near term as do supply-chain disruptions and shortages that could be a constraint for households and businesses in the coming months”.

During the quarter, we added several positions during this volatile period. We added Discovery Holdings (DISCA), Ericsson (ERIC), Ford Motor Company (F), Lanxess Ag (LNXSF), Naspers Ltd. (NPSNY) and Iac/InterActiveCorp New (IAC). There were no additions to our Fixed Income positions. During the quarter, we analyzed all the taxable portfolios for tax efficiency and took advantage of the volatility by selling some positions to generate tax efficiency. We sold Baidu Inc. (BIDU), Joyy Inc. (YY), Tal Ed Group (TAL) and Joby Aviation Inc Wt. (JOBYWS).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary Archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Quarterly Investment Update – 3rd Qtr. 2021

Mon, 07 Feb 2022 15:03:00 GMT

Dear Clients and Friends,

The long-awaited Federal Open Market Committee (FOMC) statement was finally released early last week and it was a very dovish one. The Fed is keeping interest rates near zero, though it did hint that a rise in rates could come sooner than anticipated. The FOMC said in a statement that “if progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.” In a post-meeting press conference, Fed Chairman Jerome Powell said that while no decisions on tapering were made, “Participants generally viewed that so long as the recovery remains on track, a gradual tapering process that concludes around the middle of next year is likely to be appropriate.” The FOMC said that it could start to reduce its $120 billion in monthly asset purchases at its next meeting in November.

Fed officials also revised their inflation mandate by upping their core inflation figure to 3.7% this year, which is higher than their projection of 3% in June, and predicted 2.3% inflation next year, up from 2.1%. Powell said that inflation will subside once supply chain backlogs get sorted and increased pandemic demand diminishes. You may recall that last year the Fed officials said they wanted to see inflation reach 2% or a little higher as enough jobs return to the labor market to reach the maximum employment rate. Roughly 4.7 million jobs have been added in the U.S. throughout August, almost half of the 10 million that had been lost by last December, while the unemployment rate dipped to 5.2% at the end of August compared to 6.7% in December. The Fed predicted the unemployment rate for the fourth quarter would hit 4.8%, up from its June estimate of 4.5%. Some of the members of the committee felt that the test is already met and others want to see more progress, which leaves one more unemployment report until the next FOMC meeting. The FOMC did say it sees GDP rising at a slower rate – 5.9% for the year compared to its 7% prediction in June – though it increased its 2023 GDP growth forecast to 3.8%, instead of the previous 3.3%.

As you look around the world, the U.S. is one of the only major economic powers with decent interest rates. The debacle unraveling the Chinese real estate company, Evergraude, means that China could end up cutting its interest rates from the current 3.85% for their one-year loan prime rate. In addition, the eurozone has negative rates, with the European Central Bank’s key interest rate at -0.5%. In Japan, rates on 10-year government bonds are flat. In England, rates are at a historic low of 0.25%. The bottom line is that the U. S. stock market remains to be a great place to invest and we feel that a lot of foreign capital will come to America and help keep rates extra low. We have invested our portfolios with mostly U. S. securities and we feel that it is time to diversify into non-US markets.

Equity market returns in Asia have lagged those in the United States and Europe this year. More importantly, China’s internet sector which makes up a significant part of Asia and China indexes, has come under tighter regulatory scrutiny, with anti-monopoly investigations and new fintech and data privacy regulations impacting regional returns. This increase regulatory oversight is not too different from what we have observed in the United States and European markets over the past decade. Globally, new rules governing the internet, privacy content, data collection, storage, sharing, and usage are being written. However, the pace at which Chinese regulators have implemented regulation and oversight over the sector has been extremely rapid.

This regulatory crackdown allowed us to increase our small exposure to Chinese stocks by buying small positions in Alibaba, Baidu (BIDU), CK Hutchinson (CKHUY), JOYY (YY), Prosus (PROSY), and WHGroup (WHGLY). After the recent correction that sparked the stress around rising regulatory risk, the Chinese equity market seems poised to deliver strong returns. Despite lagging on the vaccination rollout, Asia has shown its ability to effectively contain the economic damage from the pandemic without relying on unsustainable fiscal and monetary measures. This should hold Asian countries and currencies in good stead when reopening focus moves back to Asia. The US represents 25% of global GDP and 28% of global portfolios. On the other hand, China represents 20% of global GDP but just 1.6% of global portfolios. We believe that Asia offers sustainable growth at cheaper valuations and is poised to outperform the US market prospectively.

During the quarter, we added four equity positions, other than the Chinese stocks, that we added to most of our portfolios which were Nividia Corporation (NVDA), Hyatt Hotels (H), Covetrus, Inc. (CVET) and Joby Aviation, Inc. warrants (JOBYWS). There were no additions to our fixed income positions. However, we trimmed some of our fixed income due to US Cellular Corporate Preferred stock was called in by the company due to its high dividend yield and redeemed all of the stock on September 11, 2021. During the quarter, we analyzed all the taxable portfolios for tax efficiency and took advantage of the correction in September by selling some positions to generate a loss for tax purposes. We sold Tencent Music Entertainment (TME), Kulick & Soffa Industries (KLIC) and Realogy Holdings Company (RLGY).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Quarterly Investment Update – 2nd Qtr. 2021

Mon, 07 Feb 2022 15:01:00 GMT

Dear Clients and Friends,

The first two quarters of 2021 are officially in the rear-view mirror and it was a stunning six months for the stock market as well as our portfolios. As we look forward to the next six months, what can we expect? The reality is that the analyst community has continued to increase earnings estimates and the U. S. economy is firing on nearly all cylinders. That bodes well for robust economic growth and wave-after-wave of positive earnings results in the near term. We should also add that unemployment claims have now dipped to a new pandemic low. The Labor Department reported that they dropped back below 400,000 to 364,000, or the lowest level since March 2020. The Labor Department also announced last week that the unemployment rate rose to 5.9% in June, and 850,000 jobs were added during the month.

As we discussed in our last mid-quarter Investment Update, the Labor Department recently announced that the Consumer Price Index (CPI) climbed 5.0% over the last 12 months, the largest bump since the 5.4% increase for the year-long period ending August 2008. The core-price index, which excludes categories with high volatility like food and energy, increased 3.8% in May from the prior year. That was the largest such increase since June 1992. But rising inflation is not the big news for now. Instead, it is the fact that the 10-year Treasury yield has been dropping and is now sitting below 1.5%.

Some investors are shocked and wondering how interest rates could be dropping with rising inflation. But when you dig into the details of the latest CPI readings, what looks to be happening is giving more and more credence to the Federal Reserve’s view that this recent inflation is transitory. Now, we realize a wide variety of industries are seeing prices rise, from used and rental cars to food manufacturers to hotel rooms. But the increase is not that surprising when we consider the bigger picture of where the economy has bounced back from, and where it is headed.

COVID-19 infection and mortality rates continue to rapidly decline thanks to vaccinations. People are getting out and about, buying and spending up a storm on goods and services they cut back on during the height of the pandemic. Increasing consumer spending has been fueled by more businesses easing restrictions, a flood of trillions of dollars in federal economic relief programs, increased household savings and a rising Gross Domestic Product (GDP). A group of economists surveyed by the Wall Street Journal estimate the economy in 2021 could post one of the best rises in GDP since the 1980’s. Clearly, we are starting to see an improvement in the jobs market, but we still have not achieved the Fed’s goal for full employment. Based on recent comments from analysts, the Fed’s unemployment goal is 4%. So, until we reach that level of unemployment, we do not expect the Fed to take any action to curb rising inflation. The bottom line is that while there may be inflation out there, it is not showing up yet in the bond market, which is good news for the stock market.

So, why did Wall Street overreact to the latest Fed announcement? The Federal Reserve’s Federal Open Market Committee (FOMC) met in mid-June and said that they will continue to maintain a zero percent interest rate policy and the $120 billion per month in quantitative easing purchases. If there was a surprise in the Fed’s announcements, it was that 13 of the 18 FOMC members expect key interest rates, known as the federal funds rate, or the rate banks can charge each other to borrow or lend excess reserves overnight, will go up in late 2023. Previously, the Fed stated that the federal funds rate would increase in 2024, so they accelerated the timeline a bit from when they last met in March.

The FOMC also raised the GDP growth forecast for the year to 7.0% from 6.5% in March. And most importantly, the Fed raised its inflation forecast to 3.4% from 2.4%. So that means as long as inflation stays under 3.4%, we should not have to worry.

Now, we have had a lot of commodity inflation. Prices for aluminum, steel, copper, lumber and oil have been on a tear. Energy prices, in particular, are distorting the inflationary picture. This includes May’s 1.1% rise in import prices, which marked the seventh consecutive monthly gain in import prices. But in June most of those commodity prices are lower.

So, it looks like this “goldilocks” environment of an accommodative Fed, and strong corporate earnings will continue. In fact, the second-quarter earnings season is expected to represent peak earnings. According to Fact Set, earnings are expected to surge 61.5% year-over-year and revenue is estimated to rise 19.3% year-over-year.

As far as purchases for the quarter, we purchased Tencent Music Entertainment (TME), Liberty Braves Group (BATRK), Kulicke & Soffa Industries (KLIC), Grupo Televisa SAB (TV) and Alibaba Group Holdings (BABA). We sold several positions for the quarter including Centene Corp (CNC), PPL Corporation (PPL), Medical Properties (MPW), Formula One Group (FWONK), Potlach Corp. (PCH), Hannon Armstrong (HASI), and Marathon Petroleum Corp. (MPC). We also sold the remaining position in the wrights of Danimer Scientific (DNMRWS).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Mid – Quarter Investment Update – May 14, 2021

Wed, 19 May 2021 15:28:00 GMT

Dear Clients and Friends,

We are more than halfway through the first-quarter earnings announcement season as over 60% of the S & P 500 companies have reported their results. Of these companies, 86% have topped analysts’ estimates. There is a lot of optimism supporting the stock market with more than 6% GDP growth forecasts for 2021, ultra-low interest rates for the foreseeable future, record order backlogs and robust consumer spending, which are all adding handsomely to companies top and bottom lines.

However, there is a lot of confusion, uncertainty, and even fear about where the markets are heading over the next twelve months. A small sample of most investors concerns are as follows:

This earnings season has been stunning so far, with many companies beating analysts’ earnings expectations. However, the party fizzled a bit when the Biden Administration proposed to nearly double taxes on long-term capital gains to 39.6% from the current rate. It is important to note that these tax increases are proposed, nothing more. In all likelihood, these proposed tax increases will not be passed by Congress as they are because there are many moderate Democrats, such as Senator Joe Manchin, that are opposed to it.

The Consumer Price Index (CPI) report was released this week. The CPI surged 0.8% in April, well above economists’ expectations for a 0.2% rise. Year-over-year, the CPI jumped 4.2%, also above estimates calling for a 3.6% increase. Core CPI rose 3% year-over-year and 0.9% in April, again topping expectations for a 2.3% and 0.3% bump, respectively. This marked the biggest inflation increase in 13 years, and clearly, Wall Street was not pleased with the report. Keep in mind that the Federal Reserve expected inflation to rise to 2.4% and to be “transitory”. So, direction from Fed Chair Jerome Powell and Janet Yellen, the United States Secretary of Treasury, is critical to alleviate some uncertainty and settle the markets.

Due to these inflationary concerns, we will be watching whether Fed Chair Jerome Powell will reverse his stance of keeping interest rates low and raise key interest rates. In addition, we are hopeful that Janet Yellen will convince President Biden to slash the stimulus spending.

The world and the stock market are far from normal right now. However, we feel that there is always opportunity all around us. We are excited about the specific company opportunities in our portfolios.

As far as our investment strategy is concerned, we continue to maintain substantial exposure to common stocks (and mutual funds) as well as to Fixed Income such as bonds and bond funds, preferred stocks, master limited partnerships (MLP’s) and Real Estate Investment Trusts (REIT’s). We have and will continue to take profits on our over weighted positions more frequently so that we could reduce our risk and raise more cash.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick retirement calculator, our latest firm news and Market Commentary archives. We continue to hope that you are keeping yourself, your loved ones and your community safe from COVID-19.

Quarterly Investment Update – 1st Quarter 2021

Thu, 01 Apr 2021 16:37:00 GMT

Dear Clients and Friends,

What a difference a year can make? At this time last year, the broader indices were finding a bottom in what was the shortest bear market in history. This onset of the COVID-19 pandemic triggered a 33-day bear market that started on February 19, 2020 and officially ended on March 23, 2020. In the past 100 years, bear markets have historically lasted a median 302 days. Since the March 2020 lows, the broader indices have all trekked back up to all-time highs. Now, while Wall Street recovered a lot faster from the pandemic than anyone could have anticipated, economies around the world are still fighting to find solid ground. Europe is facing another wave of rising COVID-19 cases, which has led Italy, Poland and France to institute lockdown restrictions again. The reality is that Europe is in the midst of a double-dip recession. GDP in the Eurozone declined at a 6.9% annual rate in 2020, with negative growth in the first two quarters and final quarter of the year. Fourth quarter GDP (Growth Domestic Product) dipped 0.7% and is now forecast to drop 0.8% in the first quarter of 2021.

As we discussed in our last mid-quarter Investment Update, positive fourth-quarter results are driving the overall U. S. market higher with the three major indices streaking to new all-time highs. The good news is that the United States and China are still anticipated to lead the global economic recovery this year. Many economists are expecting the United States to achieve GDP growth of about 6% this year. China is also expected to have GDP growth of 6% or more in 2021.

U.S. manufacturing is starting to fire on all cylinders. The Institute of Supply Management (ISM) reported that its manufacturing index rose to 60.8 in February, up from 58.7 in January. That is the highest level in nearly three years. It also marked the ninth – straight month that the ISM Manufacturing index has increased.

The jobs market is also finally starting to improve. The Labor Department revealed that 379,000 jobs were created in February, down from 6.3% in January. Part of the improvement in the jobs market is due to several states reopening their doors. In fact, Texas and Mississippi recently announced that they were joining Alaska, Arizona, Florida, Georgia, Idaho, Iowa, Montana, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota and Tennessee in rolling back the mandatory mask mandates. Texas also revealed that businesses can now operate at maximum capacity.

As more states reopen their businesses and lift restrictions, we expect U. S. Gross Domestic Product (GDP) growth to remain strong.

In the wake of strong retail sales and manufacturing activity plus COVID-19 restrictions being lifted in many states, first-quarter GDP is expected to be super strong.

In addition, the FDA recently granted Johnson & Johnson an emergency use authorization for its COVID-19 vaccine and the distributions are already underway. Also, President Biden recently signed into law the American Rescue Plan Act of 2021, which offers aid to small and medium-size businesses and their employees who were impacted by the COVID-19 pandemic. So, we are on the road to recovery, and we expect U.S. GDP growth to continue to expand in the upcoming weeks and months, all of which bodes well for the stock market. However, it is important to note that for the U. S. to reach these lofty projections, we need a robust consumer – led recovery since consumer spending accounts for nearly three-quarters of total U. S. GDP growth.

During the first quarter, we added a few equity positions including Life Storage, Inc. (LSI), Hanon Armstrong Sustainable Infrastructure Capital (HASI), Douglas Emmett, Inc. (DEI) and Centene Corporation (CNC). We also purchased small positions in a couple of new SPACs including Appharvest, Inc. (APPHW) and Nextgen Acquisition (NGACW). As far as sales during the quarter, we sold Blackberry Ltd (BB), Kar Auction Services (KAP) and Marine Products Corp. (MPX). We also sold the Vanguard High Dividend (VYM) and replaced it with the Vanguard S & P 500 ETF.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Mid Quarter Investment Update – February 16, 2021

Wed, 17 Feb 2021 15:42:00 GMT

Dear Clients and Friends,

Positive fourth-quarter results are driving the overall market higher. The three major indices continued their streak of new all-time highs. The truth of the matter is that earnings are working. More than 60% of the S & P 500 companies have announced their most-recent results and so far, the average revenue and earnings surprise is 3.3% and 18% respectively.

The U.S. economy is fully in recovery mode. After the massive rebound in the third quarter, Gross Domestic Product (GDP) growth is set to come in at a good number for the fourth quarter. And 2021 is slated to deliver very positive growth numbers, particularly in the United States. Driving that growth is the largest segment of the U. S. economy – consumers. Consumer spending for the fourth quarter should be positive, and this should continue to improve through 2021.

The jobs market in the U. S. remains a challenge. New weekly jobless claims remain very high, and this extends to continuing claims. The most recent monthly jobs data showed a major decline in jobs. This is the leading problem in the U.S. economy, because fewer jobs mean fewer households with the ability to spend. However, overall recent holiday sales show a remarkable increase over the same period for 2019. And online sales as reported by Adobe Analytics were up for the holiday spending period by 32% over 2019. So, there are deeper data supporting the idea that consumers are still working for U.S. economic growth.

The year 2021 will be all about results and not just hopes and promises. We will be keeping an eye on what is happening in individual company quarterly reports and their guidance for subsequent quarters. Quarterly reports come down to sales and profits. This is the proof the stock market will need to keep buyers buying as the overall valuation measures of the S & P 500 are at extreme highs. The core basic valuation measures for the index include price to earnings (P/E) at 30.4, price to sales (P/S) at 4.2 and price to book (intrinsic value, P/B) at 2.9. Each of these valuation measures are very high, and they represent the hopes and promises that more of the leading companies in the U.S. stock market will deliver on selling more stuff while also generating more profits, as measured by earnings. The expectations are for current sales and earnings gains to climb further over the coming quarters of 2021.

The U. S. bond market has been performing very well in recent years. And while it has taken a pause in the early days of this year, it is still in good shape to continue to perform well in 2021. The overall U.S. Aggregate Index has returned 6.3% over the trailing year reflecting strong demand for bonds and the low inflation conditions of the United States. Inflation as measured by the core Personal Consumption Expenditure Index (PCE) remains well below what the Federal Reserve wants and needs to see in averaging at and above 2.0%.

U.S. corporate bonds have done better, returning 8.1%. This reflects demand and constrained net supply along with improving credit conditions. Municipal bonds have returned 4.2% over the past year and are off to a better start for this year. Contrary to popular belief, municipal financials have been much better with good to rising tax revenues and the ability to better budget for expenses. Add in controlled net new supply of bonds and ample demand and municipal bonds are working and should continue to work very well for this year.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick retirement calculator, our latest firm news and Market Commentary archives. We continue to hope that you are keeping yourself, your loved ones and your community safe from COVID-19.

Quarterly Investment Letter – 4th Quarter 2020

Wed, 13 Jan 2021 15:54:00 GMT

Dear Clients and Friends,

The U. S. markets are all running very positively and are pulling in more cash from investors showing their fear of missing out. The primary driver, in our view, is that more and more folks are convinced that 2021 is not going to be like 2020. Of course, this is correct. But will all the challenges of 2020 be conquered? As COVID-19 surges upward in cases and deaths again, state and local governments are re-locking businesses without paying compensatory damages. But what is different is that the U.S. Food and Drug Administration (FDA) has approved vaccines, and confidence is super high that this is going to quickly end the virus and its impacts on the economy and the markets.

U.S. stocks moved up a lot during 2020, with the S & P 500 Index up by 14.4%. That is a monster number given that on March 23, the same index had lost 30.8% from the start of last year. Yet, stocks should go up further into 2021 as the U. S. economy continues to perform. U.S. gross domestic product (GDP) came screaming back in the third quarter to an annualized rate of 33.1% from the second quarter’s – 31.1% debacle. The fourth quarter is expected to come in at 4.5%, and the pending quarters of 2021 are expected to advance further for a full annual rate of growth of 3.9%.

Consumers drive GDP, and fourth quarter personal consumption is expected to gain 4.9%, while full year 2021 should see a further gain of 4.6%. This is all good news, and this is before we get fully past COVID-19. Vaccines are getting deployed and if they work at not only staving off dire illness but also provide a stop to the spread of the virus, then the economy might do even better. But this will take time and a lot of luck. The U.S. is booming even with the lockdowns and soaring virus cases. Even though many households are in very dire circumstances, more households are in much better conditions. However, stock markets are not really concerned about today’s underlying fundamentals. Instead, they are concerned about what is expected to be coming down the pike.

Sales for members of the S & P 500 are projected to average a gain of 13.4% and earnings are projected to be up 44.1% for the second quarter of 2021. U. S. stocks need lots of sales and earnings to keep the buying going. Vaccines need to work, consumers need to step up further and businesses have to ramp up at the same time. These are big lifts that need to happen or there will be problems.

As far as bonds are concerned, U.S. bonds continue to do well by generating not only income but also capital gains. The overall U.S. bond market from Treasuries to corporates and everything else inside the Bloomberg Barclays U.S. Aggregate Index has returned 7.2% for 2020. The year 2019 saw a return of 8.7%, and both of these years are harbingers of 2021 with more gains in the works. Corporate bonds have been the stars of 2020 with even higher gains and income, with a return of 9.2%. Municipals have also done extremely well and contrary to pop-politics, municipalities and states are overall in much better financial shape in 2020. Online and delivery sales means more sales tax revenues and work at home means more income taxes.

The year 2021 starts off right as we left it – with elections. Georgia’s two Senate races are now looking to us as less likely to result in a divided government. This sets up a variety of challenges for U. S. markets, including tax code interpretations and potential legislative changes.

During the 4 ^th quarter, we did not add many new equity or fixed income positions, but we added to our cash levels due to year-end tax selling. As far as new equity positions are concerned, we added Live Oak Acquisition’s warrants (LOAK-WT) which will merge with Danimer Scientific, a next generation bioplastics company. We also added Black Berry Limited (BB) and Alliance Bernstein Holding LP (AB). As far as sales were concerned, we sold Alphabet, Inc. (GOOG), Southern Company (SO), Lafargeholcim (HCMLY) and Thor Industries (THO).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19. Lastly, we wish you and your family a Happy and Healthy New Year and that 2021 will be a great year for all.

Mid – Quarter Investment Update – November 2020

Fri, 13 Nov 2020 15:35:00 GMT

Dear Clients and Friends,

Is 2020 over yet? It is hard to believe that election day was a little over a week ago. But if the stock market is the sole window into current events, you would think that all challenges in the United States have gone poof! In turn, the market data would suggest that all the worst parts of 2020 are now done and settled. After the election, the S & P Index has been up 8.6% from its low on Monday before the election. This comes as preliminary election results up and down the ballots show a flip in the White House, a decline in control of the House and a continuation of control by the pending opposition party in the Senate. This assumes that the two Senate seats in Georgia stay Republican after the January run-off. However, it is important to note that this race could tip the scale from a divided government, which is what the markets are expecting, to a unified government, which could reverse the market’s gains.

Major reversals of provisions in the Tax Cuts & Jobs Act of 2017 (TCJA), including corporate tax increases and major tax increases for self-employed, professionals and tradesmen, will be on hold. This is a big deal for profits and earnings for the S & P 500 Index members as well as countless other public and private companies.

Agency rollbacks of regulatory reforms may also be limited. The Senate can guide or block appointments by the White House, especially for the Departments of Treasury and Interior, which control the Environmental Protection Agency (EPA), as well as for all the other cabinet-level agencies. So, there is some justifications for the stock market’s enthusiasm.

The main issue for the markets is that the Federal Reserve will remain in Jay Powell’s control well into the year 2022. This means that the big backstop for the U. S. Economy and markets will remain in force.

As far as stocks are concerned and even before the gains of past several days of the S & P 500 Index, the big tech-heavy index was not presenting remotely good value based on price to sales (P/S) and price to book (P/B) values. And on a price to earnings (P/E) basis, the index is way above its historic highs at 27.75 times. But what the market is looking for are the expected sales and earnings for the coming quarters of 2021 to reverse declines and head back up into growth mode. This would result potentially in lower P/S and P/E ratios bringing justification to the buying. But, looking at a broader measure of smaller to mid-sized companies that are part of the Russell 2000, P/S and P/B are a lot more under control, indicating that there are plenty of lesser-followed stocks that are considered values right now. Our portfolios have many of the successful big names that will thrive into 2021, including Microsoft (MSFT) and Amazon (AMZN). But we also have many smaller companies that are good values and come with nice fat dividends, including Compass Diversified (CODI) and B. Riley (RILY).

As far as bonds are concerned, there has been a lot of press that has focused on U.S. Treasuries backing up in terms of yield. U. S. Treasury yields have increased by 10 to 17 points (bps), or 0.10% – 0.17%. This is not a big deal. We see movement out of Treasuries into both stocks and more so into better bond opportunities, such as U.S. corporates and municipals, as both sectors are up post-elections and more so over the trailing month. U. S. corporate and municipal bonds will continue to present further opportunities for growth and income into 2021.

The U. S. Economy is doing well, more so when considering that COVID-19 is still with us and that we all endured massive lockdowns earlier this year. And that whole industry sectors, including hospitality, leisure and travel are all pretty much stopped. Jobless numbers soared, but there have been some major recoveries. Unemployment is under 8% and may well continue to drop into 2021. There were and are more folks that were able to keep their jobs either in person or remote, which continues to feed the economy. Household savings soared as folks both hunkered down at home and did not have the need to spend on travel, vacations, and restaurant outings. Thankfully, 2020 is almost gone and 2021 should provide us with some potentially great opportunities.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

QUARTERLY INVESTMENT UPDATE – 3RD QUARTER 2020

Fri, 02 Oct 2020 17:16:00 GMT

Dear Clients and Friends,

The core U. S. stock and bond markets are both in the positive for the year. That is astonishing given the lack of a definitive treatment or convincing deployment of a vaccine for COVID-19. This is even more impressive as the U.S. economy has sustained a drop in the gross domestic product for the second quarter of 9.0% and will be in a formal recession when we get the data for the third quarter. The S & P 500 is down from its September 2 ^nd high of 3580.84, worrying many traders who are now wondering whether that was as good as it gets.

The economic data largely continues to show that the U.S. recovery is not only underway but good. Consumer spending continues to rise, especially for goods and services that allow households to adapt to social distancing measures while still enjoying the summer with family and friends. The challenge for investors is to get past the concerns in the C-Suites of major companies, as measured by surveys from the New York Federal Reserve. Business leaders’ views of current conditions dropped from February to March and went off the cliff in April and May. This is completely understandable given the uncertainty surrounding the impact of COVID-19. Supply chains are still susceptible to interruptions, and order books are still at risk in some segments.

There is also an increasing level of uncertainty over potential changes in regulations due to the upcoming elections, which brings more questions into business decisions. Let us briefly discuss the various possibilities regarding the November 3 ^rd election, even as many around the nation have already voted or shall vote before that fateful Tuesday.

The House, Senate and the White House are all in play in the general elections, and the results could be as important for the economy and markets as the results of the 2016 general elections. We have always watched elections and more importantly, legislative, and executive activities when it comes to the markets and individual stocks and bonds. The government is the single-largest component of the U.S. economy, as measured by spending as a percentage of gross domestic product (GDP), and the hand of government can either be a major help or hindrance.

Single-party control of the House, Senate and White House can be either a major help, or nothing but trouble. This is the uncertainty risk in the market, as single-party control means that legislation will happen in 2021-2022. Republican sole control is not likely but Democratic control could mean a variety of legislation regarding tax code changes, healthcare rules and regulations, mandates for green energy and restrictions on fossil fuels which would negatively impact the petroleum industry. The bottom line is that the U.S. is a resilient nation and economy. Changes come, and we deal with them. All our portfolios are currently well placed for the various possibilities coming out of November 3.

U.S. bonds continue to be the best havens and are doing well with year-to-date returns outperforming the general S & P 500. Ultra-low interest rates and bond yields re benefitting corporations and allowing them to re-finance debts in both private placements and bond issues. In turn, this is adding to the bottom-line earnings. All the Fed actions have provided not just a surge in bond-buying, but a backstop for bond investors. The central bank will continue to hold its portfolio of credit assets for years to come, much like it did from 2009 into 2018. And it will continue to step up as it sees fit to buy any sort of asset to keep yields low and liquidity high. The result is that, just like U.S. stocks, U.S. bonds have performed very well. And with the Fed still confident inflation will not be an issue for quite a while, bonds continue to have value right now.

During the quarter, we primarily added to positions we already own that were dragged down by the stock market’s volatility. As far as new positions are concerned, we added small positions in Amplify Advanced Battery Metals and Materials ETF (BATT) and Thor Industries, Inc. (THO). As far as sales were concerned, we sold our entire position in Eastman Kodak (KODK) at a very nice profit after they announced that they will seek a $750 million loan agreement from the government. We still feel that Kodak has value and we may buy it back again in the future.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Mid Quarter Investment Update – August 14, 2020

Fri, 14 Aug 2020 16:25:00 GMT

Dear Clients and Friends,

We are now in the middle of August and COVID-19 cases in the U.S. are spiking at more than twice the rate we saw in April. As a result, the broad national unlocking is on pause. There is no proven treatment for COVID-19. While initial vaccine results from various pharmaceutical companies show positive developments, there is still much work to be done. Then there is the manic optimism over COVID-19 vaccines. Russian labs have been working on coronavirus-type vaccines for the past six years. This has led to the national-sponsored labs registering and deploying its two-stage, two vector vaccine. It may well work, but we are still far and away from getting past this mess. It is very difficult to see widespread inoculation until the second half of 2021.

Yet, the S & P 500 Index is borderline positive for the year to date following a big bounce from their lowest point in late March. But what is changing is in the U. S. interest rate markets. Short-term rates are still on the floor with one-month yields in Treasuries still at 0.72%. And what investors are looking at is the real yield (nominal less inflation rate) for U. S. Treasury bonds. From the stabilizing market in April of this year to now, the real yield for 10-year U. S. Treasury bonds has gone from -0.86% to -0.53%. The overall U. S. bond market as measured by the Bloomberg Barclays U. S. Aggregate Index has returned 7.8% year to date and 8.4% since mid-March to date.

Parts of the economy are showing recovery. Both initial jobless claims and continuing claims are down, and non-form payrolls are up big over the past two months, bringing down the unemployment rate to 11.1%. But that still means that millions upon millions are out of a job. Retail sales remain higher, factory and durable goods are returning, and industrial production is sharply higher. Sales of new and existing homes have sharply rebounded.

Much of this comes with the Herculean efforts of the Federal Reserve, which has done what no other central bank on the planet could do. It has supported nearly every corner of the credit and financial markets and has made ample cash and credit available for individuals, businesses, and even state and local authorities.

The Administration has led Congress to bring trillions of dollars more in assistance for reviewing and extending programs to keep the economy stable now and recovering over time. Even though the deal did not pass, there is hope that another stimulus package deal will be reached. Also, there is some near-term optimism over the Presidential executive order extending supplemental unemployment insurance and suspension/potential waivers of payroll taxes.

The data on consumer and business activities continue to support the argument that the economy will rebound further, with normalcy coming in 2021. But rising COVID-19 cases are still a major threat to the economy. And while some sort of extended fiscal relief will be coming, the political backlash will continue ever more fiercely leading into the November elections.

As far as our investment strategy is concerned, we continue to maintain substantial exposure to common stocks ( and mutual funds) as well as to Fixed Income such as bonds and bond funds, preferred stocks, master limited partnerships (MLP’s) and Real Estate Investment Trusts (REIT’S). We have and will continue to take profits on our over weighted positions more frequently so that we could reduce our risk and raise more cash. In addition, we will sell any position that will be severely impacted due to COVID-19.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19.

Quarterly Investment Update – 2nd Quarter 2020

Thu, 02 Jul 2020 15:18:00 GMT

Dear Clients and Friends,

After the horrors of the first quarter, the second quarter’s results appear to be one of the best for any quarter for the U. S. stock market in a long time. The United States continues to transition out of the economic shutdowns that put businesses into limbo and millions into stay-at-home mode. At the same time, economic data is increasingly encouraging. The S & P 500 continues to climb from the March 23 low along with the major U.S. bond market indexes. This could give the appearance that the all-clear signal is here. But COVID-19 cases and deaths are back on the rise, and some companies and organizations are reclosing stores and suspending operations. A pause or a drop in the economic recovery cannot be ruled out. But for now, let us discuss how the U.S. economic data shows us a way back to normal.

The jobs report for May showed a remarkable surge of over 2.5 million new jobs. And with a rising participation rate, it also meant that the unemployment rate dropped to 13.3%. That is huge but far better than expectations. Wages are up significantly for the second month in a row, running at a gain of 6.7%. And this good employment news showed up in a 17.7% surge in retail sales for May, providing a building block for recovery. The household savings rate also hit a peak of 33%, which means there is plenty of disposable income for more consumption and investment.

Businesses are also turning around their outlook. The New York Fed’s Business Leaders Index for current conditions is now back above the multi-year average. And the survey for expected conditions in six months is strongly above the dramatic low at the end of April.

The U.S. bond market also has been performing exceedingly well. With the Federal Reserve buying just about every sort of bond, loan, and credit security as well as bond ETF’s, the overall market as tracked by the Bloomberg Barclays U. S. Aggregate Bond Index has a 4.8% return since March 23. That might not sound like much, but on an annual basis it amounts to a return of 21.6%, which is absolutely huge.

All of this is good news. But COVID-19 cases are surging again throughout the U.S. to a level exceeding 2.2 million, with little signs of slowing down. The surge in the number of confirmed new coronavirus cases prompted Texas and Florida to reverse course and clamp down on bars again. The two states join a small but growing list of those that are either backtracking or putting any further re-openings on hold. This will bring the coronavirus back to front-page news and will have impacts on the economic recovery and the markets. The really troubling data is the net change rate on a daily basis, which shows that new cases are growing by 33,900 a day. This is now near the record highs of new daily cases seen in March and April. Relocking of state and local economies is a serious risk for the economy and the markets, with many local authorities modifying lockdown protocols. Some companies are independently closing stores again in some areas of the United States. In addition, sporting events are now being questioned to resume normal operations. Relocking the economy means we could see some heavy down trading days in the U. S. Stock Market during the coming weeks.

We have done a lot of research on the status of the companies inside all of our portfolios. Simply put, we looked at how well they could get through the virus mess and beyond, including their credit worthiness. We still believe they remain in good shape overall, even if lockdowns reinitiate. We remain positive on all of our equity positions and our bond holdings remain positive for further growth and income.

During the quarter, we continued to primarily add to a few positions that we already owned but were dragged down by the stock market’s volatility. As far as new positions are concerned, we added Amazon.Com, Inc. (AMZN), Empire State Realty Trust (ESRT), Raytheon Technologies Corporation (RTX), Walgreens (WAB), Waste Management (WM), Nikola Corporation (NKLA) and Marine Products Corporation (MPX). In an effort to raise more cash during this period of volatility, we sold our entire positions in Covanta Holding Corp. (CVA), South Jersey Inds (SJI), Sanofi Aventis, Adr (SNY), SPDR Nuveen Bloomberg (TFI) and the Vanguard Real Estate ETF (VNQ).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. We hope that you are keeping yourself and your loved ones and your community safe from COVID-19 and may you have a safe and Happy Independence Day!

Mid – Quarter Investment Update – May 15th, 2020

Mon, 18 May 2020 15:46:00 GMT

Dear Clients and Friends,

The U. S. economy is in terrible shape. Jobless claims have soared to roughly 36 million in the past 2 months and unemployment is headed to 15% or higher. Each of those folks with lost jobs will slow spending to basic necessities if they are lucky, and many will need lots of help getting by. The U. S. economy should show a contraction that could reach 8% or more for the second quarter with lingering heavy losses even with eased lockdown rules and re-opened communities. Never in modern times has the economy stopped and reversed such a strong growth course.

In the meantime, the Federal Reserve is spending trillions buying bonds and making credit available. The CARES Act of 2020 is bringing trillions more in relief spending with more to follow. Virus testing is getting quicker and cheaper, and the dissemination of such testing will allow for shorter lockdowns. Vaccine testing is moving along as well as symptom treatments, again allowing the economy to re-open safely.

Over the past several weeks, we have gone through the economic and market developments including the stability and recovery plans from the Federal Reserve and Treasury to the Corona Virus Aid, Relief, and Economic Security (CARES) Act. We have also explored how these developments and others have affected our holdings in our portfolios. In our last quarter’s Quarterly Investment Update, we discussed what has been working in the stock and bond markets and what we see working going forward. As far as the shape of the economic recovery, there has been plenty of speculation about whether the U.S. economy will have a V-shaped, U-shaped or a dreaded L-shaped economic growth chart.

A V-shaped recovery just does not seem likely. Job losses and company and business closings have been abrupt and highly severe during the lockdowns. The unlocking is off to varied starts around the U.S. with the risk that renewed flare-ups of virus issues might bring renewed lockdown.

A U-shaped recovery is beginning to look a little more likely given the plunge in U.S. gross domestic product (GDP) and the severe drop in consumer spending (food and household products). What will follow is a period of time characterized by inactivity with businesses just holding it together for a period of time until the economy is fully unlocked, and consumers go back to having jobs and spending again.

We feel the most likely scenario is an L-shaped recovery, with the ensuing economic rebound pushed off for some time. The result will most likely be a recession in the U.S., which should be confirmed with second-quarter data and may well remain into 2021. Unfortunately, data from the New York Federal Reserve Bank in its survey of business leaders supports this argument. This shows that not just the common knowledge of how severe the situation currently is but that larger corporations are not that optimistic through the closing weeks of 2020. In turn, this will keep job furloughs and layoffs in place, and business investment will not be in the works. And let us not forget about the elections in November. Businesses are becoming all the more aware of the threat of potential regulatory and legislative changes, including corporate tax hikes, which will be a part of planning for any decisions on getting back up and running.

The lockdowns are getting unlocked, providing some relief for shutdowns around the nation, but the economy is not going back to normal anytime soon. That said, there are plenty of companies capitalizing on the “new normal” that we see benefiting further as the summer unfolds. The economy is showing how it can and will adapt to remote working and stay-at-home conditions around the nation. Not all industries are coping or adapting, but there are many that are and should continue to do so. We also see plenty of total return opportunities for bonds and fixed income, but not without some risks and pitfalls. Hopefully, we will have more clarity by the end of this quarter.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives. We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19, commonly referred to as the Coronavirus.

Special Investment Update – February 18, 2020

Tue, 18 Feb 2020 18:23:00 GMT

Dear Clients and Friends,

The U.S. economy remains in growth mode. The gross domestic product (GDP) should be running at 2.2%, with personal consumption gaining at 3.2%. This comes with an unemployment rate at a mere 3.5% and wages gains on average of 2.9%. That is well above the inflation rate, as measured by the core personal consumption expenditure (PCE) of only 1.61%. Forward – looking data show consumers should continue to spend. And forward – looking business surveys are getting back to optimistic levels. Furthermore, expectations for more business activity from business leaders, as surveyed by the New York Federal Reserve Bank, are also on the way up from the lows in October to a current bullish reading of 31.9. We also have two major trade deals – the United States – Mexico – Canada agreement (USMCA) and the Phase 1 China Trade Agreement – that are set to provide a great deal more certainty for U.S. companies and their prospects for more revenues and controlled costs as well as for U.S. consumer costs.

Despite the run-up in the S&P 500 Index last year and since March 2009 to date, we still see value in stocks based on their underlying price to earnings (P/E), price to sales (P/S) and price to book (P/B) ratios. But to keep the S&P 500’s rally intact, companies have to deliver the earnings. Not just for the fourth calendar quarter of 2019, but also for the four quarters of 2020. Right now, compiled projections for average sales and earnings growth for S&P members are set to rise in 2020 even as average sales gains for the current reporting season are not projected to be impressive. If the projections prove out, the rally should remain in good shape.

However, there are some challenges facing us, such as the coronavirus, officially known as 2019-n COV. While it is intensifying in its severity, we do not feel that it is an economic or market apocalypse as some have said. During 2002-2003, we saw a similar coronavirus, known as SARS (Severe Acute Respiratory Syndrome), which saw China’s Hang Seng stock index drop only to significantly rally throughout 2003. Back then, China was a different place. Information and health technologies were nowhere near where they are today. By contrast, 2019-n COV was quickly DNA – mapped and sent to the World Health Organization (WHO) in Geneva to coordinate vaccine development. The key is to see if the slowing Chinese economy will be slowed further, with supply chains and resource markets more heavily impacted directly from the infections and related curfews and restrictions. The impacts that will cause economic issues are largely focused on China. Travel and retail spending will be curtailed, and businesses and factory operations will be limited. This will further slow their domestic economy and will also impact regional economies tied to China.

U.S. bonds are also performing very well. They are deemed as a hedge right now against the virus but really continue to benefit from the underpinnings of low inflation, limited issuance, strong demand and better credit conditions with the stronger economy. Our portfolios have and have had plenty of individual minibonds, preferred stocks, ETF’s, open – end and closed – end funds in the U.S. bond market. They are working and will keep working for us.

Let us now discuss a real apocalypse in the retail sector and how we can profit from it. Amazon (AMZN) and plenty of other online juggernauts have been transforming the retail landscape. Online shopping is increasingly taking the place of visiting brick and mortar retail locations. The result is that retail stores are closing. In 2019, companies announced the closing of 9,300 stores, surpassing the 2017 record of 8,000 closures. And so far in the opening weeks of 2020, 1900 stores have announced they are set to close. Real estate behemoth, Cushman & Wakefield plc (CWK) is projecting store closings of at least 12,000 in 2020, making it another bad year for retailers. Each store that is closed has to deal with its inventories, fixtures, real estate and other assets, as well as liabilities that need to be settled. The company that is the best in the business of closing the deal on closings is Great American Group. Great American sees 30% of traditional U.S. retail stores going away in the not-too-distant future. But Great American Group is not on its own, as it was acquired and merged into an even more interesting company called B. Riley Financial (RILY). B. Riley was founded by its CEO, Bryant Riley, who is the largest shareholder in the company and along with management owns 27.3% of the shares of the company. It is a financial firm that provides a big umbrella and structural underpinnings for six core businesses that B. Riley has acquired or merged with over the past several years. The areas of valuations, auctioning and liquidation make up a reported 31% of segmented income of the overall company, with capital markets and principal investment making up the core of its income. So, while it is not a pure play on store closings, the other parts of the company have additional appeal to us.

Quarterly Investment Update – 4th Quarter 2019

Thu, 02 Jan 2020 20:11:00 GMT

Dear Clients and Friends,

The U.S. economy continues to expand. Gross domestic product (GDP) increased by 2.1% during the third quarter, and the projections are for continued expansion into the first quarter of 2020. U.S. consumers are driving that expansion, with consumption gaining 3.2% in the most recent quarter and showing little signs of abating. The labor market remains strong, with ample job openings driving down the unemployment rate to historical lows. Wage gains continue to expand and are remaining near double the rate of core inflation. Meanwhile, the Personal Consumption Expenditures Index (PCE) shows core inflation remaining well below 2.0%.

Then we come to the rationality of buying stocks. Projections reflect that while average sales and earnings gains slowed in 2019, they are expected to rebound for the fourth quarter and into 2020. As far as the underlying net assets of the companies inside the S&P 500, book value per share continues to show a strong, consistent advance in the underlying average for the members in the index. That is supporting higher stock prices along with the resulting increase in sales and earnings over the same time period. This supports a stock market that has greater value.

This growth continues as the U.S. consumer is pulling more than their weight. U.S. retail sales on a year-over-year basis are up for the most recent reported month by 3.10%, according to the U.S. Commerce Department. Unemployment is running at a mere 3.60% and the participation rate is running at a very strong 63.30%, up significantly from the lows in 2016. In addition, wages are up by 3.03%, while the core PCE inflation reading is lower at only 1.67%. Both data show strong improvement for workers’ wages and buying power.

However, there are some concerns for investors and the economy. Consumer confidence, which has been building up since late 2016, has recently fallen from that recent high in the mid-60 range to 58, according to the Bloomberg Consumer Comfort Index. This index compiles data from Bloomberg’s extensive surveys, which include current and expected household financial conditions as well as spending expectations and the state of the economy. And while it is still quite positive, the recent drop is disconcerting.

What has us more concerned is business sentiment in the U.S., like the drop in the consumer comfort reading, the U.S. Business Leaders Expectations for Business Activity Index reading has fallen to levels not seen since before the 2016 election. The decrease in sentiment can be justified by a variety of conditions. One of those conditions has to do with the potential consequences of the market’s failure to police the rapid increase in risky corporate debt. A decade of historically low interest rates has allowed companies to sell record amounts of bonds to investors, sending total U.S. Corporate debt to nearly $10 trillion, or a record 47% of the overall economy.

Despite these cracks, however, consumers are still there, most businesses are still doing OK and defensive sectors such as REITs, Utilities, Communications and Health Care companies, continue to deliver excellent returns. This should allow the allocations in all of your portfolios to deliver measured growth with more income along the way.

During the quarter, we added three new positions in the Fixed income portion of our portfolios. We added KAR Auction Services, Inc. (KAR), which provides used car auction and salvage auction services in the U.S., Canada, Mexico and the United Kingdom. We also added The SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI) and the Vanguard Intermediate – Term Corporate Bond Index Fund ETF Shares (VCIT). We also added two new equity positions in Dillards (DDS), which we previously owned and operates retail department stores in the U.S. and Zoetis Inc. (ZTS), which discovers, develops, manufactures and commercializes animal health medicines, vaccines, and diagnostic products in the United States and internationally.

As far as sales in the fixed income segment of our portfolios are concerned, we sold our entire position in the Osterweis Strategic (OSTIX) mutual fund and replaced it with the Vanguard Intermediate – Term Corporate Bond Index Fund ETF Shares (VCIT). As far as sales in the Equity segment of our portfolios, we sold our entire positions in Allergen P/C (AGN), as well as Pfizer Incorporated (PFE). We also trimmed many of our positions that have significantly increased in value, especially in the technology sector.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news and Market Commentary archives. May you and your family have a happy and healthy new year as well as a new decade.

Special Investment Update – November 15, 2019

Fri, 15 Nov 2019 15:54:00 GMT

Dear Clients and Friends,

November is a great time to take an inventory of the markets and the prospects for the closing weeks of the year. It also is a great time to consult with your tax advisor for year-end tax planning. In this special investment update, we will provide a brief update of the stock and bond markets as well as provide needed tax guidance to take advantage of the rest of 2019 as well as 2020.

The underlying fundamentals of the economy remain supportive. Inflation, as measured by the Personal Consumption Expenditure Index (PCE), remains well below 2%. Demand remains firm, which is partially reflected in the bond fund flows for the third quarter. Add in the renewed bond-buying by the Federal Reserve and easier monetary conditions, and bonds from corporates to municipals remain in the sweet spot for U.S. issues. All of this is also reflected in the continued strong demand for U.S. bonds and stocks from foreign investors.

With over $13 trillion in negative – yielding bonds outside the U.S. and foreign stock markets are reflecting slower economic growth and other concerns, the U.S. is a destination market. Year-to-date, foreign inflows have soared on a month-by-month basis. Currently, there is a headwind of outgoing trade negotiations between the U.S. and China as well as other nations. In addition, elections are still evolving. However, we still see U.S. – focused stocks and U.S. bonds as the top places for more growth and income.

As far as tax guidance is concerned, the most important steps to take before 2019 winds down is to be prepared to limit your tax liabilities for this year by use of the following strategies:

If you have a heart for charity, you can make your dollars go further by giving appreciated assets, such as stock that has risen in value, rather than cash. As long as you have held the asset at least a year and a day, you can take a deduction for the current market value, rather than your original purchase price. Note, however, that master limited partnerships (MLPs) do not qualify for this generous treatment.

Each year, many parents and grandparents make liberal use of this technique. Each individual can give up to $15,000 a calendar year to each beneficiary without affecting the lifetime exemption from estate or gift tax. In addition, for really big givers, you can bunch together up to five years’ worth of gift-tax exemption for 529 plans. For 2018 and after, those 529 plans now allow for spending on Private education coasts for kindergarten through pre-school.

If you own a business or even just earn income as a consultant or under contract under IRS schedule C, you can deduct many deductions to reduce your income tax liability as follows:

For many higher tax-bracket investors, state and local income tax rates can be increasingly onerous. And of course, if you reduce your federal income tax liability, your net return will be even higher. This is where tax-free money market funds and municipal bond funds come in.

In conclusion, it is important to review your investment portfolios with your tax advisor so that you can take advantage of year-end tax planning opportunities.

Thank you very much for your trust and confidence and please contact us with any questions or comments. May you and your loved ones have a Happy Thanksgiving!

Quarterly Investment Update – October 2, 2019

Wed, 02 Oct 2019 14:43:00 GMT

Dear Clients and Friends,

We are in the midst of a very challenging time for the economy and markets. Right now, the U. S. economy remains in good shape. Consumers, who drive this market, are fortified by a strong jobs market and wage growth, which is near double the core rate of inflation. U. S. personal income has grown by 4.61% over the trailing twelve months. This is driving spending, which is up 4.21%. And in a recent survey by the Federal Reserve Bank of New York, forward spending expectations for the next twelve months are up significantly over the past two years.

Businesses remain upbeat, with surveys that show bullish expectations for their companies’ activities over the next six months – continuing the trend that began at the end of 2016. Furthermore, with the majority of companies inside the S & P 500 Index having reported for the latest calendar quarter, we are seeing gains in sales and earnings. And current expectations are for further increases to come in the current and pending quarters.

But outside the U.S., Europe, Asia and beyond are slumping close to or into recession. This is driving capital into the U.S. markets, including a wall of money into stocks and bonds, which should be good news for U. S. markets. But there are problems.

One of our concerns about the stock market is what appears to be an increasing amount of negative spin on economic news. Our fear is that negative economic commentary might make consumers, who run about 70% of the U.S. economy, pessimistic. That potential pessimism may slow down their spending, which could inspire a self-perpetuated downward spiral. This sort of fear reminds us of a famous quote by Sir John Templeton, who said “Bull markets are born in pessimism, grown on skepticism, mature on optimism and die on euphoria. The time of maximum optimism is the best time to sell”. Thus, Sir John Templeton believes that fear can actually be good for the stock market.

Thankfully, U.S. consumers remain confident and comfortable. But there are plenty of problems, including the trade negotiations with China, Japan and Europe, which have brought tariffs and threats of tariffs. This is resulting in a lot of trouble for globally focused companies and their stock valuations.

The U.S. economy, while many years mature, is the growth engine of the world. GDP growth remains buoyant and is being furthered by regulatory and tax reforms. Meanwhile, most of the major economies of the world are slowing down or are set for recession, especially in the European Union. Interest rates outside the U.S. are increasingly negative, with over $16 trillion of bonds having yields below zero.

That said, while the economics of the U.S. remain good for consumers and for U.S. – focused companies, the globe continues to slow down. This will weigh heavily on big global companies. We will continue to focus our exposure on U.S. – centric stocks, including real estate investment trusts (REITS) and utilities while reducing our exposure to global companies at further risk. We will also continue to focus on U.S. bonds because of low inflation and the strong ongoing demand by U.S. and global bond investors.

Overall, our investment strategy remains the same as we continue to be diligent about the facts and focus on defensive companies catering to the U.S. economy while also capitalizing on the many opportunities in the U. S. bond markets.

During the quarter, we added a few new positions including TPG Specialty Lending, Inc. (TSLX), a business development company that seeks to finance middle market companies in the United States; The Kraft Heinz Company (KHC), a consumer defensive company in the packaged foods industry; Wells Fargo and Company (WFC), a diversified financial services company; Marathon Petroleum Corporation (MPC), together with its subsidiaries, engages in refinancing, marketing, retailing and transporting petroleum products primarily in the United States; and Black Rock Credit Allocation Income Trust (BTZ), a closed ended balanced mutual fund launched by Black Rock, Inc. that focuses on U.S. corporate and other bonds that have an effective duration of 6 to 8 years.

As far as sales are concerned, we sold our entire positions in Office Properties Income Trust (OPI), Energy Transfer Operation, LP (ET), General Mills Inc. (GIS), Citizens Financial Group (CFG) and Regions Financial Corp. (RF).

Special Investment Update – August 14, 2019

Thu, 15 Aug 2019 14:51:00 GMT

Dear Clients and Friends,

U.S. inflation is low and shows all indications of remaining so. It appears the Federal Reserve’s Open Market Committee (FOMC) will make further cuts in its three remaining meetings this year in addition to the other steps it has already taken to guide more liquidity and to affect market interest rates. Meanwhile, many non-U.S. major economies are in worse shape. Inflation conditions in much of the European Union (EU) and in Japan are even lower. The European markets are driving interest rates into negative territory, meaning depositors pay banks to hold cash. Negative bond yields occur when coupon rates (stated interest rate) are issued at low or near zero rates, then the markets at auction and in the secondary market bid the bonds to prices above par (100), which brings the yields below zero. The reason behind negative bond yields is that inflation becomes low or non-existent. And with the European Central Bank (ECB) offering negative interest rate loans, it only exacerbates the market condition in the hope of stimulating the economy. In the U.S. bond markets, yields are still positive, but they are falling. And falling yields mean bond prices are rising. This has worked well for many of the bond holdings in our portfolios including individual minibonds as well as bond funds and ETF’s.

The U. S. economy slowed sharply in the April – June quarter even as consumers stepped up their spending. The gross domestic product (GDP), the economy’s total output of goods and services, grew at a 2.1% annual rate last quarter, down from a 3.1% gain in the first quarter as reported by the Commerce Department. However, consumer spending, which drives about 70% of economic activity, accelerated to a sizzling 4.3% growth rate after a lackluster 1.1% annual gain in the January – March quarter, boosted by auto sales. The resurgent strength in household spending was offset by a widening of the trade deficit and slower business inventory rebuilding. Economists also noted that business capital investment fell in the April – June quarter for the first time in three years. That weakness likely reflects some reluctance by businesses to commit to projects because of the uncertainty surrounding President Donald Trump’s trade war with China.

Most analysts think the U. S. economy could slow through the rest of the year, reflecting global weakness and the trade war with China. The global weakness is a key reason why the Federal Reserve cut interest rates a couple of weeks ago for the first time in more than a decade and to signal that it may further ease credit in the months ahead. Chairman Jerome Powell pointed repeatedly to the uncertainty caused by Trump’s pursuit of trade wars on multiple fronts as a reason for the rate cut. Some economists have warned that the rate cut could embolden Trump to escalate trade battles because the President may feel confident that the Federal Reserve will then respond with additional rate cuts.

This means the economy will continue to benefit from lower interest costs, which means lower credit costs for businesses and consumers. It also means lower yields and higher prices for bonds. The bottom line is that interest rate sensitive investments should continue to do well, including REITS, utilities and other high-income producing investments. But there are still risks out there. Trade disruptions from technology restrictions to tariffs continue to exist, and the 2020 elections are now fully underway and could introduce uncertainty into 2021.

Simply put, except for near-term earnings and reduced full-year outlooks, as well as potential over exuberance, there are a lot of good things happening for income and growth investors. For now, the U. S. economy remains strong. GDP is positive, with good consumer participation bringing business enthusiasm for further positive activity. The employment market has higher participation rates, historic low unemployment and wage growth, which is trouncing underlying core inflation numbers. That low inflation has been trending even lower over the past several months despite higher wages and the threat of higher costs forecast from trade tirades around the globe.

We drafted the major portions of this letter right before Jeannie and I went on our vacation in the mountains of North Carolina to spend some quality time with my brothers. We were having a great time until we heard the news that President Donald Trump intensified pressure on China to reach a trade deal by announcing that he will impose 10% tariffs on the remaining $300 billion in Chinese imports he hasn’t already taxed. The move immediately sent stock prices sinking. The President’s action came as a surprise, just as U.S. and Chinese negotiators were concluding a 12 ^th round of what the White House called “constructive” trade talks in Shanghai. The negotiations ended without any sign of a deal but are scheduled to resume next month in Washington. Since then, the markets zoomed down, up and down again as investors were pondering how much the tensions will hurt the global economy.The trade risk took a pause last Tuesday as the administration delayed the tariffs on many consumer goods imported from China from September 1 to December 15, so Christmas is saved. But the global slowdown is not going away and until this issue is resolved, the markets will continue to be volatile.

Quarterly Investment Update – 2nd Quarter 2019

Mon, 01 Jul 2019 14:30:00 GMT

Dear Clients and Friends,

The S&P 500 Index is up over 17% year to date, and bonds are climbing higher in price and lower in yield. The US economy remains in growth mode, with GDP remaining firmly in the positive. Inflation, which was already subdued, is trending lower. And the Federal Reserve Bank’s Open Market Committee (FOMC) is moving to ease its target range for near-term interest rates. This is a sharp contrast to the month of May when stocks were sinking as the prior market mania turned depressive. Yet, many of the same challenges that we had in that down market time are still with us.

The FOMC issued its usual statement, although it dropped the word “patient” while adding concern about uncertainties. But the key thing is that the FOMC has told the markets that it wants inflation, as measured by the overall personal consumption expenditures, at or slightly above 2.00%, which it deems as a healthy level for an expanding economy. The next FOMC decision will take place on July 31 ^st . It was noted that out of the 17 Federal Reserve members polled informally, eight saw interest rate cuts as imminent this year, eight saw no cuts needed at this time and only one saw the potential for an interest rate hike.

The markets are facing a number of challenges right now, even though economic growth remains robust in the US and inflation remains low. The Federal Reserve is on hold and is leaning towards cutting interest rates, not raising them. And there still is ample confidence from average consumers and corporate leadership. Growth in the US economy remains strong. The first quarter’s gain was an impressive 3.20%. Inflation for the quarter, as measured by the core personal consumption expenditure (PCE) index, was a meager 1.30%. US GDP should continue to advance for the year to at least the mid – 2% range, with expectations for inflation remaining low.

All of this is good news for the stock and bond markets, but with trade war troubles, the markets are being jostled. We still expect this trade war will be settled sooner rather than later. However, the safest way through this environment is to continue to buy and own US-based, domestic-focused stocks, bonds, and funds that are more insulated from US-China tensions.

The most compelling outlook that is insulated from trade tensions continues to be domestic-focused US companies. Real estate investment trusts (REITs) saw earnings gains of 6.94%, while utilities reported earnings gains of 5.37% and healthcare companies reported earnings gains of 9.09%. All of these are much greater than the average first-quarter earnings gain for the S&P 500. In addition, “munis” are a great source of both domestic income and growth. The “munis” market has generated a total return over the trailing year of 6.54%, including plenty of tax-free income.

During the quarter, we added a small position in four new stocks in the Equity portion of our portfolio, which are: OCI NV (OCINF), a producer and distributor of natural gas-based fertilizers and industrial chemicals based in the Netherlands; Eastman Kodak Co (KODK), a global commercial printing and imaging company with technologies in materials science, digital imaging science and software and deposition process; Exor NV (EXXRF), an investment holding company based in the the Netherlands and Summit Materials Inc. (SUM), a construction materials company that has operations in 21 states in the United States and British Columbia, Canada. In the Fixed Income portion of our portfolios, we purchased CK Hutchison Holdings Ltd (CKHUY), an investment holding company mainly engaged in retail business; Lafargeholcim Ltd (HCMLY), a holding company in the building materials industry. We also added a large value exchange traded fund (ETF) Vanguard high Dividend Yield index Fund (VYM). On the sell side, we sold our entire positions in ARC Resources Ltd (AETUF), Vermillion Energy Inc. (VET) and Marathon Petroleum Corp. (MPC).

Special Investment Update – May 10, 2019

Fri, 10 May 2019 13:06:00 GMT

Dear Clients & Friends,

Each quarter in the United States public companies enter “earnings season”. Earnings season provides a series of updates on the companies that we own inside our investment portfolios. During this quarter, the Standard & Poor 500 Index made all-time highs marking the stock market’s complete recovery from a nosedive at the end of last year. The benchmark index’s previous record was set last September, shortly before the market sank in the fourth quarter, amid fears of a recession, an escalating trade war between the United States and China, and concern that the Federal Reserve was moving too aggressively to raise interest rates.

Those concerns have eased or taken a back seat to more optimism among investors this year. Investors are more confident in the prospects for steady, if slower, growth. And they have been encouraged by an increasingly hands-off Federal Reserve, which has signaled this year that it may not raise interest rates at all in 2019 after seven increases the prior two years. Traders are also feeling more optimistic about the global economy. In China, economic growth held steady at 6.4% in the first quarter of the year as increased government efforts to stem a slowdown gained traction. In the U.S, job growth rebounded in March following a surprisingly weak February. In addition, the uncertainty over the costly trade dispute between the U.S. and China seemed to leave eased amid signs that both sides were making progress toward reaching a resolution. However, President Donald Trump’s recent decision to hike import taxes, effective on Friday (05/10/19) at 12:01 a.m. on $200 billion worth of Chinese imports from 10 percent to 25 percent could bring more uncertainty to the economy as well as the stock market. By the time you read this update, we will know whether a deal has been reached or not.

After this earnings season, is there a next gear for the markets to go higher, or are we running up a steeper hillside? Will the stock market continue to advance? This is the primary question for all investors right now. Finding the answer is all the more challenging when looking at the initial filings of quarterly reports for the first calendar quarter. At this point, most of the 505 members inside the Standard & Poor Index have reported their first quarter’s earnings and overall, the news is OK. Sales growth on average across the various sectors is up by 4.7% and earnings growth is up by 3.38% on average for the quarter. These numbers are down from last year when sales gains were near 10% and earnings were expanding at a rate above 20% in the second quarter. This slowdown is what the stock market was fearing during the fourth quarter last year before hitting a bottom on December 24. The Standard & Poor 500 Index has risen dramatically since then – up 24.05%, or 24.86% including dividends. This comes with a Fed that has remained on the sidelines, a bond market that is credit friendly and expectations for improvements in quarterly revenue and earnings growth for the current and remaining quarters of 2019.

During the quarter, there were several sectors of the economy that were leading in sales growth and showing impressive earnings expansion.

The above companies are only a few of the collection of dividend-paying stocks that we own in industries with improving revenue and earnings.

Quarterly Investment Update – 1st Quarter 2019

Tue, 02 Apr 2019 18:06:00 GMT

Dear Clients & Friends,

The first quarter ended with the Standard & Poor 500 Index closing at 2,834.40, up 13.07%. Stocks have been up sharply since the end of the sell off last year. From December 24, 2018, to date, the Standard & Poor 500 Index is up over 20%. So, where do we go from here? Before we discuss what we added or sold in our portfolios during the quarter, let’s evaluate what’s right and what’s wrong with the economy and how stock prices are affected.

As far as what’s right, Gross Domestic Product (GDP), may slow in its ascent, but it is still climbing. Moreover, the underlying components of the economy look to be in a sustained growth mode. Consumer spending, which makes up about 70% of the US economy, is projected to increase by 2.7%. Job and wage gains are still robust, with more workers entering the market and wage growth staying comfortably above core inflation.

Business spending and investment also continues to respond as well, with projections for an increase of 3.6% for the year. Government spending alone is projected to rise again this year by 2.20%. Inflation remains completely at bay. The Core Personal Consumption Expenditure (PCE) Index remains below 2.00%, with expectations it will stay in that ballpark throughout the year. This allows the Federal Reserve open Market Committee to remain on the sidelines, as was confirmed in the recently released notes from its last meeting. In addition, it also looks like the Federal Reserves’ bonds portfolio will remain more or less intact to keep the capital markets well supported. This should help our investments in corporate bonds, mortgages and municipals.

As far as what could go wrong, we will start with the cloud of trade tariffs and negotiations. China is the big one that continues to weigh on day-to-day market optimism. We feel that some type of deal will be reached, particularly as the 2020 election cycle is getting underway. In addition to China, we still have to get the United States-Mexico-Canada agreement (USMCA) passed with Mexico and Canada. Japan is also on the horizon. Closer is Europe, with many European Union Members at a disadvantage. And of course, there is also the Brexit issue.

The U.S. remains the island of prosperity and while that is good for markets in the near term, we cannot keep it going on our own. Then there is the 2020 election, whether you want to hear about them or not. Businesses are always looking to plan ahead, and uncertainty of changes from taxes to regulation will weigh on strategic plans. So we have some clouds, but some serious silver linings are also showing.

As we discussed in our last Special Investment Update, we added several individual preferred stocks as well as preferred mutual funds during the quarter including Nustar Energy LP Preferred Unit Ser A (NS+A), which engages in the transportation of petroleum products and anhydrous ammonia, Seaspan Corp PFD CM RE SE H (SSW+H), an independent charter owner and manager of container ships, Teekay LNG Partners LP PFD Unit SER A (TGP+A), an international provider of marine transportation services for liquefied natural gas (LNG), liquefied petroleum gas (LPG) and crude oil, Cowen Inc. 7.75% SRNT 33 (COWNL), a financial services company, and United States Cellular Corp Call SR NT 60 (UZA), a provider of wireless telecommunication services.

Besides preferred stocks, we also added several new equity positions including Medical Properties Trust Inc. (MPW), another real estate investment trust (REIT) as well as Covanta Holding Corporation (CVA), a holding company which owns and operates infrastructure for the conversion of waste to energy. On the sell side, we sold our entire position in United Parcel Service Inc. (UPS). We also trimmed some of our overweighed holdings in our portfolios, especially technology stocks.

Special Investment Update – February 20, 2019

Wed, 20 Feb 2019 20:08:00 GMT

Dear Clients & Friends,

We are now fully into 2019 and the general stock market has taken a pause from the aggressive selling. For now, at least the Standard & Poor 500 Index is modestly positive but we continue to focus on the defensive parts of the markets. For the fourth quarter of 2018 and into where we stand in 2019, it is generally accepted that the overall growth of earnings for the members of the Standard & Poor 500 Index will slow. However, there are plenty of investments that cannot only side-step much of the risk of the general stock market, but also pay you well. These sectors and stocks are not as reliant on ever – higher rates of earnings growth to successfully deliver positive returns for shareholders.

Real estate investment trusts (REITs) were one of the better success stories for investors last year and delivered a return of 12.54% even with the general market downdraft in the fourth quarter. REITs, of course, are not about fast-track growth, but steady asset appreciation and maximizing lease revenues for shareholders. REITs pay out the majority of their profits to shareholders without the double-taxation challenge of corporate taxes. In turn, individual investors get a tax break from the Tax Cuts and Jobs Act (TCJA), which allows for a deduction of 20% of the dividends paid from their taxable income. With the average dividend yield for the index sitting at 4.42%, which is more than 2.13 times the yield of the Standard & Poor 500 Index, it is no wonder that this remains an ever-more-attractive sector with improving values and better dividend payouts. This is why we continue to own so many REITs in all of our portfolios.

Utilities are another sector that is showing strength. Like the REITs, last year started out with concerns over the impact of the TCJA on utilities’ profitability. But, as with REITS, investors figured out that the impact of the TCJA was not going to be as feared and interest rate spikes were not on the horizon.

Since June, utility stocks, as tracked by the Standard & Poor Utilities Index, have turned in a return of 11.65%. Utilities are not focused on aggressively driving earnings as much as steadily capitalizing on rising demand for essential services from a growing economy as efficiently as possible. And in turn, they generate ample cash flow that fuel dividends for shareholders. The average dividend yield for the Standard & Poor Utilities Index is sitting at 3.48% compared to 2.06% for the Standard & Poor 500 Index.

This does not mean that all we are buying are just a collection of REITs and utilities. There are plenty of other segments with positive returns including drug companies, reforming consumer goods and technology companies. But at the same time, with the general stock indexes coming under fire in the fourth quarter and into 2019, we are increasing the share of our dividend flows that come from investments that are more insulated from the general stock market. These investments are also more insulated from other indexes and index-linked funds, which will reduce the risk of volatility while paying us more while we own them.

Common stocks make up the vast majority of the stock market as well as our own portfolios. They represent equity in the underlying companies that issue them and rise and fall in price with the valuation and projections of success of those underlying companies. However, preferred shares of companies are a different kind of stock. They are issued by companies, typically with a fixed dividend paid quarterly. And while they do represent an interest in the companies’ assets and businesses, their price will tend to be more stable than for common stock, as they represent more of a debt of the company, much like a bond. Preferred stocks are much less widespread than common stocks, which is one of the reasons that make them attractive. Being less noticed than common stocks, preferred stocks tend to trade more under the radar of traders, and that makes them more ideal for individual investors that seek less volatility with more certainty of higher dividend payments. They also do not come with any voting rights, so they tend to move less with the value of the underlying business.

In addition, there are fewer indexes that track the market for preferred stocks and even those that do, do not necessarily fully reflect the broad variety of the shares. Instead, most of the indexes focus on banks and financial firms’ preferred stocks, which can distort the true attractiveness of many of the individual issues, however, they do continue to perform. Over the past five years, the Standard & Poor’s Preferred Stock Index has shown a total return of 28.97%, for an annual equivalent of 5.22%. We currently own the closed-end Flaherty + Crumrine Preferred Income Opportunity Fund (PFO) with its 7.15% dividend yield. With growth expectation for earnings slipping in the general common stock market, causing volatility and uncertainty in the market for common stocks, we added a trio of additional individual preferred stocks that will serve to provide us with higher income for the next couple of years until they become callable. We have also been adding another type of security called minibonds. With plenty of volatility and risk in the stock market, minibonds provide us with an excellent opportunity to gain greater income potential, while further reducing the overall volatility.

As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to maintain a substantial exposure to common stocks (and mutual funds) as long as there is a reasonable prospect for double-digit returns. Furthermore, we continued with our average asset allocation mix of 40%-50% Equity, 40%-50% Fixed Income and 0%-20% cash for most of the portfolios. Since we have accumulated excessively high levels of cash in most of our portfolios, we decided to use some of that cash to increase our allocation of Fixed Income. We added several individual preferred stocks as well as preferred stock mutual funds. In addition, we upgraded our bond sector by adding minibonds to our portfolios. Minibonds, as the name implies, are bonds issued in small denomination. Traditional bonds are generally denominated in $1,000 face values. Minibonds are normally issued with face values of $25.00. Minibonds are listed on various stock exchanges, much like the preferred stocks. That makes it easier and more efficient for individual investors to buy and own them. Minibonds are a type of security that can be bought in nearly any sum, much like common stocks.

Quarterly Investment Update – 4th Quarter 2018

Thu, 03 Jan 2019 20:05:00 GMT

Dear Clients & Friends,

Wall Street closed out a dismal, turbulent year for stocks on a bright note during the last couple of days but still finished 2018 with the worst showing in a decade, which was in 2008 during the financial crisis. After setting a series of records through the late summer and early fall, major U.S. indexes fell sharply after early October, leaving them all in the red for the year. The Standard & Poor 500 Index finished the year with a loss of 6.2 percent.

Even though we have maintained our position that the fundamentals of the economy and stock market remain very good, it was more of a disappointment. Growth in the U.S. remains high, with GDP buoyant throughout 2018, and is projected to remain positive into the coming years. In addition, inflation remains at bay, with the personal consumption expenditure (PCE) core index remaining under 2.0%.

Consumers remain comfortable to spend more as tracked by the Bloomberg. Consumer Comfort Index and business leaders are investing and are projected to continue to build their companies, as tracked by the Federal Reserve Bank of New York. Profits for companies have been on the rise throughout the year and are expected to continue to rise, although at a slower pace for 2019.

Credit markets remain in good shape, with only the collateralized loan obligation (CLO) market seeing challenges. Even though we continue to be cautious, the market for CLOs remains enthusiastic for transactions. Even though the stock market has been very volatile, the fundamentals of the value companies that we invest in do work over longer periods of months and quarters. In addition, our focus on bigger dividends and opportunities do work on providing cash flows that pay for patience during index downdrafts.

When will the selling stop? We do not know, but could point out that since November 8 ^th , 2016, the market is still up, with a total return of 24.71%. However, this does not ease the pains of the past months but we have to be more concerned about what the market may do as we enter 2019.

During the quarter, we added several new positions in the financial sector including Lazard Ltd (LAZ), a financial advisory and asset management company, and Affiliated Managers Group, Inc. (AMG), an asset management company with equity investments in boutique investment management firms. We also purchased Viper Energy Partners LP (VNOM), which is engaged in owning, acquiring and exploiting oil and natural gas properties in North America. In addition, we added two positions in Real Estate Investment Trust (REIT) sector including PotlatchDeltic Corp, formerly Potlatch Corporation (PCH), and Government Properties (GOV), which recently merged with Select Income REIT (SIR) and will be traded under the ticker symbol “OPI”. On the sell side, we spent a significant amount of time analyzing our taxable portfolios for purposes of re-balancing them to make them more tax-efficient. Other than for purpose of re-balancing, we sold our entire position in TransMontaigne Partners LP (TLP). We also replaced our position in iShares U.S. Preferred Stock ETF ( PFF) with Flaherty & Crumrine Preferred Income Opportunity Fund (PFO).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives. We wish everyone a Happy and Prosperous New Year.

Special Investment Update – November 26, 2018

Mon, 26 Nov 2018 18:50:00 GMT

Dear Clients & Friends,

The Standard & Poor’s 500 Index has given up all of its gains for the year as it joins the rest of the major market indexes around the globe with negative returns. The jolt in early October should not be dismissed as it turned into what many are calling Red October, which has gone worse into November. But like the jolt in late January into February, it wasn’t the end of our investments that were and continued to be working. The key was to see what is still viable on its own, despite the Standard & Poor’s Index woes, and why current conditions still support companies in these successful sectors of the economy.

A big part of the market’s uncertainty has been focused on technology stocks. This group of stocks is weighted heavily in the Standard & Poor’s 500 and is behind a good deal of the sell-off and turbulence in the index. This sector has been one of the greater sources of growth in the market, and the stocks in the sector are priced at higher valuation when compared to book value, sales and earnings. The underlying book values of companies, in general, have been on the ascent for the past year. The majority of the 505 companies in the Standard & Poor’s 500 reported increased business investment in the third quarter with the total for the index showing up 13% over the same quarter from last year, and we are already seeing this show up in the underlying value of the companies. Revenues are up as well, with the majority of companies showing rising sales. Those are coming from a robust consumer spending spree as well as the business capital spending that only adds to the revenue gains of the companies in the Standard & Poor’s 500. And earnings, of course, are up as well, with gains seen in the 18% range for companies reporting.

But the market is looking ahead into 2019. While the earnings growth is forecast in compiled reports by Bloomberg to be in the 10% range, that decrease in growth is what is behind some of the bearish sentiments. The key problem is that for growth companies, particularly in the technology sector, merely good growth is not enough to drive stock prices. Consumer sentiment, as tracked by the Bloomberg Consumer Comfort Index, remains very high at 61.30 and business confidence in capital spending, as tracked by the New York Federal Reserve Bank, is up significantly as of the recently published data, at 30.70. Despite these highly encouraging results, many in the stock market are not confident enough to buy the growth-focused companies.

One of the warning signs of trouble for the economy and the general markets comes from the credit markets. Credit is the lifeblood of the economy and is crucial for businesses and households to continue to spend. In turn, it drives company revenues and business expansion. If credit is cut off, then spending will be imperiled. One of the distressing facets of corporate credit is in the leveraged loan market. These are private loans that are either placed directly with banks, private equity and other fund companies or are pooled and packaged into collateral loan obligations (CLOs), which then trade over the counter. The U.S. makes up 70% of the overall market for these typically lower-credit-rated loans.

One of the warning signs that we are following is the credit defaults swap (CDS) market. CDS’s are like insurance options on individual bonds or on bond indexes or on other derived securities. Owners of bonds can buy CDS’s, which pay them if bonds default. Sellers of CDS’s make bets (or investments) much like insurers, betting that bonds will not default at levels to make the CDS’s bad deals. The bond rating agency, Fitch, recently issued a forecast for default rates for U.S. corporate bonds for 2019. It is forecasting that default rates will fall to 1.50% from the rate of just less than 2.50% that are expected to end up for this year. That would make it the lowest since 2013. So, for now, companies are expected to make their payments. However, once you see the credit default swap (CDS) market on the rise up, we would be more cautious in our investment strategy.

This does not mean that the stock market is done. We continue to point out that we invest in a market of stocks and not a stock market. Too many investors keep a heavy focus on the Standard & Poor’s 500 or the Dow Jones Industrial Index and get too enthused on the way up or too fretted during turbulence. Not all stocks move in the same direction. If they did, then there would not be too much point in investing for growth and income. Instead, there are many stocks in specific industries that are still expanding their capabilities, resulting in higher underlying business values. And with their customers content to spend more, revenues have been expanding, and can be reasonably expected to continue to expand into 2019. The best of these stocks also pay rising dividends to their shareholders. And with dividends coming from a portfolio of quality companies, we are not only paid to be patient during the stock market turbulence, but we can use the dividends to shore up and build our portfolios’ value over time.

During the quarter, we continued with our investment strategy of our asset allocation. However, we spent a significant amount of time analyzing our taxable portfolios for purposes of re-balancing the portfolios to make them more tax-efficient.

We hope everyone had a wonderful Thanksgiving weekend, especially by relaxing, spending time with family and watching football. We want to take this opportunity to wish you a blessed Holiday Season and a happy and prosperous New Year.

Quarterly Investment Update – 3rd Quarter 2018

Mon, 01 Oct 2018 20:11:00 GMT

Dear Clients & Friends,

The American economy continues to be on a roll and continues to develop at one of the best rates of growth for any of the primary established economies in the world. This is not just resulting in higher stock prices, but rising asset values in the underlying businesses behind the stock market. Average book value for the Standard & Poor 500 companies continue to climb quarter after quarter, from the fourth quarter of 2016 to the most recent by an average annual compound rate of nearly 4%. This means that in addition to rising stock prices, we will see rising underlying business values on top of rising revenues, which are expanding at an average annual compound rate of nearly 8%. We have growth sitting at 4.2% for the second quarter, and the current quarter’s indexed survey is for 3 % with many arguing for higher performance. Inflation remains low with the core Personal Consumption Expenditure Index (PCE) still sitting under 2.0%, at 1.98%. The PCE remains low and provides the Federal Reserve’s Open Market Committee (FOMC) the ability to remain constrained in their movements to target more normalized interest rates. The FOMC met last week and noted to raise its target range for the federal funds rate by 25 basis points as was expected. The Federal Reserve Chairman also gave further confirmation to allow the economy to continue to expand and that things look good for the economy.

With consumers spending more as well as businesses continuing to invest more and are set to continue to do so, the economy should continue to grow. With the strong economic growth plus the rise in wages and low inflation comes some additional good news for the economy. Income in American households continues to grow and for the most recent year of 2017, the median income has topped $61,000, gaining 1.8%, with households earning less than the poverty level falling by 0.4%.

This all is good news, despite the trade tirades that are filling the headlines of the financial and political media. With a series of tariffs imposed on metals and other resources, as well as on various components and finished products, many are sitting on that wall of worry, wondering if they should continue to climb it and push the stock market indexes higher or if the best is behind us. Also, the recent August release of the ISM Manufacturing PMI index came in at 61.3, which is well above the consensus forecast of 57.6. The ISM data follows similar gains in industrial production tracked by the Federal Reserve and the U.S. Census Bureau. The level of production tracked by American industries continues to expand following a positive reversal that occurred back in November 2016. Levels have steadily advanced from a pre-November 2016 annualized loss of 0.88% to a very positive current level of a gain of 4.23%.

We see the above as further confirmation of our nation’s improved economy, which in turn supports a buoyant market for companies that are part of the business of American businesses.

During the quarter, we purchased several new positions. We added three new positions in the Real Estate Investment Trust (REIT) sector, including American Campus Communities Inc. (ACC), Forest City Realty Trust (FCEA), and Corporate Office Properties Trust (OFC). We added one new position in the energy sector which is Plains GP Holdings LP, a company that operates midstream energy infrastructure and provides logistics services for crude oil, natural gas liquids (NGL), natural gas and refined products. We also purchased two positions in the financial sector which includes Hercules Capital Inc. (HTGC), an internally managed, non-diversified, closed-end investment company, and Compass Diversified Holding (CODI), which acquires and manages small and middle-market businesses. On the sell side, we exited our full positions in Colgate-Palmolive (CL), Kimberly-Clark Corp. (KMB), and Toronto Dominion Bank (TD).

Special Investment Update – August 27, 2018

Mon, 27 Aug 2018 20:42:00 GMT

Dear Clients and Friends,

This year has been all about a vibrant U.S. economy paired with a general stock market that has been lagging the positive economic news. The consumer sector has been and should continue to be a robust contributor to the economy, and businesses will continue to respond to rising demand by committing more investment to grow their capabilities.

While the rest of 2018 may not see the U.S. economy expand at the impressive rate of the second quarter, we are unlikely to watch our growth story come to an end this year. Given such core inflation on top of that, interest rates should merely edge further into normalized levels, which support further expansion. But what could go wrong? This is what we will discuss in this issue.

We have been making the case that the underlying U.S. economy is in good condition and ready to support higher prices in the markets, but it never hurts to keep an eye on some of the following speed bumps that could develop which would affect the markets. First of all, it bears repeating that if either U.S. consumers or businesses retreat in their comfort level, then that would be a red flag ahead of trouble, as the economy could slip, in which case the market would not be far behind.

The trade negotiations by the Trump Administration have not been helpful for a variety of industries and individual companies in the U.S. market. However, one of the positive offsets has been the U.S. dollar. The dollar has risen from recent lows in February by some 9.15% against the basket of currencies measured in the U.S. Dollar Index. The Dollar Index is calculated against a basket of major world currencies and provides an overview of the direction of the currency. This has been offsetting some of the added costs of tariffs for imported goods. And it also reflects the attractiveness of U.S. investments. The U.S. continues to be one of the more attractive markets for institutional and sovereign investment funds.

Another speedbump could develop due to global problems. At any given point in time, the globe has multiple trouble spots, including economic trouble spots that could have a negative impact on the U.S. markets.

The United Kingdom, for example, is having a tough time in their negotiations for implementing Britain’s exit from the European Union. This is weighing on the pound, which is driving down British-based stocks in U.S. markets and in U.S. mutual funds and ETFs.

On the eastern end of Europe, there is Turkey, which has built up its economy on cheaper U.S. dollar-denominated loans and bond issues. The trade and political spat between Turkey and the U.S. is massively impacting Turkey. The Turkish Lira has plummeted over the past year by 41% and it could get worse. Defaults for global financials and banks could lead to liquidating trouble and could lead the Federal Reserve Bank to ease monetary conditions.

Last on the list of risks that we are monitoring are the midterm elections, which are happening across the U.S. on November 6. It is worth mentioning that the Standard & Poor 500 Index went from a low of 2,085 on November 4, 2016 to a high of 2,872 on January 26, 2018. Regulatory reforms have been a major boom for banks and financials, as well as for the petroleum industry and other sectors that are having an easier time expanding their businesses. Also, legislative changes from the Tax Cuts and Jobs Act (TCJA) to changes in U.S. banking laws have been a massive help for the earnings of most of the companies in the U.S. stock market. If the House or Senate were to change leadership, this would impact further reforms.

With nearly all of the companies in the Standard & Poor 500 Index reporting their earnings for the second quarter, the average has been a gain of 25% in profits over the same quarter last year. Consumers keep spending on more goods and services. They are aided by historical low levels of unemployment and moderately rising wage growth, which are contributing to high confidence levels in household personal finance conditions. Companies are selling more goods and services and investing in expansion, which supports further profits. Add in regulatory reform relief for many industries as well as reduced tax rates and there is an even more compelling case for profitability. While much of the economic case for profits is great, the general Standard & Poor 500 Index is still lagging in its performance for the year to date. Fortunately for us, there are still plenty of specific sectors we can focus on for better stock performance and above-market dividend payouts.

Quarterly Investment Update – 2nd Quarter 2018

Tue, 03 Jul 2018 15:11:00 GMT

Dear Clients and Friends,

While the general stock market has drifted sideways during the quarter, the underlying economic and business conditions continue to support higher individual stock prices and rising dividends. Consumers are spending more and businesses are investing for new production. That means rising revenue and rising underlying company values. Ever since the passage of the Tax Cuts and Jobs Act (TCJA) on December 22, the Standard & Poor 500 Index has surged by some 7.8% to its recent peak on January 26. And then fears of a potential spike in interest rates took the gains away and sent the stock market into a substantial period of malaise. In addition, fears of a possible trade war were added to the mix. But, as we discussed in our last Special Investmnet update, there are plenty of segments and industries that have begun to rally independent of the general market. Banks are already reaping huge tax benefits that are affecting their bottom lines as a result of the Tax Cut and Jobs Act of December 2017.

U.S. crude oil is up, with West Texas Intermediate (WTI) trading at a three year high. The organization of Petroleum Exporting Countries (OPEC) disclosed that compliance with output cuts has hit a record of six consecutive months. Adding to the upward pressure on oil prices is the Syria conflict. Whether or not the U.S. launches new, shiny and smart missiles, our allies (including Great Britain) are standing by in support, so tensions are set to continue for a while. Adding to concerns are the continuing missile launches by Saudia Arabia into Yemeni territory. This makes U.S. and North American production that much more important to global oil supplies.

Not all bonds are the right bonds to own during expanding economies. Bonds, like stocks, come in various types. In the US right now, corporate bonds and municipal bonds are continuing to rally. US Treasury bonds, as measured by the 10-year benchmark, have climbed in yield by nearby 0.75% over the past year, but that has not caused trouble for the segments of the bond market that benefit from growth. For example, corporate bonds benefit from an economy that grows at healthy levels. The companies that issue these corporate bonds will benefit by improving their business as well as their credit worthiness.

During the quarter, we purchased several new positions and sold several old positions. On the Fixed Income side, we added several positons in the Real Estate Investment Trust (REIT) sector, including Digital Realty Trust Inc. (DLR), Easterly Government Properties Inc. (DEA), and MFA Financial Inc. (MFA). We also added several positons in the energy sector including ARC Resources Ltd (AETUF), Andeavor (ANDV) and Buckeye Partners LP (BPL). We added several new closed-end municipal funds including BlackRock Municipal Income Trust II (BLE), Nuveen Municipal Credit Income Fund (NZF) and BlackRock MuniHoldings Quality Fund II (MUE). They join the open-end Osterweis Strategic Income Fund (OSTIX) which replaced the Pimco Income Fund Class A (PONAX) that we previously owned in the corporate bond segment of our portfolios. In addition, we added several positions in the financial sector including Regions Financial Corp. (RF), a financial holding company, which conducts its banking operations through Regions Bank, an Alabama state-chartered commercial bank; Citizens Financial Group (CFG), a retail bank holding company, which operates through two segments – Consumer Banking and Commercial Banking and the IShares preferred stock ETF (PFF) which seeks to track the investment results of the Standard & Poor’s U.S. Preferred Stock Index. We also added several positions on the equity side, including Comcast Corporation (CMCSA), which operates as a media and technology company worldwide; CEMEX SAB de CV (CX), a holding company that produces and distributes cement, ready-mix concrete aggregates and other construction materials throughout the world; Vestas Wind System A/S (VWDRY), a diversified industrial company based in Denmark and Realogy Holdings Corp (RLGY), a real estate services company.

On the sell side, we exited our old positons in Yum China Holdings Inc. (YUMC); Vanguard Consumer Staples (VDC); Chesapeake Energy Corp (CHK); Tortoise Energy Infrastructure Corporation (TYG), Healthcare Trust of America Inc. (HTA); Barrick Gold Corp (ABX); Newmont Mining Corp. (NEM); NovaGold Resources Inc. (NG) as well as the IShares Silver Trust ETF (SLV).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives. Happy Independence Day!

SPECIAL INVESTMENT UPDATE – MAY 7, 2018

Mon, 07 May 2018 21:05:00 GMT

Dear Clients & Friends,

Last Wednesday, the Federal Reserve Bank’s Open Market Committee (FOMC) voted 8-0 to keep its target range for the Federal funds rate at 1.5% to 1.75%. In the statement, the FOMC said that its target rate of 2.0% for core inflation was close to being met at the current 1.88% for March. The Fed also reiterated that it expects the federal funds rate to remain lower than expectations for some time. Also, last Friday, investors liked the jobs report enough to provide an upside to the Dow Jones Industrial Average and the NASDAQ. So the volatility continues.

As we discussed in the past, short-term volatility provides us with some great opportunities to selectively invest in specific stocks of companies that are in specific industries that fits our investment strategy. In addition, it provides us an opportunity to evaluate our taxable portfolios for purposes of making them more tax-efficient. Many investments apply to both taxable and non-taxable accounts. However, this Special Investment Update focuses primarily on taxable accounts.

Most common stocks, taxable bonds as well as stock and bond funds ideally should be held in tax-free accounts to limit or defer income tax liabilities. One exception to that is foreign common stocks, depending on the tax treaty between that company’s home nation and the United States. Many treaties provide exemption from withholding taxes for shares held in retirement accounts – but others do not. In that case, it makes sense to hold the stock in a taxable account, which will allow you to deduct foreign taxes paid on your income tax return. Tax – advantaged investments like our REITS, MLPs and Municipal bond funds should be held in taxable accounts to maximize the benefits of limiting or eliminating income tax liability that would be lost in tax free accounts. In addition, tax shielded investments like pass throughs and some REITS held inside a tax-deferred account such as an IRA, Roth IRA, SEP, 401K or 403b can cause a tax issue if too much in net taxable dividends is earned in a given year. If the net taxable dividends in such an account exceed $1,000 in a specific year, then that income would become taxable under IRS’s Unrelated Business Taxable Income (UBTI) rules. To avoid having non-taxable dividends becoming taxable, it is best for us to have them held in personal taxable accounts.

Also, volatility provides us an opportunity to review your prior year’s tax status for purposes of doing some tax selling throughout the year in an effort to make your taxable portfolios more tax efficient. The tax selling is performed without changing the asset – allocation mix of the portfolios. In addition, we prepare tax projections on all of our firms’ tax clients for purposes of tax and financial planning.

Even as the stock market continues to churn, the underlying U.S. economy is faring quite well. Conditions are positive for us to use this opportunity to put our cash to work by buying great companies at great prices. Also, while many fear the pressures of the bond market in this rising-rate environment, we feel there is value in some closed-end municipal bond funds that are trading at deep discounts and yielding big dividends.

Let us start with banks, which have been in a very bad spot in the post-2008 market. With a series of compliance rule rollbacks by the U.S. Treasury and the Federal Reserve, including rollbacks on capital requirements, the businesses of banking is now making a comeback. Banks are already reaping huge tax savings that are falling right on their bottom lines due to the Tax Cut and Jobs Act of December 2017.

We expect many other industries to benefit from this type of economy including Real Estate Limited Partnerships (RELP), Real Estate Investment Trusts (REIT) as well as Master Limited Partnership (MLP) units of petroleum pipeline infrastructure companies. There was a market sell-off of these “pass through” entities following the tax cut in December 2017. As individual investors, the pass through qualities of MLP’s, GP’s, LP’s and LLC’s offer dividend distributions that are “passed through” directly to shareholders that are largely or completely shielded from current income tax liabilities because tax deductions such as depreciation are also “passed through”. In addition, with inflation low and U.S. Treasury yields still at lower and less appealing levels, the municipal bond market is providing great yields that in many cases pay us more than U.S. Treasuries, even before the impact of their tax-free status.

Overall, we should continue to see expanding revenues and profit margins in many industries and business segments for the remainder of the year.

Quarterly Investment Update – 1st Quarter 2018

Wed, 04 Apr 2018 15:40:00 GMT

Investors are being bombarded right now with a bunch of conflicting signals. This always happens when the stock market finds itself trapped in a trading range. However, this is not the time to fall victim to confusion or panic. So, let us discuss how we should prepare for our investments over the next six to nine months.

First of all, the sharp run-up in bond yields since September and especially since the turn of the year has paused. Hints from analysts are filtering that the economy may be cooling a bit in the first quarter. After the March 15 report on February retail sales came out, the Atlanta Federal Reserve revised downward its Gross Domestic Product Now Tracker to forecast first quarter growth of just 1.9% versus 2.5% a week before, about 4% the month before and above 5% over 6-8 weeks before. Moderating growth and milder inflation will take the pressure off the Federal Reserve to dramatically pick up the pace of interest-rate hikes to keep inflation under control. In short, the stock market out look over the next quarter or two is probably a good deal brighter than the muddled trading lately might suggest.

We feel that there are two factors that have kept this bull market going for equities. The first factor is that the Federal Reserve has maintained an easy monetary policy. Despite the central bank’s modest tightening of credit in the past year or so, short-term borrowing costs have remained below the inflation rate (Consumer Price Index) almost continuously since November 2009. Easy money encourages investors to move out of cash equivalents into higher- yielding “risk” assets, including stocks. The second factor is that corporate earnings have improved dramatically since the end of the last recession, touching an all-time high most recently in the fourth quarter of 2017. Since common stocks represent a claim on the stream of corporate profits, higher earnings usually translate into higher share prices. Of the two factors, we are more concerned about Federal Reserve policy. If, as most observers now expect, the Federal Reserve, under newly installed chairman Jerome Powell, edges up short-term interest rates no more than 0.75% this year, we do not envision any serious damage to the economy.

All in all, we are encouraged by developments in both stocks and bonds over the past few weeks.

On the bond side, inflation fears have cooled and yields have come back down. The 30-year Treasury yield, one of the most keenly sensitive inflation barometers, has tumbled 25 basis points from its peak in late February. This is good news not only for bond investors, of course, but also for stock investors. Falling bond yields make it less likely that the Federal Reserve will feel pressured to embark on an aggressive credit-tightening program as the year unfolds.

During the quarter, we added to some existing positions as well as established some new positions to both our Equity and Fixed Income portions of our portfolios. On our Equity portion, we added Allergan plc (AGN), a specialty pharmaceutical company and Vanguard Consumer Staples Index Fund ETF Shares (VDC). On our Fixed Income portion, we added Southern Co (SO), a holding company that owns all of the stock of the traditional electric operating companies; Education Realty Trust INC (EDR), self-managed and self-advised real estate investment trust; Main Street Capital Corp (MAIN), a principal investment firm; Vermillion Energy Inc. (VET), a Canadian oil-and-gas producer with a current yield of 6.8%; Digital Realty Trust Inc. (DLR), one of our favorite REIT’s with a current yield of 3.9% and Vanguard Utilities ETF (VPU) with a 4.2% yield. Also, for those selected clients who needed more minimum cash reserves, we added the Schwab Value Advantage Money Fund (SWVXX), which tracks the current 7-day Treasury rate and has a current yield of 1.51%. However, this fund is traded like a mutual fund and requires 24 hours for the trade to settle in the event of liquidation. The remaining cash in most of our portfolios is very liquid and is currently invested in a sweep money fund (SWZXX) that has a current yield of 1.15%.

On the sell side of our Equity portion, we sold a few stocks that we believe reached their appraised values. We sold our entire positions in Deltic Timber Corp.(DEL); Wynn Resorts Ltd (WYNN); and T. Rowe Price Group Inc. (TROW). On our Fixed Income portion, we sold our entire positions in the iShares 20+ Year Treasury Bond ETF (TLT).

Special Investment Update – February 19, 2018

Mon, 19 Feb 2018 18:44:00 GMT

Dear Clients and Friends:

Last week’s reports from the Labor Department show that inflation at both the retail (CPI) and wholesale (PPI) level exceeded the analyst’s forecasts in January. Bond yields spiked upon the CPI news last Wednesday, reaching a peak of 2.93% on the 10-year Treasury, although they actually eased a bit on Thursday as well as Friday. This news was no big surprise. What is puzzling is the stock market’s reaction to the inflation data and the bond sell-off. The headline indexes rallied sharply on Wednesday, Thursday and Friday. Wall Street’s speculative fervor is alive and well. This was in contrast to the previous week on Wall Street, with the headline stock indexes all falling down sharply.

Of course, it is possible that the market has formed a V-shaped bottom and will never look back, which has happened before. However, a recent study of 10% drops in the Standard & Poor 500 that dates back to 1980 reflected there were 25 instances of an approximately 10% decline in the index. Of these, only 16% resulted in a V-bounce where the original low for the move was never revisited. In the other 84% of the situations, the market returned back to test its lows. Based on historical record, the Standard & Poor 500 will creep back to the area of its February 8th closing low of 2581 before the market can resume its climb to new all-time highs.

We remain optimistic for stocks but we will be closely watching the 10-year Treasury yield. If bonds can stabilize during the next several sessions, the equity pullback may well be over. On the other hand, if yields continue to streak higher, we can expect more trouble on the equity side as “risk parity” traders sell stocks to lower the overall volatility of their portfolios. Pending resolution of this issue, we are not making any changes in our portfolios’ asset allocation mix.

Thus we continue to maintain our standard two-pronged strategy of substantial exposure to common stocks (and mutual funds) as long as there is a reasonable prospect for double-digit returns. We took advantage of last weeks sell-off to pick up a few bargains that were on our “standby list”, which we will discuss in more detail in our Quarterly Investment Update.

Quarterly Investment Update – 4th Quarter 2017

Mon, 08 Jan 2018 19:08:00 GMT

Dear Clients and Friends,

The year 2017 provided us with all-time record highs for the stock market. The Standard & Poor’s 500 Index closed at 2,673.61, up 19.08% for the year. Down days have been scarcer than usual during 2017 and down weeks and months were even scarcer. The enclosed chart, provided by Charles Schwab, depicts every monthly change since 1988 in the broadest global stock barometer, the MSCI All Country World Index (ACWI). The chart depicts what the global stock market did during all 360 months from 1988 through December, 2017. Green indicates an up month, red indicates a down month. In every year since 1988, even the most powerful years of the 1990’s stock market boom, the ACWI registered at least three down months. There were no down months during 2017. Even though December is not shaded and as you can see, the year 2017 was the only year that produced twelve consecutive months without interruption.

Emotions were running high on Wall Street after President Trump and GOP leaders celebrated passage of the Tax cut and Jobs Act. TV pundits, together with “experts” all over Cyberspace, are urging investors to jump into stocks of companies set to benefit from the new 21% corporate tax rate. However, while it is undoubtedly true that lower taxes will bolster the bottom lines of many public traded businesses, everything has its price. If someone overpays for a company’s earnings, they can still lose money on the stock, even if the company reports higher profits in 2018 due to the new tax law. The key is to figure out whether the current price of the shares already reflects the projected earnings bump from the lower tax rate. In many cases, that is not easy to determine. However, proper research as well as price trends should provide us with a hint about the profit outlook of a particular stock.

After the passage of the tax act, Wall Street offered a classic shrug of the shoulders. All year long, the stock market has been “pricing in” the probability of a corporate tax cut. Now that it has passed, investors are moving on to other issues. As far as share prices as concerned, we will not know the impact of the new tax law until the first quarter’s earnings reports start to roll in during April. Meanwhile, the new tax law is triggering a fresh round of debate among investors. Will lower tax rates, coming at a time of general economic strength, prompt a rise in open-market interest rates (bond yields)? We want to keep an open mind to the possibility that the long-term (secular) trend for bond yields has finally turned upward. However, we also know that the bond bears have sounded numerous false alarms in recent years.

During the third and fourth quarter, performance gains were somewhat muted by the larger-than normal cash levels throughout all of our portfolios. We have trimmed or sold numerous successful investments over the last year but found few qualifying replacements. Our cash levels, therefore, remain our largest positions. Liquidity in a portfolio is a byproduct of our bottom up process. This liquidity is reserved to take advantage of new qualifying positions as we have done in the past when cash has been this high. Stocks become discounted for numerous reasons ranging from simple, company-specific earnings misses to complex, broad geopolitical or natural events that generate fear in particular industries or the overall markets.

During the quarter, we continued to raise cash by selling stocks that reached their appraised values or could cause problems in 2018. We sold our entire positions in Seacor Marine Holdings Inc. (SMHI), Franklin Resources Inc. (BEN), SSE PLC (SSEZY), Western Assets Emerging Market Fund (EMD), Aberdeen Asia-Pacific Income Fund Inc. (FAX), and Kroger Company (KR). On the buy side, we added two new positions in the Equity portion of our portfolios including Walgreens Boots Alliance Inc. (WBA), a pharmacy-led health and wellbeing company, and Mondelez International Inc. (MDLZ), a snack company that manufactures and markets snack food and beverage products for consumers. In the Fixed Income portion of our portfolios, we added Kraft Heinz Co (KHC), a food and beverage company, Mattel Inc. (MAT), a company that manufactures and markets a range of toy products around the world and Verizon Communications Inc. (VZ), a holding company that provides communications, information and entertainment products and services to consumers, businesses and governmental agencies.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives. May you and your loved ones have a healthy, happy and prosperous New Year.

Special Investment Update – November 21, 2017

Wed, 22 Nov 2017 16:59:00 GMT

Dear Clients & Friends,

The vote was pretty close, 227-205. But the GOP majority in the House of Representatives held back enough defections to clear its version of “tax reform” last week. If the Senate can follow through by passing a tax bill of its own, we should expect the headline U.S. stock indexes to break out to fresh record highs in December. However, any deviation from this scenario could trigger a setback, perhaps deeper than most investors now think possible. Why are we so cautious? Not only are valuations historically high, big institutions have also positioned themselves very aggressively by drawing down cash reserves and over-weighting volatile sectors of the equity universe such as technology, banks, emerging markets and Japan. Eventually, some of these investors who have ridden the market’s momentum will get spooked by some macro development. A geopolitical event may provide the trigger or more likely, the Federal Reserve will tighten the credit screws a few more turns in 2018, raising doubts among forward-thinking investors about a potential drop in corporate profits. Whatever the cause, the market’s upward momentum will break. Then the urge to sell will seize a broad cross-section of investors. The liquidation will not end until today’s glamour stocks have been beaten down 30% or more.

Maybe Congress will pass a “tax reform” package before the end of this year. Maybe not. However, there is no need for us to wait any longer for any year-end tax planning. There are steps you can take right now to chop your tax bill before year-end and accelerate the growth of your portfolios in 2018 and beyond.

The first step is to maximize the funding of your retirement accounts. In most years, this is boilerplate advice you hear from every financial columnist. If you are eligible for an IRA, 401(K) or self-employed pension plan, top off your contributions to the maximum dollar amount allowed. This year, though, the recommendation carries a little more urgency than usual. Amid the wheeling-and-dealing over tax reform, some legislators have proposed cutting back on tax-deductible retirement contributions. Nobody knows what might result from the horse trading. Currently, an employee can contribute up to $18,000 a year into a 401(K), or $24,000 if you are age 50 or older. For IRAs, the cap is $5,500, plus another $1,000 if you are 50 or older. If you are self-employed and looking to maximize your tax-deductible contribution this year, consider setting up a defined-benefit pension plan. Such plans are designed to produce a retirement benefit valued at up to 100% of your average compensation for your three highest –earning years, up to a maximum limit of $215,000. This type of plan would especially benefit business owners in their last 10 years or so before retirement. Defined-benefit plans can allow you to make a much higher annual contribution than 401(K), SEP-IRAs or other types of retirement plans.

The second tax-saving step is to consider gifting appreciated stock or mutual funds to your favorite charity. Such gifts would provide a tax deduction based on the fair market value of the gifted security – not the original cost basis. First and foremost, you want to be sure you held the security at least a year and a day. Otherwise, you will only be able to deduct the original purchase cost, not the current market value. Also, there are further limitations if your adjusted gross income exceeds $261,500 for singles and $313,800 for joint filers.

The final tax-saving step is to take a hard look at your investment portfolios. For those who manage their own portfolios, consider weeding out stocks or funds in a taxable account that have declined in price since you purchased them. Capital losses can be offset against any gains realized in 2017. In addition, you can apply up to $3,000 a year in capital losses to reduce your income from other sources. However, before you sell a loser security from a taxable account, it is important to note that you will forfeit the tax loss if you buy back the same investment within a 30-day period (“wash-sale” rule).

As far as our firm’s managed investment portfolios are concerned, we have been busy utilizing this strategy throughout the year. We have been buying and selling securities to “harvest losses” in an effort to offset gains in all of our taxable portfolios.

This is Thanksgiving week again and time to pause and reflect on our many blessings. Investment returns are only a small part of the total picture, of course, but 2017 has been another good year, on balance, for us at Farmand Investment Services. So, while we intend to enjoy our turkey and fixings without giving a second thought to the stock market, you can be sure that we will remain vigilant in the weeks ahead for signs that the investment climate may be changing either for the better or the worse.

Quarterly Investment Update – 3rd Quarter 2017

Mon, 02 Oct 2017 21:06:00 GMT

Dear Clients & Friends,

As the stock market continues to go even higher into record territory, our strategy is shifting to a more “cautious” view. We will continue to buy stocks and equity funds, but we are also building up our defenses against the day when Wall Street’s grand old bull finally rolls over. Sometimes, it seems as if a market trend will never stop going up or down. This is how the current stock market has been behaving so far. The Standard & Poor 500 Index has not had a pullback of more than 2.8% all year. It is possible that this optimism is partly due to good economic fundamentals or maybe it is due to the Trump administration’s three point program for economic growth of healthcare reform, infrastructure spending and tax reform. Of the three programs, we all know that tax reform is the only one that has a chance of passing before the end of the year. The tax reform proposal which was announced by Trump last Wednesday seems to have pleased Wall Street with the idea that corporate taxes are coming down. We will have to wait and see how that process unfolds.

During the past eight years, if anyone was invested to any degree in a well-diversified stock portfolio they have got to be pleased and have enjoyed a substantial increase in wealth. However, we do not drive with our eyes glued to the rear-view mirror. Rosy or not, the past is the past. What matters now is what lies ahead. In that regard, the good news is that the U.S. economy is still among the most dynamic in the world. The American brand of free enterprise continues to generate great innovations, which will stimulate growth in corporate sales and profits over the decades to come. Self-driving cars, solar power on your rooftop, and so much more. Over a period of decades, or a working lifetime, investors in stocks will be handsomely rewarded.

The not-so-good- news is that today’s share prices of stocks, exaggerated on the upside by wave after wave of central bank intervention (“quantitative easing”), are probably too high for the amount of growth that will actually be registered in 2017-2018. In fact, if something should come along within the next year to trip up investors’ earnings expectations, the headline equity indexes could drop rather sharply. At the moment, the trigger for such an event is hard to specify. Unemployment remains near decade lows, and Gross Domestic Product growth plods along at around 2%, net of inflation. Yet we know that corporate debt levels stand at near-record highs, while the Federal Reserve is slowly ratchetting up borrowing costs. Meanwhile, in the consumer sector, the more cash-strapped members of the population are showing definite signs of economic stress. These members include subprime auto buyers, heavily indebted college graduates and credit-card shoppers who live paycheck to paycheck. Three or four quarters from now, enough problems may have accumulated to topple Wall Street’s long-running bull. In sum, the investment future looks promising over the long-term, but it will look a lot more promising if we can all mitigate the impact of the next cyclical market downturn.

During the quarter, we continued with our strategy of raising our cash levels by selling stocks and equity funds that could cause problems in 2018 as well as trimming equity positions that have significantly appreciated. We sold our entire positions in Dollar General Corporation (DG), Seacor Holdings Inc. (CKH), Scripps Networks Interactive Inc. (SNI), Stone Harbor Emerging (EDI), Spdr Bloomberg Barclay (ITR), Merk & Co Inc. (MRK), Royal Dutch Shell B Adrf (RDSB), Abbie Inc. (ABBV) as well as Vanguard High Yield Corp (VWEHX), and Gabelli Equity Income (GABEX).

The additional cash give us the opportunity to increase our Fixed Income portion by adding small positions in Public Service Enterprise Group Inc. (PEG), an energy company with operations located primarily in the Northeastern and Mid-Atlantic United States; Cisco Systems Inc. (CSCO), a company that designs and sells a range of products provides services and delivers integrated solutions to develop and connect networks around the world; Park Hotels & Resources, Inc. (PK), a lodging real estate company, which consists of 67 hotels and resorts with over 35,000 rooms located in the United States and international markets and Wells Fargo & Company (WFC), a diversified financial services company, provides retail, commercial, and corporate banking services to individuals, businesses, and institutions.

Special Investment Update – August 15, 2017

Tue, 15 Aug 2017 16:31:00 GMT

Dear Clients and Friends,
As we stressed in the past, risks are mounting for Wall Street’s long-running and rapidly aging bull. Our defensive strategy does not require us to sell all of our stocks – far from it. In fact, we have continued to buy dividend-rich securities for projected returns in excess of 10%. However, we have and will continue to exercise caution in our investments. So, how do we protect our portfolios from painful, disruptive change? As we previously discussed, with the eight-year U.S. business expansion growing long in the tooth, there is a good chance the financial markets will experience a more than trivial “disruption” sometime in 2018, perhaps even sooner. This special update focuses on how we have been able to harden our defenses against unpleasant market surprises. The goal is not to avoid risk entirely, which is impossible. Rather, we want to take intelligent measures to reduce unnecessary risk.

Futurists and gadget lovers make a big deal about the disruptive power of technology. They are right too. Inventions such as the personal computer, the cellphone, and above all, the Internet have transformed the lives of people everywhere in recent decades. And there is more coming. Biotech is conquering diseases that had long resisted other cures. Electric and self-driving cars will profoundly alter the way we travel and the amount of fossil fuel we consume. Solar power threatens to turn the economics of the utility industry upside down in places where homeowners can generate enough electricity from the sun to become net suppliers to the grid. As investors, we need to be aware of these trends, and to remain flexible.

Besides technological change, there is another type of disruptive change that can hurt investors. We are talking about “market shocks”. In recent years, the Federal Reserve, along with other central banks around the globe have provided a security blanket for stock market investors. Near-zero interest rates and wave after wave of “quantitative easing” have muffled the impact of economic and political events that might otherwise have sparked another financial crisis. However, the Federal Reserve is now slowly withdrawing the security blanket, at a time when equity valuations have climbed quite high by historical standards. While we do not expect a severe market disruption in 2017, the risk of an accident is no longer negligible and it is steadily rising.

As we have previously discussed, we have been re-positioning our portfolios to reflect for the changing environment. One of the first steps was to change our overall asset allocation of Equity, Fixed Income and Cash. We basically reduced our Equity and Fixed Income allocation by up to 5% each and increased our cash position by up to 10%. Thus, our current average allocation mix remain at 40-50% Equity, 40-50% Fixed Income and 0-20% in cash for most of our portfolios. In addition, we analyzed all of our industries in our portfolios for proper diversification. If certain industries such as technology were over weighted in certain portfolios, we trimmed those positions to the proper percentage of our equity holdings. Furthermore, we shifted many of our equity holdings to dividend-rich securities to build a significantly higher degree of safety into our portfolios.

There are some on Wall Street who are starting to feel that stocks are not going to pull back meaningfully anytime in the near future. Instead, the market is about to launch into a near-vertical “melt-up”. The more moderate promoters of this theory, such as Dr. Ed Yardeni, say that an ongoing surge in corporate profits could lift the Standard & Poor’s 500 Index another 8% by the middle of next year, to the 2,600-2,700 range. So, while we are still inclined to sell stocks and sectors that have overshot any reasonable valuation bounds, we are also willing to invest in companies that offer the prospect of achieving at least a 10% total return over the next year.

For the last several weeks, the stock market has tempted fate by creeping higher and higher without undergoing a normal pullback. Then came the latest confrontation between the United States and North Korea. We do not have any special insight into how this geopolitical flare-up will end. However, we strongly feel that, the headline U.S. equity indexes are overdue for a 5% or greater dip. We also feel that at this stage, there is little or no evidence that suggests the market has formed a major top. Thus, we are proceeding on the assumption that as long as our roadmap calls for eventual new highs, we will continue with our strategy.

Quarterly Investment Update – 2nd Quarter 2017

Mon, 03 Jul 2017 14:53:00 GMT

Dear Clients & Friends,

After three months of going sideways, the Dow Jones Industrial Average finally popped above its March 1 closing high on June 1, at 2,430.06, and continued upward toward gradual new highs throughout the month of June. On Wednesday, June 14, the Federal Reserve raised short-term interest rates another quarter-point to a range of 1%-1.25% for federal funds, as was expected. But the real news was buried further down in the post-meeting press release. Starting “this year” the Federal Reserve plans to “gradually reduce” its massive bond holdings accumulated during the Quantitative Easing program between 2008 and 2014. The Federal Reserve will stop reinvesting principal on as much as $6 billion a month of Treasury debt and up to $4 billion a month of mortgage-backed paper as these securities mature. In short, Janet Yellen has officially announced that the Federal Reserve intends, sometime before the end of 2017, to complete its three-year long transition from Quantitative Easing of credit (QE) to Quantitative Tightening (QT), a genuine policy reversal is under way. We do not want to jump to any conclusions because it will probably take several more turns of the credit screws before the economy and the stock market get into any serious trouble. However, history shows that sooner or later, tighter credit will topple the economy into recession and stocks into a bear market.

Risks are mounting for Wall Street’s long-running and rapidly aging bull. Key indicators are looking ahead to a peak in the business cycle, possibly within the next 12-18 months. Investors have not seen a major top in the U.S. stock market for almost 10 years. Many folks have either forgot what such an inflection means or have given up looking for it. Complacency reigns, as indicated by the multi-decade June 9 low in the CBOE Volatility Index (VIX). As we look back at the halfway mark in 2017, the broad stock and bond market trends have performed as we expected up to this point. However, we do not anticipate a similar performance during the second half of 2017.

The Dow’s belated show of strength does not completely erase the caution that we have noted in previous updates. Despite the June highs trifecta of new all-time index highs (DJIA, S&P 500, NASDAQ), we remain cautiously optimistic for 2017. With corporate earnings as perky as they are, there is really just one thing that might hinder stocks from streaking higher over the summer, which is stock valuations. According to a recent chart from FactSet, the Standard and Poor’s 500 is now trading at essentially its highest forward Price-Earnings (P/E) ratio, using the next twelve months’ estimated earnings as the denominator, of the past decade.

It is possible, of course, that enthusiastic investors will choose to look past today’s skybox valuations and bid up share prices even further. However, we feel that we are nearing the end of the market’s recent ebullience and a “market siesta” may well be in store.

During the quarter, we sold stocks that could cause problems in 2018 and trimmed some of our stocks that have significantly appreciated. We sold our entire positions in Du Pont E I De Nemours & Co (DD), Rayonier Inc. (RYN), Verizon Communications (VZ), and Ralph Lauren Corporation (RL). We also trimmed over-weighted positions that have doubled in value such as Phillip Morris International Inc. (PM) and Altria Group Inc. (MO). We also trimmed Federal Express Corporation (FDX) and used the proceeds to purchase United Parcel Service Inc. (UPS). This had the affect of reducing the Equity portion of the portfolios and increasing the Fixed Income portion of the portfolios due to the fact that UPS is an excellent company and has a dividend in excess of 3%.

The additional cash provided us an opportunity to increase the Fixed Income portion of our portfolios. We added Rowe T Price Group Inc. (TROW), a financial services holding company that provides global investment management services through its subsidiaries to investors across the world, Health Trust of America Inc. (HTA), a real estate investment trust that operates medical office buildings in the United States and General Mills Inc. (GIS), a manufacturer and marketer of branded consumer foods sold through retail stores. On the equity side, we added two new positions, Hormel Foods Corporation, (HRL), which engages in the production of a range of meat and food products and Fairfax Financial Holdings (FRFHF), a property and casualty insurance, and reinsurance and investment management company. We feel that these positions will perform well in case of an economic downturn.

Special Investment Update – May 25, 2017

Wed, 31 May 2017 12:55:00 GMT

Dear Clients & Friends,

Ninety-eight months and counting! Key U.S. stock indexes touched fresh all-time highs in mid-May, cementing the post-2009 bull market as the second-longest in the nation’s history. While it would be nice to believe the good times will roll forever, common sense suggests otherwise. Almost 48 weeks have now elapsed since the last 5% pullback in the Standard & Poor’s 500 Index – the longest such interval since the bull market began in March 2009. Chances are that we will get another 5% (or greater) dip possibly early fourth quarter, giving us an opportunity to fill most of the holes in our portfolios at prices more favorable than today’s. Even though we believe the bull market for equities will continue for 2017, the longevity of the bull market, coupled with extremely high valuations of some of the most widely held equities such as Amazon, Facebook, Netflix, etc., suggests continued caution regarding the overall risk of the stock market.

Politics is fading into the background and fundamentals are grabbing the limelight again. With the President’s economic agenda running into snags in Congress, investors are having second thoughts about making any money in 2017. The Trump administration has rolled back a number of regulatory impediments that hurt businesses under Obama. In addition, there is still a good chance the Trump team will eventually pass some kind of healthcare fix through Congress, together with an infrastructure program and tax reform. However, enacting these initiatives is taking longer and proving to be much more difficult than enthusiastic observers assumed at the outset. As a result, many of the stock market’s “Trump trades”, which had zoomed up during the weeks just after the election, have since fallen back to earth. For example, by Mid-April, bank stocks had given up all of their 2017 gains and backtracked to four-month low. Yes, it is troubling that the Trump-Comey-Flynn controversy has now led to the appointment of a special prosecutor. It is certainly possible that the proceedings to come will distract the attention of President Trump and prevent him from advocating effectively for his economic agenda. On the other hand, Treasury Secretary Steven Mnuchin was pushing for tax and regulatory reform, which he said would raise the economy’s rate of real growth to 3% a year. It is definitely too early to count the Trump economic program out.

As investors step away from the political-handicapping game, we can expect that old-fashioned fundamentals such as earnings, dividends and financial strength will reassert their critical role in determining stock market winners and losers.

At some point when the bear strikes, many of today’s high-flying glamour stocks, which lack a solid value underpinning, will come crashing down with little prospect of a decent return for investors who buy now and hold for the next several years. In an effort to avoid such an unhappy fate, we constantly review each of our portfolios to make sure they have the proper asset-allocation mix between Equity, Fixed-Income and Cash. In addition, we upgraded our bond holdings which increased our allocation of Fixed Income and we continue to hold excessively high cash levels in most of our portfolios.

Quarterly Investment Update – 1st Quarter 2017

Mon, 03 Apr 2017 14:20:00 GMT

QUARTERLY INVESTMENT UPDATE
1st QUARTER 2017

Dear Clients & Friends,

March 9, 2009. Hard to believe, but it was eight years ago last month that the stock market touched its last major bottom. It was the depths of the global financial crisis. Unemployment was soaring. Investors feared an uncontrollable collapse of the world banking system. Yet, at seemingly the darkest hour, the Standard & Poor’s 500 Index scrapped its final low of an excruciating 17-month bear market. The index closed that day at 676.53. It has since more than tripled, to a recent high of 2,400.98 on March 1, 2017. From Election Day to March 1, the headline U.S. equity indexes climbed almost without interruption.

Eight years is a long time for the market to rise without a serious interruption such as a decline of 20% or more on a closing basis. The longest stretch that the Standard & Poor’s 500 Index and the Dow Jones Industrial Average have gone without at least one index experiencing such a drop is nine years and three months (October 1990 to January 2000). However, bull markets do not die of old age. In theory, this one could keep running several years more – if corporate profits continue to grow, interest rates remain well behaved and our leaders manage to avoid a political or geopolitical disaster. While nobody knows the day or the hour of the exact top, we want to be in an appropriately defensive posture when the turning point arrives. This does not mean selling all of our stocks and running to the hills.

One way of measuring the market’s overall valuation status is the price-to-peak earnings ratio, which is derived by dividing the current reading of the Standard & Poor’s 500 Index by the most recent 12 months of peak earnings, computed according to generally accepted accounting principles, for the constituent companies in the index. Currently, analysts estimate that the Standard & Poor’s 500 companies will achieve $120.57 of as-reported earnings by year-end 2017. Even if we assume that rosy forecast comes true, the index, at 20 times earnings, would trade at 2,411, less than 1% of its March top. For the market to climb significantly higher, and stay there, the current degree of investor exuberance would need to be sustained pretty much all year long. In short, we currently do not foresee more than a routine pullback of 5% or so, which would probably be healthy for the stock market.

During the quarter, we increased our current above-average cash levels to historic levels by selling over-valued investments. We increased our cash levels by selling our entire positions in Nuveen Floating Rate Income Fund (JFR), Oneok Partners L.P. (OKS), HSBC Holdings PLC (HSBC), The Walt Disney Company (DIS), and Eaton Vance Tax Managed (ETY). We used some of the cash to purchase undervalued equity stocks in the consumer staples sector, such as Colgate, Dollar General, Coke, The Kroger Co. and Kimberly Clark. We also added one more pharmaceutical position in Johnsons & Johnsons (JNJ).

On the Fixed Income side, while it is true that the Federal Reserve has embarked on a modest credit-snugging campaign, we feel that the central bank’s appetite for rate hikes will wane later in the year. Perhaps the economy will grow at a somewhat less torrid pace than Wall Street expects. Whatever the cause, the insiders of the bond market, such as dealers and other commercial interest who trade bonds for a living, do not seem to think yields are going much higher. They have been loading up on Treasury-bond futures. In fact, they have built up just about the largest net long position of the past six years. Accordingly, we established three additional bond positions on the fixed income portions of our portfolios for a trade. Our first position is the DoubleLine Total Return Bonds N (DLTNX) which features a portfolio of short duration bonds. Our second bond position is the iShares 20+ Year Treasury Bond ETF (TLT), which has a portfolio of long-dated bonds. Our third bond position is the Blackrock Muni Holdings Quality Fund, Inc. (MUE), which has a portfolio of municipal bonds with a current yield of 6%. When we say “for a trade”, it means that we can expect to hold the funds on a short-term basis as opposed to our holding of investments in companies that may take 3 to 5 years to achieve our target of fair value. In addition, we added a new position in SSE P/C (SSEZY), an electric-and-gas utility serving Scotland and portions of England. SSE has raised its dividend (in British pounds) each year since 1999, with a current dividend yield of 5.9%. We are also expecting SSE’s home currency to appreciate 5%-10% against the dollar over the next year or two. Thanks to the undervalued pound currency, a Big Mac in London costs the equivalent of only $3.70, tax included.

Special Investment Update – February 10, 2017

Fri, 10 Feb 2017 19:30:00 GMT

SPECIAL INVESTMENT UPDATE

Dear Clients & Friends,

Donald Trump’s November victory took Wall Street by surprise. From Election Day to January 19, President in-waiting Donald Trump teased the media and tweeted up a storm. But now, President-elect Trump is President Trump. He’s making real decisions with the force of the law. Obviously, Trump is a man with no small ego. He enjoys the limelight and will play to an audience whenever he can. As his early appointments and his first acts in office demonstrate, however, he is not utterly devoid of guiding principles. While his economic ideas do conflict with free-market thinking on some significant points, he certainly leans more toward capitalism than socialism. We need to recognize him as the consummate deal-maker since he is constantly negotiating. Trump is a hard-nosed businessman who has negotiated throughout his career, by means of bluster and threats. As a businessman, though, he cherishes above all the prospect of “closing the deal”. Understanding Trump’s fundamental identity as a deal-maker can help us to react wisely when the President issues one of his frequent strongly worded statements.

All of our portfolios turned in an excellent performance in 2016. As we look forward to the next twelve months and beyond, it is important to note that our expected future returns will most likely be less robust than the 2016 results. With our “balanced” style of investing, we place great emphasis on stocks but also a sizable component of bonds or bond equivalents. We have maintained this strategy since our firm’s inception and continue to embrace it. However, since stocks are historically expensive and high-grade bond yields remain very low, we have to be concerned about both these factors but especially the high-grade bond yields which dictate the direction of interest rates. The purpose of this Special Investment Update is to discuss these two factors.

As far as bonds are concerned, back in late April 1990, you could earn 9% on a 10-year Treasury note, the safest paper in the world. That turned out to be the high-water mark for bond yields over the next 27 years. Not only did we start out with a plumb yield in those good old days but we also enjoyed a tailwind from falling interests over the subsequent quarter century. As rates tumbled, our bonds racked up price gains on top of the interest coupon, bolstering our total return. Today, the shoe is on the other foot. With the 10-year Treasury note yielding a mere 2.5%, the income component of most high-quality bonds makes only a modest contribution to total return. Also, if interest rates climb significantly in coming years, the resale value of longer-dated bonds will erode. The tailwind of the past will shift to a headwind for the future. Given this risk, we should expect a total return of approximately 2.5% annually for a typical bond index fund over the next five to ten years.

As far as stocks are concerned, they have put on a fabulous performance over the past eight years, since the climatic March 2009 low. Currently, all the major stock indexes are posting continuous all-time record highs. We continue to be long-term “bulls” on the U.S. economy and stock market. However, share prices have climbed so dramatically that most valuation benchmarks such as price-to-earnings and price-to-sales stand at or near their highs of the past decade. History shows that lofty valuations lead to mediocre long-term returns or less. Thus, even if we increased our equity exposure to 100% of our portfolios, we probably would not earn nearly as much, in the coming decade, as investors used to make with traditional balanced portfolio of 60% stocks and 40% fixed income.

Even though the return for both stocks and bonds are likely to fall short of historical norms in the next five to ten years, we continue to embrace our balanced portfolio strategy. The safety aspect of a balanced portfolio continues to be very important to all of our portfolios. However, we have to be creative to be able to achieve our financial goals in the years ahead. This creativity is developed by being flexible in widening our allocation range of our stock weighting. Since our firm’s inception, our stock exposure varied between 40% and 80% of the total portfolios. We do not expect to follow either of these extremes in the near future.

We have come a long way since Election Day without a significant pullback. We should expect a 3%-4% pullback on the Standard & poor’s 500 Index. However, we feel confident about the stock market for the first and second quarters but will have to wait and see what kind of legislation will pass under Donald Trump before we can re-evaluate our investment strategy.

Quarterly Investment Update – 4th Quarter 2016

Fri, 06 Jan 2017 13:53:00 GMT

QUARTERLY INVESTMENT UPDATE
4TH QUARTER 2016

Dear Clients and Friends,

Donald Trump’s upset victory in the presidential race came as a shock to millions of people. Few presidential elections have stunned so many observers as this latest one. Whether you were pleased with the result or dismayed, you were almost certainly surprised. Investors have displayed their confusion as well. Stock prices, interest rates and the value of the U.S. dollar have risen since the election due to optimism about likely pro-growth policies. Economic data has improved alongside a more business-friendly incoming Trump administration, helping to strengthen both stock and Treasury yields. Gas and oil prices are continuing to rise as more countries, including non-OPEC oil producing nations, agreed to cut their production levels. For the quarter, the Standard & Poor’s 500 Index closed at 2,238.83, up 3.3% for the quarter and 9.5% for the year.

By now, you must have heard the narrative a hundred times. Donald trump will slash taxes, scrap Obamacare, shred thousands of regulations, ditch bad international trade deals, rebuild America’s infrastructure and create millions of new jobs. The economy will boom and stocks will soar, even if inflation and interest rates do bounce back somewhat. We have no doubt that some of it will come true. However, not all of it will unfold exactly as today’s eager post-election stock bulls are assuming. Trump’s proposals as well as his appointments to high office will probably run into more obstacles than certain impatient investors are counting on. The Democrats are already sharpening their knives so that parts of the new administration’s program will get bogged down in Congress, the bureaucracy or the courts. We feel confident that we are not in for a smooth-as-silk economic ride under Donald Trump any more than under any other president.

Let us consider four policy changes Trump has proposed, and their likely effect on various investments:

On the Equity side of our portfolios, we initiated one new position which is Melco Crown Entertainment (MPEL), a company that through its subsidiaries develops, owns and operates casino gaming and entertainment casino resort facilities in Asia. On the sell side, we sold our entire positions in American Express Company (AXP), Encana Corporation (ECA) and Union Pacific Corp (UNP).

As far as Fixed-Income is concerned, we also added two new positions to our portfolios which are Kimberly-Clark Corporation (KMB), a manufacturer and marketer of a range of consumer goods that has a current yield of 3.2% and Verizon Communication Inc. (VZ) which has a current yield of 4.33%. On the sell side, we sold our entire positions in Vermilion Energy Inc. (VET), Murphy Oil Holdings (MUR), Wells Fargo & Co New (WFC), Vivendi Sa Ord (VIVEF), New York Community Bank Co (NYCB), MetLife Inc. (MET), and Union Pacific Corp. (UNP).

Special Investment Update – October 31, 2016

Mon, 31 Oct 2016 20:22:00 GMT

SPECIAL INVESTMENT UPDATE

Dear Clients & Friends,

Soon the election will be over! For investors, that means the end is in sight for the nagging uncertainty that has held the stock market back, so far, from launching into its traditional 4 ^th quarter rally. Even though government policies will differ somewhat depending on which presidential candidate wins, history shows that the equity market can do quite well regardless of which party is in control. The decisive factor is the economy and more specifically, corporate earnings. As long as company profits are trending upward, without being eaten up alive by inflation, share prices can advance under any political regime.

Many reliable indicators are pointing to continued growth for the U.S. economy: consumer confidence as measured by the Conference Board, jumped in September to its highest level since 2007; first-time filings for jobless benefits recently scraped a 43-year low; junk-bond prices hit a new 14-month high on October 10. On the eve of the past three recessions (1990, 2000, and 2007), prices for bonds issued by lower-grade, heavily indebted companies began to fall sharply. Just the opposite is happening now.

We are not attempting to paint an unrealistically rosy picture. We all know the U.S. economy is crawling along at a much slower pace than in the past expansions. What’s more, large parts of the developed world such as Europe and Japan are dragging behind the United States. If our newly elected president were to offer some words of reassurance to investors, it would be very much in keeping with history for the headline U.S. stock indexes to break out to a series of fresh all-time highs within the seasonally favorable November – January window.

As the end of the year approaches, it is a good time to think of planning moves that will help lower your tax bill for this year and possibly the next. Factors that compound the planning challenge this year include political and economic uncertainty, and Congress’s all too familiar failure to act on a number of important tax breaks that will expire at the end of 2016. Some of these expiring tax breaks will likely be extended, but perhaps not all, and as in the past, Congress may not decide the fate of these tax breaks until the very end of 2016 (or later). Not all actions will apply in your particular situation, but you (or family member) will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. Please contact us at your earliest convenience so that we can advise you on which tax-saving moves to make.

Quarterly Investment Update – 3rd Quarter 2016

Wed, 05 Oct 2016 19:43:00 GMT

QUARTERLY INVESTMENT UPDATE
3RD QUARTER 2016

October 3, 2016

Dear Clients and Friends,

It is remarkable these days how quickly investors become unhinged. Whatever the cause, it seems that financial markets are reacting to any news with emotion rather than the mind, which is opposite of how we should behave. As we discussed in our last special update, we have had several and expect to have more emotional driven market swings. Stocks have leaped over a series of obstacles in 2016, the worst recent being the unfounded fear that the Federal Reserve might prematurely raise interest rates in September, which they did not do. With the Federal Reserve out of the rate-hiking business until December at least, only one factor is left that could trigger a big selloff in stocks over the next two months – the U.S. elections.

Once tipped by pundits as a potential Democratic sweep, the election is turning into a horse race. While most polls still show Secretary Clinton leading narrowly in the presidential race, it appears the GOP will continue to hold a solid majority in the House of Representatives and may even hang on to the Senate by a slim majority. From an investment standpoint, this shift in political prospects gives little reason for fear. Financial markets often thrive under a divided government in Washington. If Trump wins and Republicans retain their majorities in Congress then this could have a negative impact on Wall Street since it was not expected. Stocks, in particular, could undergo a 5%-6% pullback, comparable to what happened in June after the Brexit surprise. The economic landscape here in the U.S. still looks pretty healthy, with jobless claims near four-decade lows and corporate profits on the verge of a rebound.

Another emotional outburst took place last week in the oil market. During their meeting last Wednesday, OPEC chieftains informally met in Algiers and agreed to seek a production cut at the organization’s meeting in November. According to the brief statement released after the Algiers gathering, OPEC will look to reduce its output by 500,000 barrels a day, which is approximately 1.5% of OPEC’s total production. Also, at this point OPEC is only establishing a committee to “study and recommend” the proposed cut. Even if the deal goes through, there is little evidence to suggest a dramatic run-up in Crude prices before year end.

In our last Special Investment Update, we expressed our confidence in the stock market by re-investing the dividend income on most of our stocks and mutual into the respective company’s Dividend Reinvestment Plans (DRIP). However, this does not include taxable accounts with monthly cash distribution or other accounts that have their own cash requirements. We continue to have confidence in the stock market but it is essential to keep enough cash reserve to take advantage of opportunities during periods of emotional volatility.

On the Equity side of our portfolios, we added several positions including Kroger Company (KR), a retailer in the United States, Walt Disney Co. (DIS), a worldwide entertainment company, Liberty Media Corp (LMCK) who owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries, and Ralph Lauren Corp (RL), which engaged in the design, marketing and distribution of lifestyle products, including apparel, accessories, home furnishings and other licensed product categories. On the sell side, we sold our entire positions in DreamWorks Animation Inc. (DWA) and Adidas Ag (ADDYY) to capture some nice long term gain. In the case of DWA and ADDYY, we purchased them at the end of 2014 at a cost of $22.45 for DWA and a cost of $39.31 for ADDYY. We sold these two equity stocks over double what they cost us.

As far as Fixed-income is concerned, we added one new high yielding equity position which is New York Community Bancorp Inc. (NYCB), which offers banking products and financial services in Metro New York, New Jersey, Ohio, Florida, and Arizona. We also added TCW Total Return Bond (TGMNX); a high yield fund invests at least 80% of the value of its net assets, plus any borrowings for investment purposes, in debt securities. On the sell side, we sold our entire positions in Barclays Plc Adri (BCS), and Double line Total Return (DLTNX). As we discussed in our August 10 issue of our Special Investment Update, the 10-year Treasury note should start to move up from their July low of less than 1.40%. During the third quarter, the 10-year Treasury note climbed briefly above 1.70% yield before closing the end of the quarter at 1.61% yield. As we previously mentioned, if stocks are to enjoy solid gains through the end of the year, the yield on the 10-year Treasury note should climb above 1.75% during the fourth quarter.

Special Investment Update – August 10, 2016

Wed, 10 Aug 2016 19:35:00 GMT

SPECIAL INVESTMENT UPDATE

August 10, 2016

Dear Clients and Friends,

The financial markets are acting a little confused these days. Stocks, bonds, oil and the dollar all seem unsure of themselves, limping around indecisively from one trading session to the next. Over the past several weeks, the Standard & Poor’s 500 Index has traded in its narrowest range since September 2014.

It is important to note that investors experienced a climate of growing fear since the summer of 2014. First, it was fear of interest rate hikes by the Federal Reserve. Then fear of a global recession as well as a meltdown in the financial system induced by the collapse in oil prices. Most recently, the Brexit vote and the creeping shadow of negative interest rates in Europe and Japan led many investors to fear an unstoppable downward spiral for international trade. In addition, doomsayers have harped on China’s debt bubble and the threat it poses to the world economy. All of these were legitimate concerns and some still are. However, we feel that most of these fears are behind us and we are headed for a period of relative calm in the financial markets over the remainder of 2016 and possibly into 2017 as well.

From the technical side of the stock market, advancing stocks have been outnumbering declining stocks by a wide margin. In the 10 sessions ended July 12, advancing stocks on the New York Stock Exchange swamped decliners by a spectacular margin of 2.18 to 1. “Breadth stampedes” of this magnitude are extremely rare. The last readings above 2:1 occurred in March, July and September 2009, correctly foreshadowing the power and endurance of the post-crisis bull. Over the past 60 years, a ratio of 2:1 breadth stampedes have only occurred at major market bottoms or at the launch of an important extension to an ongoing bull market.

As we mentioned earlier, fear of all sorts dominated investors since mid-2014. This emotion can be measured by the so-called “fear gauge” the CBOE volatility Index (VIX), which measures the premium (prices) that options speculators are paying to protect themselves against a stock market decline. The pattern of fear, as represented by the VIX, touched a major bottom in the summer of 2014 and has just completed what appears to be a major top. We feel that this pattern of investor fear will continue to subside. As fear retreats, stock prices should advance further. As a result of our confidence in the stock market, we are re-investing the income on most of our stocks and mutual funds into the respective company’s Dividend Reinvestment Plans (DRIP).

However, there is no forecast in the financial markets that is guaranteed. As we go along, we will be watching two key benchmarks to confirm that this favorable scenario will take place. First, long-term Treasury yields should start to move up from their July lows. If stocks are to enjoy solid gains through the end of the year, the yield on the 10-year Treasury note should climb above 1.75% during the fourth quarter.

The second benchmark we will be watching is that reliable gauges of economic activity should pick up in a meaningful way. Specifically, we will be watching the monthly ISM purchasing manager’s Index’s manufacturing and the service reports. The ISM numbers come out early in the month, yielding the closet thing to a real-time snapshot of the economy. We would like to see the manufacturing index climb above 54 in the next couple of months and the non-manufacturing (services) index to be above 57. For both indexes, 50 is the dividing line between growth and contraction.

Even though we have a bullish forecast out to year-end 2016, we have to recognize that it will not be a one-way escalator ride up. Also, we have to keep in mind that the current bull market is now more than seven years old and it will not last forever. In order for us to continue to beat the stock market averages, we have to continue our discipline of investing in a balanced portfolio of value-oriented, safety-first equity stocks and fixed income instruments. Meanwhile, our balanced portfolio strategy is paying off handsomely. All of our portfolios have more than doubled the stock market’s gain year to date.

Quarterly Investment Update – 2nd Quarter 2016

Fri, 05 Aug 2016 14:50:00 GMT

QUARTERLY INVESTMENT UPDATE
2ND QUARTER 2016

July 5, 2016

Investors have had plenty to worry about in the first half of 2016, from agonizingly slow economic growth with slumping corporate profits to an uncommonly bitter and divisive presidential nominating race. Millions of investors are struggling to figure out which narrative to accept: the nightmarish story of collapsing commodity prices, debt defaults and impending recession that prevailed in December, January and the first half of February or the stunning upside reversal that began February 11 and carried strongly into mid April as well as into the first week of June. As usual, the truth falls somewhere in between. Economic conditions are not nearly as bleak as they seemed at the bottom in February, nor are they as rosy as they seemed at the interim tops of April 20 as well as June 8. Since then, the stock market went sideways until Great Britain’s exit vote on Thursday June 23. Since this past Monday, when the initial shock wave peaked over Britain’s referendum vote to leave the European Union, Wall Street has staged a remarkable turnaround. Even though we must watch out for signs that the economic waves from the Brexit shock will turn out bigger or smaller than the financial markets anticipated, we do not feel that there is any need to change our investment strategy.

In fact, we feel that there are several reasons to look forward to an upturn for stocks during the second half of 2016 due to some of the following signs of improvement:

Taken together, these signs of improvement suggest that the stock market will provide us with a pleasant surprise during the second half of 2016.

The volatile quarter provided us with a few opportunities to buy five new positions for both the Equity and Fixed Income portion of our portfolios.

On the Equity side of our portfolios, we added Apple Inc. (AAPL), an American multinational technology company that designs, develops, and sells consumer electronics, computer software, and online services, and Alphabet Inc. (GOOG), a company that offers online performance and brand advertising services. On the sell side, we sold our entire positions in Walmart Stores Inc. (WMT), Hershey Company (HSY), California Resources Corporation (CRC), and Vanguard REIT (VNQ).

As far as Fixed-income is concerned, we added three new high yielding equity positions including Roche Holding Ltd (RHHBY), a Swiss global health-care company, Wells Fargo & Company (WFC), an American international banking and financial services holding company headquartered in San Francisco, California, and Carnival Corporation (CCL), an American-British cruise company and the world’s largest cruise ship operator. On the sell side, we sold our entire positions in Exxon Mobile Corporation (EXOM), BP Amoco Plc Adr (BP), and Prologis (PLD). Also, our Jacksonville Florida economic development Mayo Clinic – 46936FAK4 municipal bonds were called.

Special Investment Update – May 11, 2016

Fri, 05 Aug 2016 14:45:00 GMT

SPECIAL INVESTMENT UPDATE

May 11, 2016

Dear Clients and Friends,

The purpose of this Special Investment Update is to address the issue of whether or not this is a good time to invest in the stock market. A top-tier presidential candidate, a billionaire, says that this is a “terrible time” to invest in the stock market. Even if you do not accept the GOP front runner’s view that “we’re sitting on a massive bubble”, there are reasons to be concerned about the current level of stock prices. Is there anything we should be doing differently to protect ourselves against the risk that a big decline in equities may be just around the corner? Any prudent financial battle plan must reckon with this reality. However, when political candidates start lecturing about the stock market, it is important for us as investors, to be somewhat skeptical of Donald Trump’s political comments. Even the experts in the field barely understand the market. How can an outsider pretend to know better?

First of all, it is important to note that whether or not we are headed for the “very massive recession” he is predicting, Trump has raised an important issue for investors. Stocks, on the whole, are not cheap. In fact they are quite expensive by historical standards. Not as expensive as they were at the height of the Internet mania in 2000, but as expensive as or more expensive than they were at such prominent market tops of the past in 2007, 1987, 1961 and 1929. When valuations reach the upper end of their historical ranges, accidents frequently happen. If, for some reason, the U.S. economy were to stumble into a recession sometime during the next year, it would be perfectly normal for the headline stock indexes to tumble 20% or more.

How, then, do we deal with the possibilities of a sharp market decline in the not too distant future and the likelihood of sub par returns on a broad basket of U.S. stocks over the next decade? Some folks will try to outsmart the market by darting in and out, buying and selling, constantly tearing their portfolios apart and rebuilding them according to a pre market-timing scheme. Unfortunately, the record suggests that most investors who pursue this tactic will end up lagging a simple buy-and-hold program over the long-term. We, at Farmand Investment Services believe there is a better way.

As many of you already know, we advocate maintaining a well-diversified “balanced” portfolio made up of stocks and fixed-income instruments. The firm’s basic investment philosophy is conservative in nature and emphasizes preservation of capital, diversification, and a sensible level of risk. We use a top-down approach in our investment process, utilizing macroeconomic analysis to construct the mix of our targeted asset allocation (equity, fixed income, and cash). We then select individual securities, mutual funds, or exchange-traded funds from those asset classes based on each client’s investment policy statement, as well as the potential long term value inherent in the particular security. The firm identifies a set of securities, across our three asset classes, from which we select for investment. Our firm emphasizes high quality growth and value-oriented stocks and mutual funds.

Initially, unless precluded by the client’s investment objectives and risk tolerance, most of our portfolios maintain a formulation of our targeted asset allocation mix of approximately 45%-50% fixed, 45%-50% equity, and 0%-10% cash.

We have shifted the asset weightings in our portfolios from time to time as market conditions change. But any allocation shifts have been incremental and within a narrow range. We are never 100% out of stocks, because we are convinced that we can always find stocks and funds that will beat the returns on cash by a comfortable margin over the long run. Likewise, we are never 100% out of bonds, because we are confident that we can always find some bonds or bond funds that will produce a higher long-term payoff than cash.

As long as interest rates stay this low, which has been the case over the last seven years, cash and its equivalents are typically used only to take advantage of opportunities to buy undervalued stocks and bonds. The level of cash that we allocate to most of our portfolios ranges between 0% and 10%. However, during periods of caution, we have increased the level of cash and correspondingly, when opportunities for further again arise, we have decreased the level of cash.

Overall, we have serious long-term concerns about the current level of stock valuations but we do not feel the fundamental and technical conditions are in place yet for a major decline. To the contrary, it appears that the upswing since February has enough momentum to keep the market on an uptrend, with occasional dips, through the seasonally weak period from May through October.

We truly value our business relationship with our Wealth Management clients and we will always strive to provide you with the best level of service. Thank you again for your time and we look forward to speaking with you soon.

Quarterly Investment Update – 1st Quarter 2016

Fri, 05 Aug 2016 14:37:00 GMT

QUARTERLY INVESTMENT UPDATE
1ST QUARTER 2016

April 1, 2016

Dear Clients and Friends,

The first quarter of 2016 started out on the downside during the first few weeks of the year. However, U.S. stocks have just closed out the quarter with an upside reversal of historic proportions. Ever since the February 11 bottom, U.S. stocks have staged a dramatic rebound with the Dow Jones Industrial Average advancing 12.9%, which represents the biggest intra-quarter comeback since 1933. As long-term investors, we want to know whether this is the real thing or not. As always, we are more interested in what lies beyond the next bend in the road. Can the market continue to stride forward or was this massive rebound a fluke? Most of the problems that bedeviled the market during the first six weeks of 2016 remain with us. China’s economic growth continues to be more sluggish than at any point since the global financial crisis. Commodity producers, especially those with ties to the oil patch, are still bleeding red ink. The European Central Bank and the Bank of Japan are promoting negative interest rates in a desperate effort to shock their economies out of a multiyear coma. Nevertheless, a few bright spots have appeared on the horizon:

The quarter provided us very little opportunity to add any new position for both the Equity and Fixed Income portion of our portfolios. However, we did add one new position on the Equity side of our portfolios, which is Vanguard Health Care ETF (VHT), an exchange traded fund. Healthcare ranks among the market’s more defensive sectors, since these businesses cater to one of the “bare necessities of life”. Between 2014 and 2024, according to the Federal Center for Medicare and Medicaid Services, healthcare spending will outpace Gross Domestic Product (GDP) (in real terms) by 1.1% a year, a built-in growth engine.

As far as Fixed-income is concerned, investors have taken a wild ride for the past three years. It was in May 2013 that then Federal Reserve Chairman Ben Bernanke first floated the idea of “tapering” the central bank’s massive bond-buying program. Furthermore, collapsing oil prices from mid-2014 onward evoked the specter of a credit crunch for second-tier corporate borrowers. This double whammy threatened to tip a plodding U.S. economy into an outright recession in 2016. Meanwhile the unsettled financial markets of the past few months will likely keep the Federal Reserve from aggressively raising interest rates until the economy has built up a stronger head of steam. With the energy sector recovering and the Federal Reserve in a “kinder, gentler” mood, the risk of a recession this year will be virtually extinguished, which would be welcome news for lower-grade debt of all stripes. Thus, we added to our existing positions the Vanguard high Yield Corporate (VWEHX) fund, which has a current yield of 5.6%, as a measure of safety.

On the sell side of our Equity portions, we sold our entire positions in Jardine Matheson Adr (JMHLY); Aqua America Inc. (WTR); Empire State Realty Trust (ESRT); and Lowes Corporation (L). In the Fixed-income area, we sold our entire positions in Care Capital Property (CCP); Nicor Inc. (GAS); The Southern Company (SO); Allete Inc. (ALE); Amer Electric Power Company Inc. (AEP); OGE Energy Corporation (OGE); Realty Income Corporation (O); and McDonalds Corporation (MCD).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please do not hesitate to contact us should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandinvestments.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives.

Quarterly Investment Update – 4th Quarter 2015

Tue, 05 Jan 2016 14:32:00 GMT

QUARTERLY INVESTMENT UPDATE
4TH QUARTER 2015

January 4, 2016

Dear Clients and Friends,

Before we get into the investment portion of our update, we want to use this opportunity to discuss some administrative changes we made to streamline our firm’s procedures.

As we announced during our open house, Farmand Investments has created a new website as part of our commitment to bring more accessibility to our clients and friends. In addition to the website, we have developed an electronic data base which we will use to send you on-line versions of our Investment Updates as well as other information relating to your investments. Thus, beginning with this on-line version of our Quarterly Investment Update, we will be using this electronic data base to send “email delivery” to most clients instead of “U.S. Mail”. We believe this form of delivery will provide access to our investment updates in a much more timely and efficient way. In the future you will be receiving this online version only if we have your email address on file in our data base. All wealth management clients will continue to receive their performance and other portfolio reports by U.S. Mail just as they have in the past as a separate mail out. Please contact us if you do not wish to be included on our email list or you would prefer to receive everything by U.S. Mail delivery.

Also, we want to encourage you to enroll in the Charles Schwab Paperless Delivery Program. In addition to the quick access and convenience, this program will allow your accounts to pay lower commission on trades at Schwab. If you are interested in signing up for online access to your Schwab accounts, call Schwab Alliance at 800-515-2157 and please contact us if you have any questions or comments.

As far as our investments are concerned, frustration was the key word for investors during the fourth quarter of 2015, as most of the major indexes were down for the year. After a tough and volatile 2015, the Standard & Poor’s 500 Index closed at 2043.94, down .73% for the year. The year ended with some encouraging developments, but also some disturbing ones. Very few investments gave us a rougher ride in 2015 than our energy-related names. For the year ended December 31, 2015, the exchange-traded Energy Select Sector SPDR fund (XLE), which owns all the oil and gas stocks in the Standard & Poor’s 500 Index, is down over 20% for the year, even with reinvested dividends.

I am not so rash as to hazard a near-term prediction for the price of oil. However, we strongly suspect that today’s depressed levels won’t last through 2016 – as long as the Federal Reserve does not aggravate the “stealth” tightening already under way in the credit markets.

Certainly, history suggests that the rebalancing process should be in its later stages. West Texas crude has languished below its 200-day moving average for over 17 months now – by far the longest down trend since trading in NYMEX oil futures began in 1983. Also, since the end of World War II, there have only been three other cases where the price of oil tumbled 50% or more from a three- year peak. For each of those cases, the following reflects how things played out over the next 12 months:

Low Month Price High Month Price Gain

AVERAGE GAIN 104.8%

During the current cycle, we are not sure if the price of oil will double from its final low during 2016. However, we feel that a huge recovery potential of energy-related investments is ahead of us. Further out, most analysts envision a shortage of oil production developing before 2020. According to analysts at Tudor Pickering Holt, some 150 oil and gas projects globally have been delayed or cancelled in response to lower prices, jeopardizing a combined 19 million barrels of oil equivalent per day of future production. Overall, we feel that the excess inventory levels are slowly being reduced by more demand.

The quarter provided us very little opportunity to add any new position for both the Equity and Fixed-Income portion of our portfolios. However, for each taxable account, we analyzed each portfolio’s capital gains and losses along with their tax status to determine whether or not to “harvest” some of the losses while maintaining the same weighting for that asset class, which we did to several taxable portfolios in order to make them more tax efficient.

Special Investment Update – November 12, 2015

Mon, 16 Nov 2015 14:47:00 GMT

SPECIAL INVESTMENT UPDATE

November 12, 2015

Dear Clients and Friends,

Attached is a copy of the 1-year chart of the Standard & Poor 500 Index. As you can see, the all-time high for the year was set on May 20 ^th , when it closed at 2,134.72. Also, there was a 12.54 percent correction for the year that was set on August 24 ^th , when the index closed at 1,867.01. This correction was tested again on September 28 ^th , when the index closed at 1,881.77. The Standard & Poor 500 Index closed yesterday at 2,075 so how does it look for the rest of this year and next year?

Through year-end then, the path of least resistance for stock prices is up. But can the markets keep climbing into 2016? That is a tricky question that we will not be able to answer definitely until we see more evidence of the state of the economy.

Over the next few months, we will be watching several benchmarks, either to confirm that the bull is regaining his strength or to change our strategy in a more cautious direction.

One of the biggest benchmarks we will be watching is forward looking economic indicators. A U.S. recession accompanied by a collapse in corporate earnings, would sound the death knell for stocks. The weekly tally of initial unemployment claims is a crucial indicator of the state of the economy. Months before each of the past three recessions began (1990-91), 2001 and (2007-09), the weekly tally of initial unemployment claims had started to tick up. This is definitely an area which we will be monitoring.

Another big benchmark is the U.S. credit spreads. After the soft monthly payroll report for September, we do not expect the Federal Reserve to have any rate increase until at least December and most likely in the first quarter of 2016. Even with the Federal Reserve standing pat, however, yields in the corporate bond market have been rising since the summer of 2014 on their own. Widening spreads between medium quality (BBB-rated) corporate yields and Treasury yields of comparable maturity represent a stealth tightening of credit by the free market-not the Federal Reserve. In order for Wall Street’s bull to continue, the BBB spread should narrow.

Often, the market’s own behavior provides a clue to what is next for share prices due to the stock market breadth. As we move into the final weeks of 2016, we will be looking for evidence that not only the blue chips but also large numbers of individual stocks are joining in the market rally. For example, the cumulative daily New York Stock Exchange advance/decline should surpass its July peak before the end of 2015.

There are many myths about the stock market. One historical truth, however; is that the fourth quarter of the year usually brings investors a dose of seasonal good cheer. In the years since 1950, the Standard & Poor 500 index has posted a gain in 80 percent of the final trimesters – the highest success rate of any calendar quarter. Those are strong odds, and they bode well for the concluding weeks of 2015.

Most economists think growth in the U.S. economy has been strengthening since the July-September quarter ended. The Commerce Department recently said that the economy, as measured by the gross domestic product, grew at a tepid annual rate of 1.5 percent in the July-September quarter, far below the 3.9 percent rate of the previous quarter. Many predict that growth in the October-December quarter will rebound to around 2.5 percent annual rate. For all of 2015, the economy is expected to expand around 2.3 percent, near last year’s modest 2.4 percent, despite persistent economic weakness around the world.

All in all, we look forward to a nice fourth quarter rally to move stock prices higher due to several factors. The U.S. economy continues to resist the undertow from China and other global trouble spots. While the manufacturing sector at home has slowed noticeably in recent months, the much larger service sector is still expanding at a robust pace. First-time jobless claims also remain pinned near a 42-year low, indicating strong demand for labor.

Another factor to consider is that the Federal Reserve does not want to upset the applecart. At its September meeting, the nation’s central bank again declined to raise money market interest rates by even a smidgen, arguing that “recent global economic and financial developments may restrain economic activity somewhat”. Given the degree of caution still evident by most investors, the marquee equity indexes may climb all the way back up to their spring-summer peaks before the renewed buying interest exhausts itself.

Again, we want to thank you very much for joining us tonight. We also want to thank you for placing your trust and confidence in our firm and it is always appreciated. May you have a wonderful festive holiday season and a healthy and prosperous New Year.

Quarterly Investment Update – 3rd Quarter 2015

Fri, 23 Oct 2015 17:52:00 GMT

QUARTERLY INVESTMENT UPDATE
3RD QUARTER 2015

October 2, 2015

Dear Clients and Friends,

The quarter started out with stocks and bonds going sideways mostly due to concerns regarding the slow growth in China. The Standard & Poor 500 went through an 11% correction beginning August 17 until the August 25 low of 1,867.61. The Standard & Poor 500 then started trending back up until Janet Yellen and Company announced that the benchmark interest rate will remain the same for now. Ever since the Federal Reserve’s announcement, the stock market continued its downward slide to test the August 25 low. As you can see from the enclosed chart of the Standard & Poor 500 Index for the quarter, the August 25 low was tested on September 29 with that day’s low of 1,872.07. For the quarter ended September 30, 2015, the Standard & Poor 500 closed at 1,920.03.

Has the stock market formed a solid bottom that is strong enough to provide a solid base for a spirited year-end rally? This week’s market action shows that we are not there yet. Last Tuesday, the Standard & Poor 500 came within 4 ¹ / ₂ points of its August 25 closing low. As we discussed in previous investment updates, we have been hoping for at least a marginal break of that level to herald the final bottom of this correction. We did not get that last Tuesday.

Once the market finds its footing we can expect a brisk reflex rally to lift the Standard & Poor’s 500 index to challenge its May peak of 2,130 by the end of the year or early 2016. But what happens then? The correction we had in August and September revealed serious weaknesses in the aging bull’s health. The projections released from the Federal Reserve meeting reflected that members of the Federal Reserve lowered their estimates of the economy’s long-term “real” growth potential to 1.8% -2.2% annually, down from a central tendency of 2% -2.3% in the June batch of forecasts. This is a disappointing low number, compared with the 3% – 3.5% that prevailed as recently as the eve of the Global Financial Crisis. This reinforces our view that Wall Street has greatly overestimated the ability of the U.S. economy to weather higher interest rates. Bond yields are likely to rise at a very modest pace in the years ahead. In addition, we feel that the following items should take place in order for the market to continue its primary uptrend:

It is becoming increasingly obvious that regardless of what the massaged official statistics may say the Chinese economic machine has slowed dramatically. Assuming the above items occur, then we are left with a favorable outlook for stocks in the near-term, but significant concerns about next year.

In the equity portions of our portfolios, we added several new positions including Wynn Resorts Limited (WYNN) a developer and operator of high end hotel and casino based on Paradise, Nevada; Deltic Timber Corporation (DEL), a natural resources company focused on ownership and management of timberland. We also own Care Capital Property Inc. (CCP) who own, acquire, and lease skilled nursing facilities and other healthcare assets in the United States. We acquired CCP due to a spin off from Ventas Inc. (VTR). On the sell side, we sold our entire positions in Unilever PLC (UL); Pinnacle Foods Inc. (PF); Abbot Laboratories (ABT) and The Chemours Company (CC).

In the Fixed Income area, there was very little change in our portfolios. However, we added a small position in Walmart Stores Inc. (WMT) with a yield of 3.06%. As far as sales during the quarter in fixed income area, we sold our entire positions in Kellogg Company (K) and Clorox Company (CLX).

Special Investment Update – August 21, 2015

Fri, 11 Sep 2015 12:59:00 GMT

SPECIAL INVESTMENT UPDATE

August 21, 2015

Dear Friends and Clients,

The purpose of this special investment update is to attempt to calm your anxiety in this volatile market as well as to announce our upcoming Open House/Anniversary celebration, which is scheduled for Thursday, November 12, 2015 at our Jacksonville offices. The Open House is to showcase our new offices for Farmand Investment Services, Inc. at 4233 Atlantic Boulevard, next to our existing CPA offices. Moreover, this year marks the 40 ^th year anniversary of Farmand, Farmand and Farmand, LLP. Over the past 40 years, our CPA firm has been striving to provide quality accounting, auditing, tax planning, tax return preparation, wealth management services, and management consulting services to a wide range of clients in Northeast Florida and surrounding areas. We are proud to have built our respected reputation by working with so many remarkable individuals, families, and businesses of diverse size and scope. We are excited and look forward to the many years ahead for us. In addition, we will be handing out several financial reports of your portfolios as well as give a short update of the investment climate. It will be a wonderful opportunity to not only socialize, but also to meet our staff as well as to introduce to you our new website for Farmand Investment Services. We will be sending out formal invitations very soon and we look forward to have many of you attend and join our celebration.

In this special investment update, we want to discuss the current and long-term outlook for the major asset classes, and see how we can achieve our financial goals in all of our portfolios.

It is hard to get excited about how most investments performed during the first half of 2015. With stocks and bonds stuck in low gear during the first half of 2015, many investors have started to focus, almost obsessively, on short-term market movements. This is a trap that we must avoid. While such sluggish market behavior is somewhat out of character for the third year of a president’s term, it is by no means unheard of. Furthermore, the plunge in oil prices over the past 13 months, along with the collapse of just about any investment even vaguely related to petroleum has created s skin-crawling, palm-sweating horror show. Periods like this do not necessarily end in a sweeping downturn for all stocks. If you can recall the commodity downturn of 1985-1986, which included an oil collapse steeper than the one we are living through right now. As tough as those days were for investors with a hefty weighting in energy, base metals or agriculture, the broad equity indexes kept going higher, fighting off several nasty “corrections” along the way. That same scenario may well replay itself this time around. If so, we can expect that commodity prices will eventually bounce back along with a variety of related assets – from oil stocks and pipeline partnerships to emerging – market stocks and bonds to currencies like the Australian and Canadian dollars. However, we must stay on guard. There is a chance, and it is not a trivial one, that the fallout from China’s economic slowdown could spread from the emerging world and do real harm to developed countries like our own. So far, fortunately, distress in the commodity sector appears to be having minimal impact on the U.S. jobs market.

As far as equities are concerned, as a whole, they are richly valued. Reliable yardsticks such as the price-sales ratio and the long-term (Shiller) price-earnings ratio suggest that stocks will log below-normal returns in the year ahead.

Interest rates are creeping up from historical lows. Although we do not foresee an explosive rise over the next few years, any increase in yields will lower returns from high-grade bonds. However, with appropriate precautions, one can protect the principal and even benefit from rising rates, while earning a generous income. The key is to choose reasonably safe investments that start out with a yield well above that of the 10-year Treasury note (2.25% as we write this letter), and offer the likelihood of substantial “pay hikes” down the road. These characteristics can be found in bonds as well as stocks.

As we noted in the past, we feel that bond funds, rather than individual bonds, will serve investors best in the environment we foresee in the coming years. Another form of protection against rising rates is high dividend-paying common stocks. Specifically, we want to own companies than can boost their dividends fast enough to outpace rising rates over the next five or ten years. Thus, we want to purchase common stocks that we believe can sweeten their dividends yield by more than 2% per year over the next decade. We are confident that positions in such sectors as utilities, real estate investment trusts, (REITs) and master limited partnerships (MLPs) will be able to achieve this amount of dividend growth.

In summary, our investment strategy remains the same; however, it is essential that we continue to be more cautious about our investments by limiting our risk. We do this by paying more attention to individual stocks and mutual funds rather than the market as a whole. In addition, we take additional defensive measures by taking some profits in some of our over-valued positions and limit our buying to the strongest and safe positions.

Thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. We look forward to see you at our Open House/ Anniversary celebration.

Quarterly Investment Update – 2nd Quarter 2015

Thu, 02 Jul 2015 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^nd QUARTER 2015

July 02, 2015

Dear Friends and Clients,

More than six years into the great global bull market for stocks, investors are still uneasy. This year’s seesaw stock market is ratcheting up fears that, someday soon, the bear may return and devour the stock gains investors have enjoyed since 2009. It is a legitimate concern, one we cannot afford to dismiss lightly. The financial world, like life itself, is full of uncertainties and risks. However, we can mitigate these hazards through prudent and timely action.

As far as the stock market is concerned, it appears that it maybe growing vulnerable to a near-term pull back of 5%-10%, with possible deeper and longer retracement, carrying into 2016. On the plus side, the economic news flow remains fairly encouraging, with housing starts, retail sales and jobs growth all pointing to a rebound in Quarter 2 Gross Domestic Product. Strangely, though, the stock markets over internal dynamics have deteriorated over the past few months. For instance, during the indexes upward march so far in 2015, individual stocks making their own new highs have been curiously sparse. In the three sessions leading up to the May 21 peak for the Standard & Poor’s, a maximum of only 124 NYSE issues touched their 52-weeks highs. By contrast, as many as 350 individual new highs were recorded in a single day as the market was trading out its January top. More stocks have also been posting new lows than is normal with the indexes so close to all-time highs. Because of the bull’s advanced age, we should acknowledge the increasing risk of a sharper and more protracted decline. Accordingly, we have been and will continue take some modest defensive measures.

As far as bonds are concerned, there have been a lot of various predictions made, including some who predict that “Interest rates will be rising for the next quarter century.” At the time of that grand proclamation, the 10-year Treasury note yielded 4.6% and the three-month bill paid 1.3%. Today, the 10-year Treasury note has dropped by roughly half and the three-month bill stands at essentially zero. We feel that a large segment of the financial community has been anticipating way too eagerly, for way too long-a “major” upturn for interest rates in general and bond yields in particular. We agree with general view that bond yields will rise (prices fall) over the long run, chiefly because the massive money printing by central banks throughout the world since 2008 will eventually ignite inflation at the retail cash register. Over the past two years, we have already caught a glimpse of what may lie ahead. In May 2013, when then – Federal Reserve chairman Ben Bernanke first hinted to Wall Street that the Fed might throttle back its “quantitative easing” program, bond yields soared. But then, the global economy slowed in 2014, driving yields back down. By January 2015, the 30-year Treasury had set a fresh all-time low, while the 10-year Treasury made a slightly higher low than it did in July 2012.

The quarter provided very little buying opportunities for the equity portions of our portfolios. We added several new positions including; CNHI Industrial N.V. (CNHI), designing, producing, marketing, selling, and financing agricultural and construction equipment, trucks, commercial vehicles, buses, and specialty vehicles, engines, transmissions, and axles worldwide; Union Pacific Corporation (UNP), through its subsidiaries operating railroads and offering other freight transportations services or agricultural products, including grains, commodities produced from grains, and food and beverage products; automotive products. On the sell side, we sold all of our positions in Cohen & Steers Realty (CSRSX); Manning & Napier World (EXWAX); Pimco Total Return Fund (PTTDX).

In the Fixed Income area, we initiated new positions, including South Jersey Industries Inc.(SJI), a publicly held energy services holding company for a natural gas utility and other, non-regulated companies; Claymore MLP Opportunity Fund (FMO), a non-diversified, closed-end management investment company which invests portfolio of publicly traded securities of master limited partnerships (MLPs). We also added Oklahoma Gas & Electric (OGE), an energy and energy services provider offering physical delivery and related services for both electricity and natural gas in the south central United States. As far as sales during the quarter in fixed income area, we sold our entire positions in telecommunication company Telenor Asa Adr (TELNY).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for trust and confidence you have placed in our firm as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandcpa.com for a quick Retirement calculator, our latest firm news, and Market Commentary archives.

Quarterly Investment Update – 1st Quarter 2015

Thu, 02 Apr 2015 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2015

April 02, 2015

Dear Friends and Clients,

The first quarter of 2015 started out with a steady procession of new all-time highs for the headline stock indexes until March, when stocks became more volatile and took all the gains away. The institutional benchmark for the U.S. stock market, the Standard & Poor’s 500 Index, gained less than half of 1% for the quarter. Furthermore, the trade-weighted U.S. dollar index surged 8.9%for the quarter, a huge jump for the world’s dominant currency.

A big run-up in the dollar automatically depresses results for U.S. investors in foreign stocks and bonds. Indirectly, it also puts a damper on demand for commodities like oil and gold, which are traditional havens from the long-term (decades-long) slide in the dollar’s purchasing power. Finally, a soaring currency shrinks the oversea profits (translated into dollars) of U.S. multinational corporations. Thanks in large part to the dollar’s rise; analysts have slashed their first quarter earnings estimates for the S&P 500 companies since December 31, from a projected 4.2% year-over-year increase back then to a 4.6% decline now.

Another broad exposure that hurt the performance of our portfolios was the energy sector. As far as oil is concerned, we do not expect a dramatic snapback in oil prices. As we previously discussed, too rapid a recovery for “black gold” would spell trouble if it provoked the Federal Reserve to raise interest rates too quickly. However, a V-shaped recovery is not necessary to alter the dynamics in the financial market. It appears that both prices of oil as well as bond yields are holding steady and brushing aside evidence that would ordinarily trigger a pullback.

Investors are grappling with a remarkable amount of turbulence. This turbulence brings caution, which is the reason we have been shuffling quite a few positions in our portfolios this quarter. Earlier this quarter, we sold all our preferred stocks because of their extreme sensitivity to interest rates (bond yields in particular). Even though rates are currently low, the Federal Reserve is making preparations to raise them, at least on the short end of the maturity curve. We are hopeful the US dollar will begin to cool off soon, easing the pinch for corporations and governments in the developing world that have borrowed heavily in U.S. dollar. More recently, we have been trimming our exposure to emerging markets. We are still holding a modest position in Emerging Markets Bonds, but we have eliminated our position in Emerging Markets Equities.

In the equity portions of our portfolios, we added several new positions including Lafarge S.A. (LFRGY), a French industrial company specializing in three major products: cement, construction aggregates, and concrete; Encana Corporation (ECA) together with its subsidiaries, engages in the development, exploration, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States; MetLife Inc. (MET), an insurance company that offers life insurance, annuities, employee benefits, and asset management products in the United States, Japan, other countries in Asia, Europe and Middle East; American Express Company (AXP), a financial institution providing charge and credit payment card products and travel-related services to consumers and businesses worldwide; Scripps Networks Interactive (SNI), a developer of lifestyle-oriented content for linear and interactive video platforms in the U.S.; and Fiduciary/Claymore MLP Opportunity Fund (FM0), a non-diversified, closed-end management and investment company toward the end of the quarter. On the sell side, we sold all of our positions in ConAgra Foods, Inc. (CAG); Wells Fargo Dep-A-O (WFC+O); Silver Bay Realty Trust Corporation (SBY); Bank of New York Mellon Corporation (BK); News Corporation (NWSA).

In the Fixed Income area, we initiated new positions in of Barclay PLC (BCS), a British financial institution that provides various financial products and services in London and worldwide; drug maker AbbVie (ABBV), spun off from Abbott Laboratories in 2013, discovers, develops, manufactures, and sells pharmaceutical products worldwide; Plains All American Pipeline L.P. (PAA), a company engaging in the transportation, storage, terminating and marketing of crude oil, natural gas liquids and other refined products; Toronto Dominion Bank (TD), a Canadian multinational banking and financial services corporation. As far as sales during the quarter in fixed income area, we sold our entire positions in Kimco Realty Corporation (KIM+J); Mattel, Inc. (MAT); JPMorgan Chase & Co (JPM+D); GlaxoSmithKline (GSK); State Street (STT+C); Public Storage (PSA+V); PowerShares Financial Preferred Stock (PGF); NextEra Energy, Inc. (NEE+H); Vodafone Group Public Limited Company (VOD); Verizon Communications Inc. (VZ); TCW Emerging Market Income N (TGINX) and Wisdom Tree Emerging Markets (DGS).

Quarterly Investment Update – 4th Quarter 2014

Wed, 31 Dec 2014 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2014

January 2, 2015

Dear Friends and Clients,

Stocks delivered again in 2014. Even after a poor start in January and downside pressure in October and December, the U.S. market climbed 11.4 percent and the year close to record level. The solid gain pushed the bull rear for stocks into its sixth year, the longest such steak since the 1990’s. Both stocks and bonds rallied in the past year as the Federal Reserve and other central banks around the globe kept easy money flowing into the economy and financial markets. However, the New Year will pose a fresh challenge. While cheaper oil is a huge plus for consumers, it is also a serious obstacle for an industry that has bolstered the U.S. economy over the past five years. Also, for the first time since the global financial crisis began in 2007, the Federal Reserve is making noises about raising interest rates, however gingerly.

The 2014 mid-terms election resulting with regards to both Houses of Congress is firmly in the hand of one party while the other party retains the White House. Even though we do not expect any major change in economic policy over the next two years, we are hopeful that some hi-partisan issues could be resolved. The three areas of particular interest for investors to look forward to are Corporate Tax Reform, World Trade and Energy Policy.

As far as the energy sector is concerned, oil prices (basis West Texas Intermediate Crude) were extremely volatile during the past year. During the first half of 2014, oil prices pushed higher, from a low of less than $92 a barrel in January to almost $108 in mid-June. The global economy seemed to be picking up and with it, energy demand. Then several global issues, regarding economic growth rattled investors. Europe skidded back toward recession. Japan’s industrial recovery stalled. China’s growth slowed as did that of emerging economies generally. This caused the markets to abruptly reverse with “black gold” plunging almost 50% from its June peak to a recent low of around $52 per barrel. We certainly should be prepared for prices to go lower before finding a solid bottom. However, we continue to believe that the U.S. oil and gas industry has several years of good growth ahead of it. Fracking and other advanced technologies are constantly improving and will keep domestic oil and gas competitive on the world market.

Could anything go wrong? Absolutely! Even if oil prices stabilize and Congress and President Obama manage to come together on a few substantive policy points, Janet Yellen’s Federal Reserve could negate the favorable trend by tightening credit, especially by boosting overnight interest rates too abruptly.

Our 2015 outlook for the economy remains the same as it was in 2014. As far as oil is concerned, we feel that as long as we continue to have a slow but steadily growing global economy, oil prices should stabilize near their recent lows, and sometime during the end of the first or second quarter, will begin to creep back up. As crude oil rebounds, shares of the energy industry’s stronger players will snap back dramatically.

The headline U.S stock indexes will likely continue to advance at a moderate, 2014 –style pace at least until we get some indication that the Federal Reserve is about to pull the trigger on interest rates. .

Opportunities in the equity portions of our portfolios, we added new positions, including Adidas AG (ADDYY), maker of athletic and sports lifestyle products worldwide; Franklin Resources Inc. (BEN), a publicly owned asset management holding company; DreamWorks Animation SKG Inc.(DWA), a developer and producer as well as exploiter of animated films and associated characters worldwide; Consol Energy, Inc. (CNX), together with its subsidiaries, operates as an integrated energy company in the United States and Vivendi Societe’ Auonyvie (VIVEF), with its subsidiaries, is engaged in the content, media and telecommunication business primarily in France and the rest of Europe, the United States, Morocco, Brazil. On the sell side, we sold all of our positions in Barclay Bank Ipath Etn (JJG) and Wisdomtree Trust (ICN). We also sold Vail Resorts, Inc. (MTN) in late December for a nice long-term capital gain.

In Fixed Income area, we added several positions including Vermilion Energy Inc. (VET), which is headquartered in Canada and engaged in the exploitation, development, acquisition, and production of oil and natural gas; HSBC Holdings plc (HSBC), which provides various banking and financial products and services; Sanofi (SNY), a French drug maker with a current yield of 4.2% and Transmontaigne Partners, LP (TLP), which owns pipelines and storage/terminal facilities that handle refined petroleum products. As far as sales during the quarter in the fixed income area, we sold our entire position in PowerShares Senior Loan ETF (BKLN), Wells Fargo Advantage High Income Inv. (STHYX), and Enbridge Energy Management LLC (EEQ). We also sold several positions in municipal bonds including Blackrock MuniHoldings Investments (MFL), Nuveen Quality Income Municipal Fund Inc. (NQU), and Blackrock MuniHoldings Quality (MUE). Furthermore we also sold Rayonier (RNY) and Murphy Oil (MUR) to recognize the tax losses but re-established our full position late during the quarter.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for trust and confidence you have placed in our firm as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandcpa.com for a quick Retirement Calculator, our latest firm news, and Market Commentary archives.

Quarterly Investment Update – 3rd Quarter2014

Thu, 02 Oct 2014 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2014

October 2, 2014

Dear Friends and Clients,

The much-awaited stock market “correction” came a little late and it may already be gone. At this point, we can not be sure whether the August 7 closing lows for the headline U.S. stock indexes will prove to be the final lows for the second half of 2014, even though the odds are looking good. While it is clear that business activity has picked up steam since the first quarter’s weather – induced stall, gauges such as industrial production, retail sales and payroll employment as well as the critical price of crude oil, suggest an economy moving along at a solid but moderate pace. This would imply little risk of recession over the next few quarters, but little chance of a runaway locomotive with rapid inflation either. Furthermore, with Europe on the ropes and China in a lull, it seems unlikely that foreign trade will spark a dramatic acceleration of U.S. growth during the first few quarters of 2015.

The third quarter ended on a positive note for the economy bringing over six months of solid job gains, strong company earnings and a bevy of corporate merger deal news that contributed to the rally, which is part of a bull market that has been going on for more than five and one-half years. Stocks, in particular, have put a remarkable performance this summer. Defying the historical pattern of weakness during the middle months of a mid –term election year, the Standard & Poor’s 500 Index gained 6% since the historically “worst six months”, that began May 1 ^st . Even with minor pullbacks in January, July and September, however, the headline U. S. stock indexes have held up remarkably well during 2014. Yet, despite all, the institutional benchmark for U. S. equities, the Standard & Poor’s 500 index ended closing at 1,972.29, up almost 7% for year-to-date.

During the quarter, volatility provided us with a few buying opportunities for the equity portions of our portfolios. This volatility was due primarily to anxiety about the global economic recovery, geopolitical tensions and how the market will handle rising interest rates. We added to some of our existing positions, including American Electric Power Co. (AEP), British Petroleum (BP), Glaxo Smith Kline (GSK) and Murphy Oil Corp. (MUR). We also purchased Pinnacle Foods (PF), maker of Birds Eye frozen vegetables, Vlassic pickles, Duncan Hines cake mixes and Wishbone salad dressings ; Mattel Incorporated (MAT), manufacturer of Fisher-Price, Barbie dolls, toys and board games; and United Technologies Corp (UTX), an American multinational industrial conglomerate – the maker of Pratt & Whitney jet engine, Otis elevators, carrier air conditioning and refrigeration equipment and Sikorsky helicopter. TransMontaigne Partners (TLP), a master limited partnership that transports and provides terminals and storage facilities for refined petroleum products.

As far as sales for the quarter in the equity portion of our portfolio, we sold all of our positions in Seventy Seven Energy (SSE)), a spinoff from Chesapeake Energy as well as Rayonier Advanced Materials (RYAM), a spinoff from Rayonier Inc. We also sold our entire position in Madison Square Garden (MSG) and we sold some of our positions of Vodafone Group (VOD) in most of the taxable accounts.

In the Fixed Income area, there was very little change in our portfolios. We added a position in Wisdom Tree Emerging Markets Smalls-Cap Dividend ETF (DGS) to replace Wisdom Tree Emerging Markets Equity Inc. ETF (DEM), which we sold last quarter. We feel that DGS, which consists of small cap dividend stocks, will actually provide a safer and more profitable vehicle for taking advantage of the growth of emerging market than DEM, which consists of large –cap stocks. We also added a position in Nuveen Floating Rate Income Fund (JFR), which invests in corporate bank loans that carry an adjustable rate, plus shorter-duration high yield bonds. We also added to our existing position of the Kinder Morgan Energy Companies by purchasing Kinder Morgan, Inc. (KMI). As was announced last month, KMI is planning to simplify its corporate structure by absorbing the two pipeline limited partnerships KMI operates, Kinder Morgan Energy Partners (KMP) and Kinder Morgan Management (KMR), which we already own in our portfolio. As far as sales during the quarter in the fixed income area, we sold our entire position in the Vanguard Intermediate – Term Investment Grade Bond Fund (VFICX). VFICX is a well regarded fund but yields less than the other fixed income bond funds that we own.

Quarterly Investment Update – 2nd Quarter 2014

Tue, 01 Jul 2014 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2014

July 1, 2014

Dear Friends and Clients,

Stock investors are feeling confused lately and you can’t really blame them. The headline stock market indexes started edging up in mid-May to all time highs and continued to go up with record highs through June. Despite a worse than expected GDP report (the nation’s output of goods and services for the first quarter was revised downward to a 1% decline, versus the government’s initial estimate of a 0.1% increase), the Standard & Poor’s 500 Index broke yet another all-time high, closing at 1,960.23. The actual all-time high was at on June 23 when the Standard & Poor’s 500 closed at 1,962.61. Stock investors dismissed the GDP report due to exceptionally harsh winter weather in many parts of the country, which had the effect of depressing the first quarter business activity.

However, if the economy is bouncing back, as most analysts expect, why is the 10-year Treasury yield going in the opposite direction. Normally, when the economy picks up, bond yields rise, which is not happening yet. Many observers have tried to explain this contradiction by pointing to ultra-slow economic growth in Europe. This factor, along with exceptionally low yields on a global basis has the effect of helping to force down U.S. Treasury yields. In addition, the shrinking budget deficit is reducing the treasury’s borrowing requirements while the Federal Reserve continues to buy Treasuries, effectively removing that much supply from the market. With fewer bonds available for the public to purchase, it stands to reason that yields are falling. The benchmark 10-year Treasury yield skidded to a six-month low of 2.438% on May 28 ^th . Analysts said the shallow pullback in bond prices underscores continued anxiety among investors over the global economy, with soft euro-zone expansion, an uneven US recovery and waving momentum in China. The 10-year yield has dropped from about 3% at the start of this year.

The quarter provided very little buying opportunities for the equity portions of our portfolios. We added to our position in Vodaphone (VOD) since they sold their 45% ownership interest of Verizon Wireless to Verizon (VZ). The company returned much of the sales proceeds to shareholders during the first quarter in the form of a large special dividend. We also purchased Pinnacle Foods (PF), maker of Birds Eye frozen vegetables, Vlassic pickles, Duncan Hines cake mixes and Wishbone salad dressings and Melco International Development Ltd. (MDEVF) or (0200.HK) on the Hong Kong Exchange, an investment holding company engaged in the leisure and entertainment businesses in Hong Kong, Macau, and the Peoples Republic of China.

We sold all of our positions in Direct TV (DTV), a highly successful core equity holding in our portfolio accounts for over a decade. We want to discuss our experience with DTV not only to showcase one winner but because this investment illustrates the process and approach we follow in the equity portion of our portfolios.

Our portfolios generally define equities as value and growth stocks with a stated dividend payout of less than the 10-Year Treasury Yield. However, sometimes we can own a company that has value in indirect ways that create part of the discount to intrinsic worth. In the case of DTV, we owned the underlying business via three different stocks over our thirteen-year holding period. Initially, in 2001 we brought GMH, the tracking stock that General Motors created for the Hughes Division that included all of its satellite businesses. By early 2004, the company had been fully spun out of GM and renamed DIRECTV Group. Over the following four years, at different opportunities we added to our position. In early 2008, John Malone exchanged Liberty Media’s (LMDIA) News Corp Shares (NWS) for the 40+% of DTV that NWS owned. We previously had purchased Liberty Media Corp, the precursor to LMDIA. In 2009, LMDIA and DTV merged. Over the next four years, the intrinsic value of the company grew as did the stock price. We began trimming our position as the price-to-value (P/V) closed and completely exited in the second quarter of 2014. In addition to selling DTV we sold all of our positions in Vulcan (VMC), the Aggregates Company as well as Wendy’s (WEN). All three positions illustrate the process and approach we follow in our equity holdings, which generally consist of value and growth stocks with a holding period of 3 – 5 years. However, as in the case of DTV, some equity holding periods last longer than others and some are permanent.

In the Fixed Income area, there was very little change in our portfolios. However, once the 10- year Treasury yield dropped to 2.5% in May, we purchased and quickly sold ProShares Ultra Short 7-10 Year Treasury (PST), an Exchange Traded Fund. We purchased these investments as a speculative hunch that interest rates have bottomed out. Needless to say, we quickly reversed course in our strategy and sold all of our positions. We feel that interest rates will continue to be low and possibly go down further before going straight up. In addition to PST, we sold the exchange traded Wisdom Tree Emerging Markets Equity Income Fund (DEM) due to the fund’s 17% weighting in China, which includes several large Chinese banks, as well as its 19% weighting in Russia.

Quarterly Investment Update – 1st Quarter 2014

Thu, 03 Apr 2014 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2014

April 3, 2014

Dear Friends and Clients,

What a ride! During the just ended first quarter, Wall Street’s stampeding bull celebrated its fifth anniversary with the benchmark Standard & Poor 500 stock index up 176% from its March 9, 2009 low. We are certainly grateful for our share of the gains but we continue to exercise caution as part of our core strategy. It’s going to take a while for the reality to sink in. A lot of investors are still hoping that 2014 will bring another huge leap in the U.S. stock market, along the lines of 2013. It is certainly possible. However, the evidence suggests that any sustainable uptrend for the Dow or the Standard & Poor 500 will come from lower levels. Also, since 1962, according to Strategas Research Partners, the Standard & Poor 500 index has undergone a setback of at least 14% in 10 of the midterm election years before now. In the other three cases, pullbacks ranged between 8% and 9%. If a couple of things went wrong at the same time, the market could easily stage a double-digit pullback. For instance, combine weak U.S. economic statistics with a sudden eruption of banking problems in China or Europe, and share prices could back off in a hurry.

Investing is a curious business. In early March, all the stock market gurus were celebrating the bull market’s fifth anniversary. Since then, the Ukraine-Russia standoff took an ugly turn. Then came the dubious secession referendum, and then the sanctions. Wall Street’s bubbly enthusiasm suddenly went flat. We certainly do not expect a war to erupt over Ukraine. However, investors’ skittishness over this issue, together with fears of an economic slowdown in China, Europe and perhaps even U.S.A., is setting the stage for something we have not seen in almost three years: a good, stiff stock market “correction”.

Meanwhile, the current broad stock market has gone pretty much sideways during the quarter. Judging by the headline stock indexes, the quarter ended on a kind of dull start to 2014. The Standard & Poor’s 500 Index ended the year’s first quarter with a slender 1.3% gain, while NASDAQ tacked on less than 1% and the DOW actually slipped a fraction of a percent. I suppose most investors are pre-occupied with basketball during “March Madness”. We are certainly hopeful that our Gators will go all the way to the national championship. For the quarter ended March 31, 2014, the Standard & Poor’s 500 index ended at 1872.34.

As far as the Fixed Income area, we have continued to buy Emerging Markets, Master Limited Partnerships, REIT’s and Energy Stocks. Specifically, we purchased the following partial positions during the quarter: Wisdom Tree Emerging Markets Equity Inc. (DEM), Jardine Matheson (JMHLY), W.P. Carey Inc. (WPC), and Kinder Morgan Energy Partners (KMP). During the quarter, we sold two full positions in the Doubleline Total Return Bond Fund (DLTNX) and the Dodge & Cox Income Fund (DODIX).

As far as the Equity side of our portfolios, we added two positions in the real estate and telecommunication sectors, which were Telenor ASA (TELNY) and Empire State Realty Trust, Inc. (ESRT). On the sell side, we also sold two full positions in Hendeson Land Developers, ADR (HLDCY) and Martin Marietta Materials (MLM).

Quarterly Investment Update – 4th Quarter 2013

Tue, 31 Dec 2013 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2013

January 2, 2014

Dear Friends and Clients,

We hope everyone had a great holiday spending time with family as well as to reflect back on 2013 and look forward to 2014. A recent headline in our local newspaper read “stock predictions for 2014: Stay on top of news”. The person who wrote the article, Steve Rothwell, said that in 2013, investors who blocked out the scary headlines about a possible government default, budget cuts, and concerns about when the Federal Reserve would begin to scale back tis stimulus did great. Even though we did not block out these headlines, we would still like to think that we were some of those investors that he was referring to.

The economy was not robust, but it was not weak either. Earnings grew, even if companies achieved them by cutting costs rather than increasing revenue. Furthermore, the Fed gave the market a year-end bonus by keeping short0term borrowing costs near zero, even after dialing back its program to hold won longer-term rates. For the year ended December 31, 2013, the benchmark, Standard & Poor’s 500 indexes closed up over 32% (with reinvested dividends). By any measure, that was an amazing year for the U.S. stock market. However, where will we earn the best profits in 2014 and beyond? The long term record suggests that stocks can advance further in 2014, particularly with the Federal Reserve clinging to an ultra-easy monetary policy. However, the risk of a sizable setback is greater than most investors currently perceive. A clumsy move by the Fed or a geo-political shock, such as confrontation with China over its offshore territorial claims, could cause the major U.S. market indexes to shed 15%-20% very quickly.

In the Fixed Income area, we have been very busy during the fourth quarter buying preferred stocks, REITs, and Energy Stocks. We feel that these asset classes have some of the best value zones in the entire fixed-income universe. Preferred stocks offer dramatically higher yields than Treasury paper. As most of you are well aware, current Treasury yields, with eh 10-year note at around 3%, are too low and are destined to climb over the long-term. In contrast, investment-grade preferred issues by banks, insurance companies and REIT’s are currently paying 6%-7%. That is essentially the same yield these instruments were earning back in 2004 and 2005, when the 10 year Treasury yield was over 4%. As a result, today’s abnormally wide spread between preferred stocks and Treasuries already builds in a significant cushion against a potential rise in Treasury yields. Also, thanks to their high yields, preferred stocks can help insulate our portfolios from stock market corrections.

It may take several more years before the Federal Reserve’s aggressive money pumping, dating back to 2008, ignites an inflationary economic boom. Long before that happens, though we would want to own plenty of investments that adjust upward in value along with the cost of living. Tangible assets like real estate that generate income have the affect of unlocking part of your investment every year in the form of dividend distributions. Also, since the income produced by real estate tends to rise with inflation, the value of the underlying property also rises over time. Since May 2013, REITs have undergone a severe “correction”, while maintain their dividend distributions. If the economy is truly improving, as optimists insist, landlords will be able to raise rents at a faster pace than before. REITs’ cash flow will increase, ultimately making the share more valuable.

As far as new positions for the quarter, we purchased the following Financial Preferred: Bank of New York Mellon series C(BK+C), J.P. Morgan Chase Series O (JPM+D), State Street Corp, Series C (STT+C), and Wells Fargo Corp, Series O (WFC+O). We also purchased the following two REIT Preferred, in addition to Public Storage Series V (PSA+V), which we already owned: Kimco realty Series J (KIM+P) and Realty Income Corp. Series F (O+F). we also purchased two new positions in the Real Estate sector with The Vanguard REIT index ETF (VNQ) and Ventas Inc. (VTR). With the Federal Reserve working overtime to dilute the purchasing power of the dollars, it makes sense to won land and investment trusts (REITs). We also purchased Enbridge Energy Management (EEQ), Kinder Morgan Management, LLC (KMR),and Conagra Foods, Inc. (CAG). As far as sales for the quarter, we sold positions in Enerplus (ERF), Emerson Electric (EMR), Washington Real Estate Investment Trust (WRE) and McGraw Hill Printing (MHG).

As far as Equity side of our portfolios, we added two new positions in real estate and energy with Henderson Land Development (HDLC) and Murphy Oil Corp Holdings (MUR). We sold our entire positions in DeLL, Inc. (DELL), Quicksilver Resources (KWK), Lamar Advertising (LAMR), SLM Corporation (SLM) and Masco Corp (MAS).

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for trust and confidence you have placed in our firm as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandcpa.com for a quick Retirement Calculator, our latest firm news, and Market Commentary archives.

Quarterly Investment Report – 3rd Quarter 2013

Wed, 02 Oct 2013 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2013

October 2, 2013

Dear Friends and Clients,

Surprise, surprise. Government shuts down, stocks go up! All three major U.S. Stock indexes (DOW, S & P 500, NASDAQ) closed solidly in the green to start out the fourth quarter, as did most foreign bourses – despite the torrent political hype leading up to the federal government’s partial shutdown. When this whole political debate is all over, we may see a few nominal tax and spending cuts to please the Republican base. The Affordable Care Act will survive, essentially as is, cheering the Democratic base. And investors should look forward to further stock market gains.

U.S. stocks and bonds rose for much of the year, including the third quarter, but all kinds of investments ran into recent trouble during the summer. Foreign stock markets have done even worse, especially emerging-market nations such as India, Brazil, Indonesia and Turkey. The Dow Jones Total Stock Market Emerging Markets Index has also fallen. Even with the summer pullback, the benchmark S & P 500 remains up 18% for the year to date, a huge leap of faith, given the modest earnings growth we have witnessed so far in 2013. Despite wobbling in the final days of September amid political brinkmanship in Washington over the debt ceiling, the S & P 500 finished just 2% below its all-time high of 1725.52 set September 18.

As far as the bond market is concerned, it had a rough start to the third quarter but finally settled down. The yield on the U.S. Treasury 10-year note finished the quarter at 2.6%, up a notch from 2.5% at the end of June. After dropping to 1.6% in early May, the yield on the benchmark 10-year Treasury note rose to almost 3.0% on September 5, one of the sharpest moves in years. Most of the recent headlines concentrated on the Federal Reserve Bank. First Larry Summers, Obama’s reputed first choice to be the next chairman of the Federal Reserve, dropped out of the running. Then, on Wednesday, September 18, the Fed announced that there will be no “tapering” of the central bank’s $85 billion a month of bond purchases. Also, for the third time this year, the Fed downgraded its 2013 outlook for U.S. economic growth. Bernanke & Co. are expecting real GDP to increase just 2% to 2.3% for the year, down from a June estimate of 2.3% to 2.6%.

Now that we have had a couple of weeks for the dust to settle, what conclusions can we draw from the Fed’s action (or inaction)? Perhaps the most important point is not the “taper” decision itself, but the rationale behind it. In the first half of this year, the nation’s “real” (inflation-adjusted) output of goods and services grew at a 1.8% annualized rate. So the Fed is now forecasting only a minimal pickup in the second half of the year, which is contrary to Wall Street’s view that the economy is rapidly accelerating. If the Fed is correct in its assessment of the economy, we can look forward to a substantial drop in bond yields over the remaining months of the year. Nevertheless, we view the recent turmoil in the bond market as a warning shot for a new era of rising interest rates down the road, probably at least a year away.

In short, the financial markets find themselves in a stalemate. If the raging interest-rate fever breaks (bond and mortgage yields drop), both domestic and foreign stocks will likely put in a strong finish for the year. Gold, silver and the rest of the metals complex-will revive, as will the battered currencies from the Australia and Canadian dollars to the Brazilian real and Indian rupee.

The Fixed Income portion of our portfolios continues to remain the same for the quarter. All of our portfolios have and will continue to emphasize bonds or bond funds that offer short maturities. We added new positions in Blackrock Munienhanced Fund (MEN), Reality Income Corp. (O), Pubic Storage Depository Shares (PSA+V in Schwab and PSA-PV in Yahoo), Enerbridge Energy Management (EEQ) and wisdom tree Trust (ICN). As far as sales for the quarter, we sold our entire position in Weitz Short-Intermediate Income Fund (WEFIX).

On the Equity side of our portfolios, we added two new positions in Silver Bay Realty Corp. (SBY) and News Corp. (NSWA). We also exchanged most of our position in the Longleaf Partners Funds (LLPFX) to the Longleaf Partners Global Fund (LLGLX). As far as sales for the quarter are concerned, we sold our entire positions in Apple Inc. (AAPL), WellPoint Inc. (WLP), and California Water Service Group (CWT).

We want to thank you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandcpa.com for a quick Retirement Calculator, our latest firm news, and Market Commentary archives.

Special Investment Update – August 15, 2013

Thu, 15 Aug 2013 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

August 15, 2013

Dear Friends and Clients,

Over the past several years, I have encountered many people who are intimidated by the possibility of losing money in the stock market. These are bright people who, for the most part, have done an excellent job at their business or profession. Yet financial markets seem so erratic and unpredictable. How can even the most careful person avoid making huge mistakes? Equally problematic, how can anybody hope to master the art of investing without committing enormous amounts of time and perhaps sacrificing more enjoyable pursuits in the process. Well, whether you pursue this path or not, you do not need to have a degree in finance to be a successful investor. All you need is an honest evaluation of your risk tolerance and your abilities.

Quite frankly, this is not a path for everyone. Some people such as Hollywood stars and professional athletes should not manage their own investments. Health issues, too, can provide a compelling argument for turning over your investment management to someone else. Finally and here is where the “honest with yourself” factor comes to the fore-you may want to use a personal money manager because you just do not trust yourself to do a good job. Maybe you are really too busy, regardless of your income level. Or perhaps you have made a number of horrible investment blunders through the years and you feel you need a spotter to keep you from falling again.

Once you have set up a brokerage account, you can try your hand at managing your own money. If you are a genuine novice, I would recommend launching your investment program exclusively with no-load mutual funds or exchange-traded funds. With mutual funds or exchange traded funds, you delegate to the fund the task of selecting individual securities of stocks or bonds. Thus, you are hiring professional management, while retaining the right to supervise what the managers do with your money. If you conclude it is time for a change, all you have to do is sell one fund and buy another. You are much more in control than if you were to hire a financial advisor to select funds or individual securities for you.

As far as the asset allocation process is concerned, every investor has different needs and a unique risk tolerance for purposes of managing their investment portfolio. So we cannot assume the same percentage allocation for everyone. Even though I noted in previous updates that for new clients, I would recommend a well diversified asset allocation of an even percentage split between stocks and fixed income, as in our own portfolios, I have in my mind a person in the later stages of his or her working career. By the same token, if you are in your 30’s or 40’s and your career is taking off, you may feel comfortable bumping up your total equities exposure to above our 50% benchmark. In addition, you could assign a greater weight to growth funds and trim our recommended weight in equity-income funds.

Mutual funds and exchange-traded funds give you a gentle introduction to buying and selling securities in real time, with the hour-to-hour and indeed minute-by-minute fluctuations. That experience, in turn, can help you decide whether you wish to go on to trading individual stocks and bonds.

Stock picking is a challenging discipline that requires not only patience and perseverance, but also a plan. Too many investors randomly accumulate stocks on tips and touts. Know what industries you plan to invest in and why. If you are going to overweight or underweight an industry in your portfolio (versus the industry weight in a market index like the S&P 500), understand the reasons for your choice.

Most of our tax clients, however, are well suited to take at least some role in shepherding their investments. As we all know, it is not necessary to do everything yourself. However, we do encourage everyone to do as much as you can on your own. No one should care as much about your money as you do. We would welcome the opportunity to discuss your investments along with a review update of your personal financial plan.

Quarterly Investment Update – 2nd Quarter 2013

Tue, 02 Jul 2013 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2013

July 02, 2013

Dear Friends and Clients,

It seems that today’s high-anxiety financial markets always need something controversial to keep them going. Late last year, it was taxes and the fiscal cliff that dominated the headlines. Then, early this year, it was the budget sequester. Now the talking heads are concentrating on the possible effects of when the Federal Reserve decides to “taper” its $85 billion-a-month purchases of bonds and mortgages. Ever since the “tapering” talk started, the major averages have become more volatile and appear to be going through its “correction” phase. The Dow Jones Industrial Average ended the first six months of the year up 13.8%, but all the gains come in the first five months. The Dow fell 1.4% in June. For the quarter ended June 30, 2013, the Standard & Poor 500 Index closed at 1606.28, up 12.6% for the six months ended June 30, 2013.

Sooner or later, the Fed will cut back on its asset purchases. However, the result is likely to surprise many investors. Rather than trigger spiraling interest rates as many expect, the announcement will probably serve to only mark the end of frantic “anticipation” of higher interest rates. Mr. Bernanke emphasized the Fed would only wind down the bond-buying program if the economy lived up to rosy growth expectations. He also sought to emphasize that Fed officials would not raise short-term rates until well after the bond purchased end. We are already hearing that the “anticipated” spike in mortgage rates since early May is prompting home buyers to back off. It is evident that the stock market’s vital signs have deteriorated somewhat during the past several weeks.

Throughout the quarter, Treasury bonds were affected by just about every piece of upbeat economic news that came along. Since March 11, the benchmark 10-year Treasury yield (TNX) tumbled from 2.06% to 1.63% at the end of April. Since then, Bond yields have climbed far enough to put a significant drag on housing and other interest-sensitive business activity. By late May, yields on 10-year U.S. Treasury notes, which had spent most of the first half at or below the 2% level, were rising rapidly wiping out bond values, which decline as interest rates rise. The yield on the benchmark 10-year Treasury note spiked over 2.5% in late June and closed at 2.485%. Bernanke’s “quantitative easing” is a powerful drug and it is giving the economy just enough of a growth spurt to keep investors bidding for stocks. Regardless of any tapering talk, we feel that the spigot will remain wide open for several more months, at least.

The Equity portion of our portfolios remains primarily the same but continues to exhibit more sales than purchases. We sold our entire positions in Boeing Co. (BA), Covidien Plc (COV) and Excel Maritime Carriers (EXM). We also sold one-half of our positions in Verizon Communications (VZ), Madison Square Garden (MSG) and Wellpoint Inc. (WLP). All of these sales helped us increase our cash levels. As far as purchases are concerned, we initiated new positions in EMC Corp. (EMC) and Ppl Corporation (PPL). We also initiated small positions in Novagold (NG), Newmont Mining (NEM) and the IShares Silver Trust (SLV). We established this position as a value strategy because the price of gold fell 23% during the quarter to close at $1223.80 a troy ounce.

The Fixed Income portion of our portfolios continues to remain the same for the quarter. All of our portfolios have and will continue to emphasize bonds or bond funds that offer short maturities. In response to a stronger than expected April employment report, prices for Treasury bonds plunged, at which time we exited our entire position in the exchange-traded I shares Barclays 20 + year Treasury Bond fund (TLT). For us to have earned a positive return on this hedge was a most welcome development. For those portfolios that required increasing their Fixed Income allocation, we purchased Oneok Partners (OKS), Enbridge Energy Management (EEQ), Stone Harbor Emerging Fund (EDI), Aberdeen Asia Pacific Income Fund (FAX), Powershares Senior Loan Portfolio (BKLN) and the Babson Capital Global Short Duration High Yield Fund (BGH). We also purchased for selected taxable accounts Blackrock Muni Holdings Qlty II (MUE) and Blackrock Muni enhanced Fund (MEN). These two closed-end funds, which emphasize high-quality paper, are yielding in excess of 6.5% tax-free- which is the equivalent, for a taxpayer in the top bracket, of a corporate bond yielding more than 11%.

Quarterly Investment Update – 1st Quarter 2013

Tue, 02 Apr 2013 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2013

April 2, 2013

Dear Friends and Clients,

After a painful four-year slog from the financial crisis, the Standard & Poor’s 500-stock index pushed to an all-time high at the end of the quarter, powered by rising investor faith in the economic recovery. The S & P 500, one of the most widely followed benchmarks for stocks, closed for the quarter at a record 1569.19 as the latest flare-up of the euro-zone debt crisis appears to have ebbed.

After the impressive run the headlines stock indexes have had in the past four years, many investors feel tempted to shovel more money into stocks. Sure, the standard & poor’s 500 index has more than doubled since the March 2009 low but what will it do during the next four years? We are actually pretty positive on the outlook for stocks in 2013. Interest rates are low, the housing sector is slowly healing, corporate profits are holding up (though no longer expanding vigorously). Under these circumstances, the headline indexes should be able to log another year solidly in the green. Our primary concern is whether the market rises too far, too fast, thus causing a severe correction. In addition, many insiders (officers and directors of America’s public traded corporations) are selling their shares at a record pace. Over the past three months, insider selling has experienced some of the highest rates in the past decade. Despite a fairly good run of Q4 earnings reports, the insiders apparently feel most stocks are fully valued – and then some.

The Equity portion of our portfolios remains primarily the same but exhibited more sales than purchases. We added a small position in Abbott Labs (ABT) back early in January. As you may recall, we sold the old Abbott Labs during June 2012 before it split into two companies. After the split, the new Abbott holds the medical device and consumer brands business, which we feel has greater value for potential growth. We also purchased Vodaphone (VOD) in February, which we have held a position in the past (2010) as well. During the month of March, we purchased small positions in three new companies, Apple (AAPL), McGraw-Hill (MHP) & Silver Bay Realty Trust (SBY). We feel that these three new positions offer us great value opportunities.

Apple is a name that has always intrigued us and which we have held in the past but later sold at much higher valuations. Apple has a current yield of 2.3% with the very likely possibility of a significant increase in its dividend. Apple has accumulated a massive $137 billion cash board which could be used to raise its dividend 50%, buy back $20 billion of stock annually and still not put a dent in its cash pile.

McGraw-Hill was once thought of as a stodgy print publisher but has reinvented itself in recent years. McGraw-Hill has become a highly focused provider of financial information (well-known brands include Standard & Poor’s, Platts and J.D. Power & Associates). McGraw-Hill has a current yield of 2.3% and has now sweetened its payout every year since 1974- a record matched by only a tiny percentage of publicly traded businesses.

Silver Bay Realty Trust launched its initial public offering in December 2012. SBY is the first publicly listed REIT that focuses exclusively on buying, fixing up, renting out – and eventually selling – single family homes. We established a small position in this trust as an aggressive play on the “Housing Comeback”. Prices of single – family housing starts (new homes) bottomed at different times in different parts of the country, but the national average, according to Case Shiller, made its low in the fourth quarter of 2011. Since then, prices nationally have crept up 7.3%. This trust pays no dividends and we do not expect any cash payout until 2014 at least.

Throughout the quarter, we sold several equity positions, including Niska Gas Storage (NKA), PG&E Corp (PCG), Liberty Media Interactive (LINTA), Cemex (CX), Ingersoll Rand (IR), Sealed Air Corp (SEE), Oracle (ORCL), Novartis (NVS), First Niagara Financial (FNFG) and Nustar Energy (NS).

The Fixed Income portion of our portfolios continues to remain the same for the quarter. All of our portfolios have and will continue to emphasize bonds or bond funds that offer short maturities. Throughout the quarter, we continued to purchase the iShares Barclays 20+ years Treasury Bond Fund (TLT). We are buying TLT partly for the income, with a current yield of 2.7%, but also as a hedge against a potential decline in the stock market. Stocks and T-bonds display a strong negative correlation; when one goes up, the other goes down. Should the stock market pull back substantially over the next few months, we will consider taking off the hedge. We also established a small position in Black Rock Muni-Holding Quality Fund II (MUE) for selected taxable accounts. MUE currently has a 5.5% tax free yield with the potential for upside capital appreciation. However, we should note that this is a “leveraged” fund, which means that the fund borrows money, within limits specified by law, to buy more bonds. Leverage enhances your returns in a rising market, but can hurt on the way down. As soon as Ben Bernanke starts to make noises about back tracking on his zero – interest – rate policy, we will exit this fund.

Quarterly Investment Update – 4th Quarter 2012

Mon, 31 Dec 2012 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2012

January 4, 2013

Dear Friends and Clients,

Before we get into the investment portion of our update, I would like to take this opportunity to thank those who took time from their busy schedule to attend our recent investment seminar. Ever since our inception, we have held seminars for various reasons on several occasions. As we noted in the past, the primary purpose of the seminar was to get a live update of the current tax policy as well as the economy as they relate to our investments. In addition, it gives us the opportunity to socially interact during the holiday season, especially for new clients. I also must confess that I utilize these seminars as an opportunity to attract a select few of new investment clients. We typically send out a few additional invitations of the seminar to some of our selected tax clients but most of our referrals come from our existing investment clients. In the future we plan to open up our marketing efforts to offer our wealth management services to a much broader client base. In other words, we intend to change the requirement in our Form ADV that restricts Wealth Management clients of being only clients of Farmand, Farmand, and Farmand, CPA’s, P.A. Referrals are and will always be greatly appreciated.

As far as the investment portion of our update, investors jumped for joy after congress cleared a tax bill that eliminates the most dangerous features of the fiscal cliff. Investors felt that, even though it was not the prettiest compromise, they can live with it. As you may recall, when talk of the fiscal cliff got underway last summer, the worst-case scenario called for a 39.6% top tax rate on dividends, and who knows what on capital gains. The final result, where the maximum rate on dividends and long-term capital gains will rise to just 20%, is a lot friendlier to investors. In addition, only folks earning more than $400,000 in taxable income ($450,000 for joint filers) will pay that rate. Most investors will continue to pay a maximum rate of 15% on both dividends and long-term gains. It is also a relief to know that the new rates are permanent (or as permanent as anything gets in today’s political world).

As we discussed at the seminar, there is a great deal of uncertainty about the possible outcomes that could affect planning for 2013. This tax act eliminates some of the uncertainties and that’s something to celebrate. However, the New Year’s compromise only applies to the tax side of the equation. Congress has granted itself another two months to tackle the spending side. As those issues unfold, we can expect a very heated debate and perhaps even another threat of default on the government’s debt. In short, we feel that it is a bit too early to predict a runaway bull move for stocks in 2013. With such a wide spread of plausible outcomes we intend to continue to focus our efforts on the following small certainties that we can count on during 2013:

1) Cash Yield – Dividends and interest will put money in our pockets, even if the stock market falters. Investors who insist on current cash yield will be amply rewarded.

2) Bonds & Bond equivalents – Bonds will cushion our portfolios from shocks on the equity side. Much has changed in the financial markets over the past decade but it is still true that bonds of all kinds hold their value better than stocks in a severe equity market downturn.

3) Global Diversification – According to projections by the International Monetary Fund, the emerging / developing countries of the world will increase their real output of goods and services (GDP) by 6% a year through 2017, versus only 3% for the United States.

4) Contrarian Investing – Leaning against the crowd will help you buy lower and sell higher. Typically, the stock and bond markets give you a wide – open invitation to buy or sell at least once a year, and sometimes twice. The key is to watch for occasions when investor sentiment has gone to an unsustainable extreme, accompanied by weakness in various technical indicators.

As far as equities are concerned, we added small positions in Wendy’s International (WEN), Intel (INTC), Coca Cola (KO), Dupont (DD), Mondelez Int’l (MDLZ), British Petroleum (BP), Southern Co. (SO), Duke Energy (DUK) and Enbridge Energy Management (EEQ). We also added back Microsoft (MSFT) after we sold it at a nice profit last May. While it remains to be seen how successful the company will be in its efforts to break into mobile computing, Microsoft could still maintain a highly profitable desktop franchise over the long pull by focusing on business and government customers. We sold entire positions in Total (TOT), Johnson & Johnson (JNJ), Pepsico (PEP), Markel Corp. (MKL), and American States Water (AWR).

The Fixed Income portion of our portfolios remained the same for the quarter as we continue to increase our exposure to high yield bond funds as well as high yield stocks. Furthermore, our strategy has and will continue to emphasize bonds or bond funds that offer short maturities. Research going back over the past two decades has shown that high-yield bonds with a short term to maturity return almost as much return as longer-dated bonds, with substantially smaller price fluctuations. On a risk-adjusted basis, the short-term bonds outperformed the high –yield universe by a margin of about 1.2 to 1. Our only addition to the fixed income portion of our portfolios is the Wells Fargo Advantage High Income (STHYX). This fund has a steady, dependable long-term track record with a current yield of 5.7%. Over the past 10 years, STHYX has generated a slightly higher total return than the high-yield peer group-but with 21% less volatility. With duration of just 3.8 years, the fund’s portfolio is turning over quickly enough to keep defaults to a manageable minimum.

Quarterly Investment Update – 3rd Quarter 2012

Tue, 02 Oct 2012 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^rd QUARTER 2012

October 02, 2012

Dear Friends and Clients,

Twelve years and counting, investors have waited a long time for the stock market to return to its boisterous winning ways of 1982 – 2000. We have enjoyed a pair of vigorous “cyclical” bull markets, from 2002 to 2007 and from 2009 to the present, both of which have generated worthwhile profits. Nonetheless and despite those two recoveries the Standard & Poor’s 500 index – the institutional benchmark for U.S. stocks – is still hovering around 10% below where it stood in March 2000. The current advance dating back to March 2009 is showing multiple signs of old age and evidence is mounting for a major top in the not too distant future.

The Standard & Poor’s 500 Index has soared 113% since the major bottom in March 2009. The latest quarter’s gains were fuelled by the stepped-up efforts of the European Central Bank to aid the euro zone as well as the Federal Reserve’s announcement on September 13 ^th of new stimulus measures for the U. S. economy. For the quarter ended September 30, 2012 the Standard & Poor’s 500 Index closed at 1440.67, up 5.75% for the quarter.

As far as the economy is concerned, there is a fierce tug-of-war in the financial markets. Around the globe, signs of economic slowdown are mounting. Even in the good ole USA, more businesses are experiencing slower activity than faster. Similar gauges for China and Europe have reflected an even sharper contraction. The outlook for world economic growth over the next few quarters is sketchy at best. Furthermore, it is becoming painfully obvious that each new round of monetary stimulus is having less and less of an impact on both the financial markets and the real economy.

As we noted in the past, these technical worries, while keenly relevant to the 2013 market outlook, do not spell eternal doom for stocks. In fact, investors who can afford to hang on for the long – term will almost certainly do better in equities than in bank accounts or government bonds. Stock valuations have come down a long way from the crazy days of the late 1990’s.

As far as equities are concerned, we purchased and sold Facebook during the quarter. We feel that Facebook has great profit potential once they succeed in taking advantage of their mobile users. It is well known that mobile usage of Facebook’s products is a weakness for the company, as its mobile apps are largely non-monetized and its ability to do so remains unproven. Thus, we sold our entire position but we may re-visit this issue at a later date. We added small positions in Wellpoint (WLP), Total (TOT), and Wendy’s International (WEN). We sold positions in Worthington Industries (WOR), Canadian Oil Sands (COSWF), Cellcom Israel (CEL), Sprint (S), AmerisourceBergen (ABC), Washington Post Co. (WPO), and Pfizer Inc (PFE).

The Fixed Income portion of our portfolios remained the same for the quarter. We have continued to increase our exposure to high yield bond funds as well as high yield stocks. We added PIMCO Income D (PONAX), a multi-sector bond fund with a current yield of 6.51%. We also added Pembina Pipeline Corp (PBA) to replace Government Properties Income Trust (GOV). Pembina Pipeline Corp. has a current yield of 6% with monthly distributions. We also purchased a couple of high-yielding stocks. We purchased PG & E Corp (PCG), a utility stock with a current yield of 4.2% – more than double a 10-year Treasury note. We also purchased Waste Management (WM), the trash hauler with a current yield of 4.4%, which is more than the longest-dated Treasury bond.

During the end of the quarter, we also added a position in long-dated Treasuries through the exchange-traded iShares Barclays 20+ years Treasury Bond Fund (TLT). Our rationale for buying Treasuries is not that they carry such a liberal interest coupon, which has a current yield of 2.8%. However, a position in treasury bonds could generate nice capital gains if the economy and stock market run into some rough spots in 2013.

Quarterly Investment Update – 2nd Quarter 2012

Tue, 03 Jul 2012 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2ND QUARTER 2012

July 03, 2012

Dear Friends and Clients,

Nearly three months after the Dow began its decent in early April, investors are still scratching their heads. Has this pesky stock market “correction” just about run its course, or is a new and terrible downswing under way? Granted nobody has a crystal ball, but we can make some educated guesses, while pretesting ourselves against the unknowns. For the quarter ended June 30, 2012, the major stock averages ended on a positive note as investors cheered European leaders’ progress on the regions debt problems. The Standard & poor’s 500 Index was up to 8.36% to close at 1,362.16.

The stock market’s near – 10% drop from April to early June has done its job, sweeping away the complacency and overconfidence that had built up among investors since the important October 2011 low. We are now at a fork in the road. Down one path, conditions could get a lot worse in a hurry. If the European Union falters in its efforts to head off a Spanish banking crisis, an already stumbling European economy could lurch into freefall. China appears to be running out of tricks to keep its distorted bubble economy growing at a hyperkinetic pace. Here at home, high unemployment and slow growth in personal incomes does not leave much of a safety margin if the rest of the world slides into recession.

Down the other path, there are compensating positives, which we should not ignore. Central banks around the world fear another 2008-style crisis and are bending every effort to prevent it. Furthermore, some encouraging things have happened in the past few years, particularly in the United States, including the following:

Our biggest concern about the stock market in the second half of 2012 is that Washington might take us to the edge of a “fiscal cliff” before Congress and the President work out a compromise to head off the steep tax hikes slates to kick in next January. We are hopeful that proposals for a grand fiscal bargain dominate the fall campaign nationally, with both sides vying to put forward the more credible plan. This would be great news for stocks.

During the quarter, we sold Abbott Languages (ABT), one of our long-term holdings at a nice gain to raise some cash. ABT is planning to split into two separate companies – the pharmaceutical business and the medical devices business. Once this spinoff happens later this year, we will probably revisit ABT’s medical devices business a long-term holding. We also sold Microsoft (MSFT), stock that we have owned at various points in the past decade. We would be willing to go back into MSFT if the stocks dip another 8%-10% from today’s level. We also sold two banks early in the quarter – J.P. Morgan Chase (JPM) and wells Fargo (WFC). We felt that banks, in general, are known for their vulnerability to market downturns and since two banks stocks had a nice increase, we decided to cash in those gains.

As far as our stock buying is concerned, we continues to focus on dividend-rich blue ship like Proctor & Gamble (PG) and Emerson Electric (EMR). We have also continued add stocks in oil, gold and other natural resources such as Chesapeake Energy (CHK), Enerplus Corporation (ERF), Quicksilver Resources (KWK), Barrick Gold Corporation (ABX) and Newmont Mining Corporation (NEM).

The Fixed Income portion of our portfolios remains the same for the quarter. We have continued to increase our exposure to individual bonds as well as high-yield bonds such as Vanguard High-Yield Corporation Fund (VWEHX). As the stock market was bottoming June 1, the benchmark 10-year Treasury yield closed at 1.47% the lowest for that maturity since the founding of the American Republic. An enormous “fear bubble” has driven treasuries to this level.

Special Investment Update – June 6, 2012

Wed, 06 Jun 2012 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

June 6, 2012

Dear Friends and Clients,

Millions of investors around the globe are fidgety right now hoping stocks will not perform another summer bungee jump like the heart-stoppers of 2010 and 2011. We expected a “correction” but not another 20% plunge. Please!

The purpose of this special update is to help calm your nerves by providing you with a clearer perspective on the market’s likely path through the summer and out to year – end. From last October to early April, U.S. investors gradually laid aside their concerns about the economy – and bought stocks. By the end of this period, most players large and small were feeling pretty good. Since the first week in April, though, the investor mood has noticeably darkened. We are in the season of the year – basically from May 1 – October 31- when history tells us to be on the lookout for deeper and more frequent pullbacks. In 2010, the Standard & Poor’s 500 index, measured on a closing basis, tumbled 16% from its spring high to its summer low. In 2011, the high was reached in late April and the low in early October, for a total decline of 19.4%.

Many analysts still feel that European officials have failed to stem their crisis, which is now in its third year. However, the European authorities seem more willing this year than before to step in aggressively and support their banking system. In addition, some gauges of U.S. economic health (such as industrial production, housing starts, jobless claims and consumer sentiment) are sending out stronger readings today than they did 12 months ago. Thus, we feel that any mid-year market dip is likely to be shallower than the 2011 episode.

Certainly, we have to reckon with the possibility, even though we feel it is still fairly remote, that Europe will drag the rest for the world, including the United States, into another economic slump. More likely, though, we are facing a somewhat less dire outcome than that. Most forward-looking U.S. business indicators remain pretty healthy. If so, the financial markets will eventually snap out of this painful midcourse “correction” and get back on a bullish track, probably late in the third quarter or early in the fourth. Many of the assets, such as gold, oil and other natural resources that have been hurt the most in recent weeks will rebound dramatically.

Let us now step back for a little lesson in investment wisdom. Volatility frightens investors, particularly when prices are falling. However, it is important to remember that fluctuating prices-even sharply fluctuating prices-are, and have always been, a feature of the investment landscape.

Let us take stocks for example. Over many decades, it has been perfectly normal for blue chip stocks to ride up (or down) 15%-25% within the space of a year. Small caps and other issues of a more speculative bent typically fluctuate 30% or more in a 12-month period. You should expect these roller-coaster lurches if you plan to invest in individual stocks. But what should we do about them? First of all, we try to keep our eyes focused primarily on the big picture – the forest, not the trees. We try to stay focused on the overall progress of our portfolios. If our holdings are properly balanced between equity stocks and fixed income securities and diversified among individual securities, we should have plenty of good news to celebrate. Of course, we do not want to ignore the individual pieces of our portfolios. Once we take our analysis down to the micro level of an individual investment, though, we always ask ourselves: “What kind of return is this investment likely to deliver from now on? If some event has occurred that will impair a company’s profits for years to come, we will most likely sell as expeditiously as possible. On the other hand, market declines are often merely temporary. In such cases, where we funnel new money into the investment, we can expect a higher return than before. The lower we buy, the richer the prospective gains. That is how we make “volatility” our friend.

Nobody has a magic formula to determine whether a price set back is only fleeting. However, the weight of evidence strongly suggests that the recent downturn in oil, gold and other natural resources will pass before long. Yes, there is a risk that further economic weakness could drive these assets lower. However, we know that central banks around the world are frantically creating money in an effort to avoid a 2008 – style deflationary relapse.

In the meantime, we will continue to position ourselves in a more defensive stance than usual, with the majority of our combined portfolios being allocated with a minimum of 50% in equity and 50% in fixed securities.

Quarterly Investment Update – 1st Quarter 2012

Tue, 03 Apr 2012 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^st QUARTER 2012

April 3, 2012

Dear Friends and Clients,

The first quarter ended with all the major stock averages surging back up to a fresh peak for the year. The Standard & Poor 500 Index closed at 1408.47, up 12% for the quarter. The Wall Street Journal credited this rally due to “signs of an easing to Europe’s debt troubles and a strengthening of global economy”.

Three cheers for irrationality! Reasonable investors often bemoan the unreasonableness of stock markets – and there has certainly been plenty of irrationality driving the stock markets’ 28% rally since last October. Has the U. S. Government taken even one tiny baby step toward cleaning up its massive fiscal mess? Is the economy any closer to not needing “life support” in the form of artificially low interest rates? The good news for this rally is that it allowed us to exit some of our equity holdings with the goal of increasing the fixed income portion of our portfolios. However as we look ahead to the primary trend where we are now in terms of the ‘big picture”, the odds are that we will see somewhat lower prices in stocks for 2012.

As we look into Election year 2012, there are some clouds on the horizon and, of course, the biggest is the European sovereign-debt issue. The sovereign-debt problem in Europe is enormous. They are talking about over two trillion dollars worth of bailout money for Europe. What that is telling us is that the European nations have gotten themselves way in over their heads in debt. This is government (sovereign) debt and it will take years to resolve these problems. Furthermore, in 2012, we are going to have to grapple with some other issues. We already know that China is in a slowdown, and the question is will it become something worse than that. Then finally, there is this issue of the U. S. Recession risk.

We are skating on thin ice right now. We are in a type of a twilight zone between growth and recession. We are not in an actual recession where the economy is contracting, but we are growing very slowly at perhaps 2% a year on Gross Domestic Product (GDP). When you are in very slow growth situation, it becomes easy to tip over into recession. So these are some of the clouds on the horizon that we will be watching with a very cautious eye throughout 2012.

As we previously discussed, the United States and most of the industrialized nations are facing a rapidly aging demographic society. It is very simple. We are getting older. As more and more people turn 65, they are drawing their stock holdings down. So this is a problematical period we are headed into and we feel it is important for people, especially those who are nearing retirement. Those who are in their late 50’s or early 60’s thinking about retirement should be prudent as well as cautious so as to preserve the capital during especially 2012 but also 2013, 2014, and 2015.

We will eventually come out of this hole, once the U. S. Government and other governments (France, Germany, Italy, Spain), have resolved some of the problems they are facing, fiscal problems caused by the demographic bulge, the baby boomers who are moving into retirement years. Something will have to be done about the entitlement issues. And it will be done, we feel, over the next two to three election cycles here in the U.S.A. and by 2016, we should be at least at the bottom of this and maybe coming out the other end. We certainly hope so.

Our investment strategy remains the same. We continue to maintain our standard two-pronged strategy, which is to maintain a substantial exposure to common stocks (and mutual funds) as long as there is a reasonable prospect for double-digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in the fixed income portion of our portfolios. Our goal continues to be to increase the fixed portion of our portfolio by building up holdings of bonds and bond-like substitutes such as divided-rich, low-volatility stocks including selected Master Limited Partnerships (MLP’s) and Real Estate Investment Trusts (REIT’s).

As far as equities are concerned, we continue to take advantage of the volatility by adding small positions in selected stocks such as Enerplus Corp (ERF), California Water Service (CWT), Washington Real estate Investment Trust (WRE), Madison Square Garden (MSG), Lamar Advertising Co. (LAMR), and Wellpoint (WLP)). We also raised cash by selling our entire positions in China Petroleum & Chemical (SNP), Tata Motors (TTM), Ratheon Company (RTN), Fair Issac (FICO), and News Corp (NWS).

As far as the fixed-income portion of our portfolios is concerned, we continue to keep a safe distance away from Treasuries of all maturities except municipal bonds, which we purchased when prices were much lower than today’s prices. All in all, our fixed income strategy remained the same throughout the quarter.

We want to thank all of you for giving our firm the opportunity to serve you. We thank you very much for the trust and confidence you have placed in our firms as it is always appreciated. Please contact me should you have any questions or comments. Also, we want to invite you to visit our website at www.farmandcpa.com for a quick Retirement Calculator, our latest firm news, and Market Commentary archives.

Special Investment Update – March 5, 2012

Mon, 05 Mar 2012 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

March 05, 2012

Dear Friends and Clients,

The year 2011 was a volatile year with a lot of ups and downs, so let us see what’s ahead down the road.

As we look into Election year 2012, these are some clouds on the horizon and, of course, the biggest is the European sovereign-debt issue. The sovereign-debt problem in Europe is enormous. They are talking about over two trillion dollars worth of bailout money for Europe. What that is telling us is that the European nations have gotten themselves way in over their heads in debt and it will take years to resolve these problems. Furthermore, in 2012, we are going to have to grapple with some other issues. We already know that China is in a slowdown, and the question is will it become something worse than that. Then finally, there is this issue of the U. S. Recession risk.

We are skating on their ice right now. We are in the stage kind of a twilight zone between growth and recession. We are not in an actual recession where the economy is contracting, but we are growing very slowly at perhaps 2% a year on Gross domestic Product (GDP). When you are in very slow growth situation, it becomes easy to tip over into recession.

The good news is that the markets have given us a nice rally since the beginning of October last year. We still have not reached the highs by any means that were reached in July of last year but we are hopeful that we will see these highs sometime in 2012. However, as we look ahead to the primary trend where we are now in terms of the “big picture”, the odds are that we will see somewhat lower prices in stocks for 2012.

Special Investment Update – January 18, 2012

Wed, 18 Jan 2012 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

January 18, 2012

Dear Friends and Clients,

The Purpose of this update is to provide some insight to those people contemplating retirement in 2012. As we discussed in previous updates, there was a lot of uncertainty in 2011 that could spill over into 2012 which could affect your decision to retire or not to retire. The economy is still shaky, even after two –and- a- half years of supposed “recovery”. Stocks continue to go back and forth, while Treasury bills and bank deposits barely yield enough crumbs to keep a mouse alive. Unless you have a plump government pension to lean on (and even those are not totally secure these days), you may be wondering whether retiring in 2012 is really such a good idea at all. There is no crystal clear answer for everybody but I hope the following four factors will be of benefit for you to consider before taking the plunge.

The first factor to consider is your health! Have an honest conversation with yourself regarding the status of your health. If your genes, combined with the present state of health seem to point to a long lifespan, you are probably going to need more money to support you in retirement. On the other hand, if you are already struggling with significant health issues, it may make sense for you to retire as soon as you believe you have accumulated the smallest pot of gold necessary to maintain a comfortable lifestyle. Indeed, retiring at an early age could add greatly to your enjoyment of the rest of your life, and even restore some of your lost health.

The second factor to consider is your investment portfolio size, which will undoubtedly form a crucial element in your decision whether to retire in 2012. The number that really counts for a retiree is how much income one can expect the investments to generate. If annual expenses are running at, for example, $80,000, one would need at least that amount of income from the investment portfolio (minus any Social Security or Pension benefits). Income, of course, can flow from dividends and interest, or from capital appreciation. The combination is what we call “total return”. While it is impossible to know exactly what returns the financial markets will produce in the years ahead, we do know the range of returns for the past 140 years.

Let’s assume you are planning to hold a mix of stocks and bonds similar to our own portfolios (50-60% stocks, with the rest in fixed income and cash). Over the long run, that mix has generated a high enough total return to let a person draw out approximately 4% a year, for 30 years, with an annual pay hike to offset inflation and very little risk of running out of money. In other words, you should be able to withdraw an inflation – adjusted $80,000 a year from a portfolio valued around $2 million. Longevity makes a difference, however. If you believe, on the basis of family history and your personal health situation, that you are more likely to live 20 years in retirement, you can safely withdraw about 4.8% a year. Some online retirement calculators, such as the good (free) one devised by T. Rowe Price, assume somewhat lower returns for the stock market than the historical average. Even under this more conservative method, though, you should be able to pull out 3.5% a year for 30 years. An additional consideration for the potential retiree is to tilt the stock segment of your portfolio toward high- yielding names like those in our portfolios. One’s goal as a retiree is to be living on income (dividends and interest) alone so as to eliminate the need to sell stocks or mutual funds into a bad market. Use your capital gains, as they materialize, to reward yourself with special treats, such as that sea cruise you have been dreaming of, the new Town Car, the lakefront condo, whatever.

The third factor to consider is to start thinking creatively. Maybe, after adding your resources, you conclude that you have almost got enough, but not quite. In this case, your creative thinking could be channeled toward reducing your expenses or boosting you income. On the expense side, the most obvious item to concentrate on is your cost of shelter. Millions of retires have balanced their budget by moving to a smaller home. If you live in a part of the country where real estate is expensive, you may be able to save dramatically by taking a more radical step. House prices have plummeted in many Sunbelt locales. In Port Charlotte, Florida, for example, the price of a median home has dropped to about $60,000. Selling your home on the East or West Coast and moving to Arizona or Florida, or certain areas of Alabama or Georgia could solve many retirement decisions.

Furthermore, you can boost your income with part-time work. Earning up to $14, 160 per year will not affect your Social Security benefits if you are under “full” retirement age (66 if you were born in 1946); and after you reach full retirement age, you can earn as much as you like without forfeiting any benefits.

The fourth and perhaps the most important factor to consider is the Intangible Factor of what do you plan to do with your time. We do feel that it is crucial to have some notion, in advance, of how you are going to fill your retirement days. What will you do to make the time fulfilling and rewarding? If you have a solid answer to that question, you can retire in 2012 with a smile on your face. If you are not sure, our advice is to continue working for one more year at least.

Quarterly Investment Update – 4th Quarter 2011

Sat, 31 Dec 2011 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2011

January 05, 2012

Dear Friends and Clients,

As investors, the past 12 months have delivered more volatility than many of us expected. Last year at this time, when we looked ahead to the New Year, the global economy was still expanding briskly, healing from the wounds of the 2008 financial crisis. Despite isolated problems (Greece was already a sore spot); stock markets around the world were posting solid gains. The steady momentum brought a rousing performance for stocks during the first four months of the year. However, the party screeched to a halt in early May as Greece’s problems worsened. Then, over the summer and into the fall, concern grew about the soundness of not only Portugal’s government debt but also that of Italy, Spain and even France. Here in the United States our congressional charade over the debt ceiling (August), followed by the failure of the budget “super-committee” (November) helped provoke two steep declines from which equities have still only partly recovered.

Obviously, we are not experiencing a typical business cycle. Normally, two years after the official end of a recession, the US economy would have restored a much higher percentage of the jobs that were lost. Thus far, only about 40% of the lost jobs have come back. Furthermore, at this stage of a recovery, industrial production should be challenging or exceeding its previous high. Currently, we are still about 6% below the 2007 peak. The stock market, too, is not behaving in a typical manner. Since 1900, the S & P 500 index has tacked on an average price gain of 11.3% in the third year of a president’s term, and 13.4% if you consider the president’s first term alone. However, for the current year ended December 31, 2011, investors in the financial markets endured one of the most gut-wrenching years in recent memory. The Standard & Poor’s 500 Index closed at 1257.60, a fraction of a point below where it started the year. It ended 2010 at nearly the same level, at 1257.64. Its loss for the year is 0.04 point.

The confusion for investors, of course, stems from the news flow. Some of the information we are receiving looks fairly encouraging. Corporate America will most likely post record profits to an all-time high in 2011. Fewer people are signing up for unemployment insurance. The four-week count of “first-time” claims for jobless aid just fell to its lowest reading since June 2008. So we can infer that the economy’s job engine is reviving up a bit. But Europe continues to send out distress signals with the risk of a Lehman-type event in Europe that would have repercussions around the world. Also, here in the United States, the main theme during the election season should be not only “It’s the Economy Stupid” but also “It’s the Politics Stupid!” Once the political situation becomes more certain, then we are hopeful that the economy will take care of itself. A recent article form USA Today reflected that the outlook for US stocks in 2012 is not wildly bullish nor is it depressingly dreary, but rather “cautiously optimistic”. The main source of trepidation is Europe. How its debt crisis plays out will largely dictate whether markets thrive or dive. U.S. politics could also move markets as the election nears.

Our strategy for the New Year can be summed up in three simple words: Play it safe. As hopeful as we are that 2012 will end on a strong note, we will be reaching for every defensive tool at our disposal to protect our wealth and keep it growing in the months and quarters ahead. As we noted before, we have attempted and succeeded to increase our Fixed Income Asset allocation and decrease our Equity Asset allocation.

As far as equities are concerned, we continued to take advantage of the volatility by adding small positions in equities such as Clorox (CLX), Covidien (COV), Intercontinental Hotels Group (IHG), Ingersoll Rand (IR), Kellogg (K), Novartis (NVS), First Niagara Financial (FNFG), Oracle (ORCC), and Wells Fargo (WFC). We also sold the following equity positions: Campbell Soup (CPB), Expedia (EXPE), and Lockheed Martin (LMT). As far as the fixed income-portion of our portfolios are concerned, we continued to purchase the closed-end Western Asset Emerging Markets Debt Portfolio (ESD) as well as the Vanguard Intermediate-Term Investment Grade Bond Fund (VFICX), which currently yields 4.25%. We sold the small position in the Dodge & Cox Balanced Fund (DODBX) from the fixed portion of our portfolios.

All in all, we feel that the market climate is changing and have prepared ourselves for a season of rougher weather in 2012. Recent data from Europe’s purchasing managers indicate that the continent is already in recession, with effects that will ripple out to our shores, probably as soon as the first quarter. Interest rates on Italian and Spanish debt are hovering near dangerous levels. Finally, this year, the Prime Savers Ratio takes a big drop as the number of people entering the over-65 age group races ahead of those entering the 40-60 brackets (“prime savers”). Unless other factors intervene to lift the market, a shortage of prime savers will tend to drain money out of stocks.

Special Investment Update – November 3, 2011

Thu, 03 Nov 2011 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

November 3, 2011

Dear Friends and Clients,

In this month’s issue, we want to give you our firm’s perspective of the general direction of the stock markets for the remainder of the fourth quarter and 2012.

Excluding us, many investors feel disappointed or even angry about the poor returns that stocks, in particular, have delivered since 2000. The popping of the internet bubble, followed by the real estate and credit collapse, has left deep scars on many portfolios. In recent weeks, the panic over Europe’s sovereign debt problems has again torn open old wounds. Let’s look at the pros and cons of the health of the economy as well as its effects on a continuing bull market.

As far as the positives are concerned we can see the following number of pieces falling into place:

The only major player that has not begun to clean up its financial act is, of course, the federal government. Over the next two or three Congressional Election Cycles, we are likely to witness a pitched battle over government spending. Once the entitlements issue is settled, the nation will have removed the last barrier to a new era of growth and prosperity.

However, as hopeful as we are that those prospects may seem, there are some clouds on the horizon and, of course, the biggest as you know is the European sovereign-debt issue. It is far from resolved despite the recent news from France and Germany. They are now talking about two trillion dollars worth of bailout money for Europe. It is not just the Greek government, despite last week’s grand rescue plan by the European Union to attempt to stop the silent run on European sovereign debt. Italy, with an economy that is seven times bigger than Greece, has always posed the greater risk to Europe’s financial system. This tells us that the European nations have gotten themselves way in over their heads in debt. This sovereign-debt is going to take years to resolve these problems.

Most immediately, 2012 will bring several complicating developments:

None of these factors, singly or in combination, guarantees a bear market for stocks next year. But the risk is high enough to justify an exceptional degree of caution.

Special Investment Report – November 1, 2010

Tue, 01 Nov 2011 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

November 1, 2010

Dear Friends and Clients,

We are sending this special update because we felt that financial and tax planning is vitally important during 2010 and we wanted to encourage you to review your particular situation in time for you to act before the end of the year. Before we get into the investment portion of our update, let’s take this opportunity to go over some administrative policies and procedures regarding our wealth management services. By way of background, we created Farmand Investment Services, Inc. on December 14, 2001 but we have been providing investment management services since 1997 and we have made an intensive effort to provide you the best level of service.

As previously discussed, effective January 1, 2011, our fee structure with reference to our portfolio management services will change in accordance with the enclosed fee schedule. This decision was made with a great deal of deliberation, especially now with the current state of the economy. However, please understand that this decision to adjust the fees is intended as a permanent adjustment to our fee structure and was made after a detailed evaluation of our wealth management services over an extended period of time. During this period of evaluation of our Investment Management Services, we utilized investment seminars, quarterly updates as well as special updates, such as this, as a medium to provide you more detail about our services, the investment climate in general as well as our goals for the following year. Our goal has always been to provide you a healthier financial life, above and beyond your investments by providing you as much insight into financial planning so that you can make informed decisions. As in the past, we truly value our business relationship and we will continue to always strive to provide you with the best level of service. We welcome the opportunity to discuss this issue or any other matter with you.

We sincerely hope you understand the reasons for the increase of your annual fixed fee which will be billed on a quarterly basis beginning with the billing for the quarter ended December 31, 2010. Please review the enclosed fee schedule and kindly sign, date and return to us in the enclosed envelope.

Also, I would like to follow up on our December 10, 2009 letter explaining some of the changes to the reporting policies that we provide, specifically regarding the Investment Policy Statement. As we explained in that letter, we have historically completed one Investment Policy Statement for each set of household accounts upon our initial set up of the combined Family Portfolio Management agreement. Going forward, our firm will require an Investment Policy Statement for each individual account to more accurately execute the unique objectives of each account. Even though some household accounts would prefer to utilize the same objective on all of their accounts, others may not. Initially, unless precluded by the client’s investment objectives and risk tolerance, the Investment Policy Statement of all taxable accounts shall maintain a formulation of our targeted asset allocation mix of approximately 50% fixed and 50% equity. The Investment Policy Statement of all retirement accounts shall generally maintain a formulation of our targeted asset allocation mix that is weighted more heavily on the equity side. We can always customize each account’s Investment Policy Statement to correspond with its unique objectives where appropriate. I would like to emphasize that this process was a one-time “catch up” period because each account may have its own individual unique goals. Please contact me if there are any questions or if you want to discuss this matter further.

Lastly, in early 2010, we undertook an effort to improve and enhance the Farmand, Farmand & Farmand, PA, CPA website, including adding more information related to our wealth management services. In the future, we intend to establish a link to our website for our investment newsletter. We welcome any suggestions you have for how the site could be more useful and easier to use. Please send your suggestions to mike@farmandcpa.com .

Now, let’s go over the investment portion of our update by going over the current investment climate in general as well as to discuss our strategy for the remainder of 2010 and 2011.

Since 2000, we have endured two horrendous bear markets. The first, from 2000 to 2002, let the air out of a wildly inflated speculative mania pumped up by the arrival of the Internet. The second, and more sinister, bear struck in 2007-2009, when valuations seemed much more reasonable than in 2000. However, excessive debt-mortgage debt in particular – trumped all other factors. The deleveraging process among households continues to this day, throwing a wet blanket on the U. S. economic recovery. To stop the economy and financial system from imploding, Washington took off on an unprecedented deficit – spending spree.

Global stock markets, most definitely including our own, have enjoyed a strong recovery since March 2009, despite the recent unsettling “correction”. But the bull will not run forever. Consumers may be reducing debt, but the federal government’s debt has soared more than 4 trillion dollars in the past three years, to $13.3 trillion dollars at last glance. To date, Uncle Sam has had no difficulty selling bonds at rock-bottom interest rates. By 2012, though, the government will face a greater fiscal crunch as the number of baby boomers reaching 65 (the age for Medicare eligibility) spikes. Washington’s debt-to-GDP ratio will soar to 100% – typically, the level at which a country’s creditors begin to rebel. In short, there is a serious risk of another deep bear market in 2012, perhaps extending into 2013.

Given this outlook, you might be tempted to head for the hills! But, if the U.S. Government’s budget woes are not adequately addressed before 2012, the economic recovery has built up enough momentum to probably lift share prices up another 12 to 15% or more. Yes, the housing sector is still in dreadful shape. But manufacturing is steadily improving, with industrial production up 7.7% in the past year. Many export-oriented technology companies are booming. Service industries, for the most part are doing OK. Retail sales, while still below the 2007 peak, have gained 5.5% from a year ago. Barring an external shock, the European situation looks a lot healthier today than it did a few months back.

Election fever is running high as politicians blitz the airwaves and their posters swarm the streets ahead of the November 2nd climax. Clearly the makeup of the next Congress will have a significant impact, for better or worse, on taxes, regulation and government spending. However, America urgently needs to address the long-term fiscal problems created by the retiring Baby Boomers. But the financial markets aren’t a simple, one-button machine. Numerous factors influence stock prices. The truth is, investors are always faced with uncertainty, even in what may seem to be the best of times. Asset allocation is a strategy used to reduce the risk of that uncertain world to a manageable minimum. What that means, in plain English, is that we never put all our eggs in one basket. We own a globally diversified mix of stocks, bonds and cash, with dozens of individual securities to provide an extra layer of protection.

As you know, all of our portfolio reports are now set up where each account has its own targeted asset allocation mix formulation between “equity” and “fixed” investments, based on the Family Portfolio Management agreement, unless it was revised. What percentage would I place in a new client’s portfolio (over time)? Even though each client has their own individual goals, my own personal current portfolio is earmarked 60% for stocks and 40% for fixed income investments. That’s very close to the norm I have followed for the past 20 years. For most investors a 60/40 allocation delivers enough upside participation to keep most of us happy in good markets, with enough of a cushion to let most of us sleep soundly in tough markets. These percentages should be adjusted to fit each one’s particular own situation. People in their 20s, 30s and 40s may feel comfortable with a larger weighting in equities. Folks approaching or already in, retirement might shade the equity percentage lower. One helpful rule of thumb: To compute the percentage of your portfolio that should be in risk assets (those that don’t offer a guaranteed payback), take 115 minus your age. Thus, a 60 year-old would shoot for a 55% “normal” weighting in stocks and other risk assets. The actual percentage at any given time might vary with market conditions and personal circumstances.

As the current stock market cycle matures, our strategy is to take more profits on equities and increase our weighting in fixed income. The next bear market is probably some distance off, but we will want to move gradually into a more defensive position as the final peak for the cycle comes into view.

In the fixed-income area, speculation over the Federal Reserve’s next quantitative-easing (bond-buying) move dropped the 10-year Treasury yield to a new 2010 low of 2.33% on October 8th. But long-dated Treasuries didn’t follow suit; the 30-year yield held above its August low. This type of divergence points to a rebound soon in bond yields, which could raise the 10-year Treasury yield back up to the 3% range by year- end. Our strategy in the fixed income area has been and will continue to be to keep our maturities short (generally under five years) until we see how strong the next bounce in yields turns out to be.

As we head down the home stretch, it’s beginning to look as if 2010 may turn out to be a pretty good year after all! For equity investors, especially, it’s nice to see the DOW within striking distance of its second winning year in a row. This is quite a change from the dark days of October 2008, when the financial world came perilously close to breaking apart at the seams.

As always, of course, we are more interested in the future than in the past. And here, we must inject a note of caution. The powerful run-up in global stock markets since late August will be a tough act to follow. Granted, the Federal Reserve and other Central banks are pushing hard to “stimulate” business activity through near-zero interest rates, quantitative easing and related gimmicks. In the end, though, the U.S. economy is likely to keep growing at a subdued pace in 2011, bringing a much more modest growth rate for corporate earnings (probably 10% or less) than we have had this year.

Quarterly Investment Update – 3rd Quarter 2011

Tue, 04 Oct 2011 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2011

October 4, 2011

Dear Friends and Clients,

Stock markets ended a turbulent third quarter on a sour note amid investors’ growing despair about political efforts to deal with the monumental challenges facing the world economy. The onslaught of bad news, coupled with periodic flashes of optimism, led to one of the worst volatile periods ever for stocks since the financial crisis in 2008. Stocks are bravely trying to claw back their losses from the August rout. But it will take time for the market to find stable ground again. The Standard & Poor’s 500-stock index, ended at 1131.42, putting the measure’s quarterly loss at over 14%.

By almost any measure (except corporate profits), the economic recovery since 2009 has been one of the weakest on record: While businesses have done a very good job of adapting to survive this adverse climate, the employment outlook continues to be dismal. As long as that remains true, stocks will be on a shaky ground. Dazzling rallies will give way to sudden, shocking plunges similar to that of early August.

As we write this update, it is impossible to know whether the market will regain its April 2011 highs reasonably soon, or whether that peak will hold well into 2012 (or even longer). However, we do know that Europe’s festering sovereign-debt problems present a serious obstacle to economic growth around the globe. The good news is that politicians around the world (even in Brazil and China!) seem to recognize the need for a concerted effort to prevent Europe’s sovereign-debit woes from spinning out of control.

In today’s uncertain climate, with markets careening and the trans-Atlantic powers struggling to fend off a possible double-dip recession, there’s one sensible time-honored strategy investors can count on. Capture as much of your return as you can – in the form of dividends and interest. Chasing capital gains, without regard to current income, has been a largely futile quest. This long drought will end someday and hopefully, soon. First, governments on both sides of the Atlantic must face up to the fact that they have promised more retirement & healthcare and other benefits than they can pay for without destroying economic growth. Once investors feel that this is beginning to be accomplished, we feel the major stock markets will rise dramatically.

Ever since we started our wealth management services, we emphasized the importance of maintaining a well-balanced investment portfolio. Our quarterly reports are a great management tool to assist you with your investments. In addition to our market commentary, we provide a “Combined Performance Review” of all accounts reflecting the year-to-date performance as well as a “Combined Portfolio Statement” reflecting the detail of your portfolio categorized between Equity Asset allocation and Fixed Income Asset allocation. Overall, you will notice an increase in our Fixed Income Asset allocation over Equity Asset allocation with most of the clients having at least a 50% allocation to Fixed Income securities. Our strategy remains the same, however, we have continued to take profits more frequently so that we could gradually increase our weighting in the fixed income portion of our portfolios.

As far as equities are concerned, we sold Telkom Indonesia (TLK), which we purchased in January this year. The Indonesian stock market has largely avoided the carnage that global exchanges experienced this year. We’ve got a nice gain on this position and decided to use the cash for the purchase of other compelling positions. In addition, we took advantage of the volatility by adding small positions in The Travelers Company (LMT), Lowes Corp. (L), Martin Marietta Materials (MLM), Campbell Soup (CPB), Pfizer Incorporated (PFE) and Nestle (NSRGY).

As far as bonds are concerned, we have enjoyed the most spectacular bull market for bonds over the past three decades. Interest rates in the United States and other industrialized countries have plummeted, driving bond prices up. Rates on U.S. government debt are now as low as they have ever been since the founding of the American republic. Nobody knows exactly when the pendulum will swing in the other direction. Once this happens, investors holding long-maturity bonds at low yields will be badly hurt. This is the reason we sold the Power Shares Build America Bond Portfolio (BAB), which are long – maturity taxable municipal bonds.

We used some of our cash to continue to purchase three areas of the bond market that still offer reasonable value: High-yield corporate; mortgages; and emerging markets. In recent weeks, as fears of a global economic slump have risen to a fever pitch, both stocks and bonds from emerging markets have suffered disproportionately. However, emerging markets bonds now throw off generous cash yields to compensate us for accepting that risk. This is why we continue to buy the closed-end Western Asset Emerging Markets Debt Portfolio (ESD), which currently pays 7.3% with monthly distributions.

Special Investment Update – August 3, 2011

Wed, 03 Aug 2011 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

August 3, 2011

Dear Friends and Clients,

Wouldn’t be great if we lived in a world where all the investment tips you received came from totally objective and rational sources that had only your interest at heart. Once this happens, if ever, then you probably will no longer need our wealth management services. The purpose of this special investment update is to make you aware that the financial arena has many different types of “financial advisors” who get paid by “commission” versus “fee-only” type of compensation. This update focuses on those advisers who get paid by commission only.

People who work in the financial field often feel a powerful tug to tell you a slanted story: They have got an investment to sell. Stockbrokers, of course, are the poster kids for this kind of behavior, along with some insurance agents, realtors and coin dealers. We’re not implying everybody in these businesses is crooked – far from it. In fact, my insurance agent is not only a crackerjack insurance person who has my very best interest, but he has also been a good friend for many years.

However, it’s essential to remember that salespeople wrestle with an inherent conflict of interest. To earn their bread, they have to move product. And the stuff they move may, or may not be what’s best for you. As most of you already know, we are especially wary of mutual funds that impose a “load” (sales charge), which can be imposed on both ends- upon purchase and/or sale. Loads can put a serious dent in your profits if you decide to exit the investment within the first few years. That is part of the reason why we use only a few select mutual funds that fit our criteria as part of our investment portfolios.

There’s also the velvety “free” advice that investment firms hand out to the public. My e-mail box is cluttered, as I’m sure yours is too, with financial advertising disguised as research. Fund families offer to share their latest market insights with you in supposedly exclusive conference calls. Of course, the intent is always to get you to buy something – a product or service the advisor just happens to peddle. The same subtle bias, by the way, still percolates through much of the stock research currently issued by major brokerage firms. True, the outrageous excesses of a decade ago are gone, but analysts are clearly still afraid of angering their firm’s investment – banking clients.

Sometimes, outlets that may not appear to have any direct sales motive can deliver tilted advice. Here are three carriers of the bias to handle with particular care:

A final species of bias may seem perfectly innocent. However, it can also hinder your investment returns if you’re not careful. I’m talking about your own psychological bias. We all carry around preferences and preconceptions in our heads, built on years of experience (as well as a fair amount of genetic hard wiring). I have these biases, and so do you. When it comes to investing, I’m a skeptic. Because I tend to doubt glowing promises and rosy scenarios, I lean toward growth assets that produce an immediate income or ones that are undervalued but generate significantly increasing free cash flow. Just make sure you understand your own biases and you’ve got to know yourself, truly and honestly. Only then can you cope with the sometimes crazy and even destructive biases of the financial noisemakers around you.

Sometimes the future can be very difficult to predict but a fee-only financial advisor can help you focus on long-term financial goals than about short-term goals. Our firm is a fee-only investment advisory firm and we encourage you to contact us to review your financial plan along with your investment portfolio for the first six months of this year.

Quarterly Investment Update – 2nd Quarter 2011

Wed, 06 Jul 2011 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2011

July 6, 2011

Dear Friends and Clients,

One of our clients recently enquired to me about how we develop our investment letters and reflected how he felt that the last update in May was particularly good because it was more informative from a general financial rather than a specific investment point of view. I immediately explained to him that the May letter was a special investment update, whereas the quarterly investment updates are actually developed throughout the entire quarter and then finalized during the end of the quarter. We accumulate data for our quarterly investment letter so that we, as investors will have a better idea of determining which direction the economy is heading.

After a buoyant start to the year, U. S. Markets sustained a six-week slide that showed no signs of relenting until mid-June, setting up a summer of stock trading likely to be dominated by gyrating commodities prices, U. S. growth concerns and European sovereign debt fears. For the Dow, that meant an April rally of nearly 4% which was followed by a collapse that lasted through mid-June, taking stocks down 7% and then back-and-forth swings in the final weeks. The Dow finished the quarter up 94.61 points – its fourth quarterly gain in a row and eighth out of the past nine. The Standard & Poor’s 500-stock index lost 0.41% for the quarter. Crude oil on the New York Mercantile Exchange slid 16% from a high hit April 29 to finish down 11% for the quarter at $95.42 per barrel. Also, the U. S. dollar was on its own roller-coaster against the euro and ranged between $1.38 and$1.49.

You sure cannot blame investors for feeling nervous. There is plenty of ugly stuff going on in the world right now – from geopolitical troubles in Libya and Yemen as well as Afghanistan to the long litany of financial concerns: the Greek debt crisis’s; quake – ravaged Japan’s struggle to rebuild; lingering high unemployment in the United States and the epidemic of foreclosures; the bitter budget standoff in Washington; and on and on. However, throughout the decline from the most recent (April 29) top, the market has taken a gentler, more orderly path than it did during last year’s spring/summer sell off.

As far as our investment strategy is concerned, we continue to maintain our standard two-pronged strategy, which is to continue to maintain a substantial exposure to common stocks (and mutual funds) as long as there is a reasonable prospect for double-digit returns. Furthermore, we will continue to take profits more frequently so that we could gradually increase our weighting in the fixed income portion of our portfolios.

As far as the equity portion of our portfolios during the quarter, we added a few undervalued stocks such as Vail Resorts, Inc. (MTN), Microsoft Corp. (MSFT), Sealed Air Corp (SEE), Tata Motors (TTM), Bank of NY Mellon (BK) and The Travelers Company (TRV). In the mutual fund area, we added the Gabelli Equity Income (GABEX) fund and sold the Dodge & Cox Stock Fund (DODGX), which racked up big profits in the 2002- 2007 bull market but stumbled badly in 2008, due to heavy overweighting in financial stocks like AIG and Wachovia. We feel that DODGX’s management team really hasn’t done much to reduce the fund’s volatility.

As far as the fixed side of our portfolios for the quarter, bond yields sank to their lowest level of the year in June, with the benchmark 10-year Treasury slipping as low as 2.87% on June 24 before climbing to 3.16% at the end of the quarter. The yield on the 10-year Treasury note was at 3.57% in early April. Accordingly, we sold one-half of our position in Power Shares Build America Bond Portfolios (BAB) for a nice gain. While Build America bonds do not behave exactly like Treasuries, their long maturities makes them susceptible to a significant price decline should interest rates rise sharply.

Income investors have enjoyed a thrilling ride in the past few months as bond prices have streaked skyward. However, interest rates are nearing an inflection point and we should recognize that the gravy train is coming to an end. Since last 2008, bond yields have been in a twilight zone. Mathematically, the 10-year Treasury at 3% cannot go on a whole lot lower. The lowest yield ever for a long U. S. bond was about 2% in 1941. On the other hand, the subpar economic recovery and continuing deflationary pressure from the housing market suggests that yields may not back up very far in 2011 or perhaps even 2012.

Special Investment Update – June 7, 2011

Tue, 07 Jun 2011 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

June 7, 2011

Dear Friends and Clients,

Stocks had their best month of the year in April, as strong corporate earnings and the promise of continued low interest rates vaulted the Standard & Poor’s 500 index to its highest close since July, 2008. But the purpose of this update is to discuss how inflation affects our investments.

Inflation, they say, is coming back. Well, this is not anything new to us because it never went away! We’ve been taking counter measures against the shrinking value of the dollar ever since we started our wealth management services in 2000 and we’re still doing it.

It is curious how the public dialogue about inflation ebbs and flows. Sometimes consumers (and investors) rise up in arms over the dwindling purchasing power of their money – usually, after a spike in gasoline prices. Then the worries subside, fading into the background until the next energy crisis makes front page headlines.

The truth of the matter is the Federal Reserve has engineered inflation almost from the Fed’s founding in 1913. Starting with World War I, the nation’s Central Bank has repeatedly-and in recent decades, all but incessantly-financed government deficit spending by creating money out of thin air to pay Uncle Sam’s bills.

As a result, the purchasing power of the dollar has steadily eroded through the years. I recently noticed a chart that reflected a dollar bill issued by the Fed in 1913 has lost approximately 96% of its value. All of this explains why, as long as there’s a Fed, prudent investors must assume that inflation will continue. But the Central Bank’s inflationary policies do affect different markets to different degrees at different times. So let us now discuss some strategies of how to protect our investments during inflationary time.

Hard assets are often touted as a classic inflation hedge-and with good reason. For centuries, gold and silver have provided a store of value for investors wary of depreciating paper currencies. At the same time, we recognize that every investment, to be successful, has to be purchased at an appropriate price. We were happy to buy gold years ago when it was $400 an ounce or less. At $1500+, though, we are a lot less eager.

Another inflation hedge is single-family real estate. With home prices deep in the doldrums in some hard-hit localities, it’s possible to rent houses for a current cash yield of 10%-12%, net of taxes and upkeep. Plus, you are likely to enjoy substantial appreciation down the road, when buyers finally crawl out of their foxholes. According to a recent study by Deutsche Bank, the 10 U.S. metro areas where rents will cover your after-tax costs by the widest margin are Atlanta (1.51X), Orlando (1.37X), Rochester, N.Y. (1.36X), Cleveland (1.33X), Tampa/St. Petersburg (1.32X), Las Vegas (1.25X), Jacksonville (1.23X), St. Louis (1.23X), Buffalo (1.22X) and Memphis (1.22X). Today’s home prices may be presenting the best investment opportunity you’ll come across for the next decade or more. Of course, not everyone is cut out to be a landlord.

For those of us who don’t want to be landlords, we have been buying shares of a well-managed mortgage fund such as the Double Line Total Return Bond Fund (DLTNX), currently with a yield of 7.9%, based on the first three monthly distributions in 2011. In addition, we have increased our position in emerging market bonds and other investments that throw off a significantly higher yield than Treasuries.

Lastly, one of our biggest inflation hedge that we have invested since our beginning has been certain blue chip stocks that have boosted their dividends, over the long haul, at a rate far surpassing the cost of living.

Our investment strategy remains the same regarding our current allocations of Equity and Fixed investments of our portfolios. However, as we’ve noted in the past, we’re gradually moving into a more defensive posture. For the short-term, we feel that these soaring share prices are due for a correction.

Quarterly Investment Update – 1st Quarter 2011

Mon, 04 Apr 2011 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^st QUARTER 2011

April 4, 2011

Dear Friends and Clients,

There were several political developments on the global front during the quarter ended March 31, 2011. The wild cards continue to be the ongoing developments in both Japan and Libya, as well as the Euro debt crisis, where there could be further repercussions from Portugal’s rejection of the austerity plan. All of these developments contributed to the blue chip market indexes hitting bottom on March 16 ^th for this recent correction. Even though we did not get a clear resolution of either the nuclear crisis in Japan or the turmoil in Libya, investors did not seem to care. Since the March 16 bottom, the Dow surged over 700 points. For the quarter, the Standard & Poor 500 index closed at 1325.83, up 5.42 %.

Actually, it’s quite a rocket ride we have been on-ever since the stock market bottomed two years ago, but especially since the sharp midcourse “correction” ended last summer. From the major low on March 9, 2009, the benchmark Standard & Poor’s 500 index has nearly doubled, the biggest gain in such a compressed time frame since 1933. Just since the July 2010 bottom, the index was up a stunning 31% before Wall Street’s long-delayed “correction” finally arrived in March along with the shock from Japan. By now, the human dimensions of the Japanese tragedy are becoming horrifyingly clear, yet the long-term economic impact of the earthquake, tsunami and now, radiation released from nuclear power plants, is still unclear and may remain uncertain for a while. Before discussing the financial aspects, one can’t help reflecting, a moment, on the humanitarian dimension of the tragedy. Here, in one of the world’s most advanced economies – despite the best of preparations, the best of warning systems and the best of rescue efforts – we are witnessing a natural disaster that has taken thousands of lives.

Will Japan’s earthquake/tsunami drag the global economy into recession and sabotage the worldwide bull-market for stocks? Despite the emotionally wrenching footage of wrecked towers, crippled power plants and homeless people, the overwhelming odds say “no”. Within a few months, perhaps before spring is out, most analysts expect the U.S. stock market and many overseas bourses (excluding Tokyo) to be touching new 2011 highs.

However, as we previously discussed, our own two-year bull market on the NYSE was showing signs of age even before the news from Japan broke out. During the past quarter, statistics reflect that fewer stocks are participating on the upside, valuations of U.S. corporations are trading at a higher premium to the replacement value of their assets, and lastly, insiders and other knowledgeable investors are bailing out of their company’s stock. Stocks were already acting wobbly before the Japanese earthquake struck. When Mother Nature spoke, though, investors had no choice but to listen.

As far as the equity portion of our portfolios is concerned, during the quarter, we added to our allocation of water utilities by purchasing American States Water (AWR), with a current yield of 3.1%. We also added to the emerging markets sector by purchasing some foreign telecos that offer generous dividends with great potential such as Cellcom Israel (CEL) and Telekom Indonesia (TLK). We also added to our positions in Western Asset Emerging Markets (ESD) as well as the Power Shares India Portfolio (PIN). In addition, we added to our allocation of homebuilding by purchasing Vulcan Materials Company (VMC).

As far as the fixed side of our portfolios, the price of a typical long-dated Treasury bond jumped six points from mid-February to mid-March, which dropped its yield to its lowest level since early December. Meanwhile, our Build America bonds have done even better, with the share price of Power Shares Build America Bond Portfolio (BAB) recently touching a four-month high.

In addition, we continue to add to the Vanguard Intermediate Investment Grade Fund (VFICX), with a current yield of 3.5%, which is pretty generous for a fund with an average maturity of 6.7 years and an average credit quality of A1. We also added to our position in the DoubleLine Total Return Bond (DLTNX). Both of these bond funds present a good opportunity to help balance our portfolio allocation, especially since corporate bonds have recently lagged the Treasury rally. Furthermore, for selected taxable accounts, we continue to add to the Nuveen Quality Income Municipal Fund (NQU) and the Vanguard Intermediate-Term Tax Exempt Fund (VWITX), with current yields of approximately 7.0% and 3.70% respectively.

Quarterly Investment Update – 4th Quarter 2010

Fri, 31 Dec 2010 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2010

January 12, 2011

Dear Friends and Clients,

As we say goodbye to 2010, let’s take a moment to count our blessings again. For the year ended December 31, 2010, the benchmark U.S. stock index, the Standard & Poor’s 500, was up 12.78%, the Dow Jones Industrial Average gained 11% and the Nasdaq Composite index climbed 16.9%. Yet for much of 2010, it did not feel like a winning year. The second half of the year was responsible for nearly all of the 2010 stock gains. In this quarter’s issue, let’s take a calm and reasoned look at a quick snapshot of 2010 as well as what the New Year may bring. Going into 2010, investors had reason to be skeptical. Stinging losses from the financial crisis were still fresh. Furthermore, after 2009’s 23.5% gain for the Standard & Poor’s 500, the lion’s share of gains appeared to be over to the many investors. In the spring, markets fell as the European debt crisis flared out of Greece, chatter about Chinese monetary tightening grew, and U.S. economic data came in weak.

Businesses have trimmed their costs to fit the new world we are living in, and households have whittled down debt to much more manageable levels. Ultra-low interest rates have given the financial system breathing room to earn back its losses. Now, if Washington can curb its spending habits and enact other confidence-boosting measures to the financial system, we may even have a genuine recovery.

Despite some obvious problems, the global economy and financial markets appear to be in better shape today than they were a year ago. Is it possible that the financial markets are “back to normalcy”? Shunning the extremes of 2008 (down) and 2009 (up), financial markets appear to be tiptoeing back toward the elusive middle. For 2010, U.S. stocks performed just a few points better than their long-term average. Treasury-Bond yields fell sharply from April to October, but then ticked back up to finish near their midpoint for the year.

The Republican majority that took over the House last week plans an ambitious drive to slash government spending in the next few months, including a sweeping package of “recissions” of previously approved spending. They also plan to push for repeal of Obama’s health-care law and curb new rules for Wall Street and the banking industry.

Frankly, we do not expect any radical changes from our political leaders in 2011. What’s more, we should all recognize that some serious risks will carry over from the old year into the new-such as the threat of a debt default by financially strapped European governments. Nonetheless, the weight of the evidence favors the bulls in the New Year – more of the same: generally positive returns for most asset classes, with “normal” volatility (spurts and pullbacks, but, hopefully, no crashes). Thus, for 2011, we continue to maintain a two – pronged strategy: As long as there is a reasonable prospect for double-digit returns, we will continue to maintain a substantial exposure to common stocks (and mutual funds). But we will also take profits more frequently so that we could gradually increase our weighting in the fixed income portion of our portfolios.

As far as the equity portion of our portfolios, we have not added any new positions during the quarter. However, we have sold some of the cyclical companies such as Dow Chemical, Home Depot and Wal-Mart. All are very good companies and may have further appreciation potential in the year ahead but we felt the additional cash could be used for better opportunities.

In the fixed income area, the steep sell-off in the bond market over the past three months has created some fine opportunities for us to build up our positions in corporate and municipal bonds. During the quarter, the benchmark 10-year Treasury yield shot up from a low of 2.4% on October 8 to a high of 3.56% on December 15.

While we are aware of the budgetary challenges facing America’s state and local governments, we believe that, in the great majority of cases, the extraordinary high yields now available on municipal bonds more than compensate for any ascertainable default risk. The build America bonds (taxable munis), purchased through the exchange-traded Power Shares, Build America Bond Portfolio (BAB), which currently yield 5.9%, are back in our portfolios again. For taxable accounts, we have been purchasing some of the traditional tax-exempt municipals through the Nuveen Quality Income Municipal Fund (NQU), which is paying 6.8%, the equivalent, for a taxpayer in the top bracket, of a taxable bond yielding 10.5%.

Quarterly Investment Update – 3rd Quarter 2010

Tue, 05 Oct 2010 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2010

October 05, 2010

Dear Friends and Clients,

Economic and political uncertainty dominated financial markets during the third quarter, fueling a continued exodus of small investors from U. S. stocks and a buying binge of bonds and gold. Still, all the major stock indexes rallied during the second quarter with the Standard & Poor 500 Index gaining 10.72% to 1141.20. However, stocks have struggled to make head way in this second calendar year of the bull market that began in March 2009. What is going on? We will have to address that question in much more detail in our upcoming “Annual Investment Update” that we will be sending out before the end of the year. But for now, let’s review the third quarter performance of the financial markets.

After a strong July, stocks limped to their worst August performance since 2001. The Standard & Poor 500 Index declined 4.5% in August and, at the end of August, was down 4.62% for 2010. That was then, this is now. A month ago, worry dominated Wall Street’s mood. Today, after the biggest September advance (in percentage terms) in the Dow since 1939, the shoe is on the other foot. A buoyant mood prevails, at least among equity traders, and the bears are in retreat.

Since the beginning of September, we have had a brisk rally, despite a few dips, what gives? The economic numbers have not exactly lit up the sky. I think a lot of investors have been betting on a Republican takeover of Congress. There may be an irony in the making, though. The event folks are hoping for – when and if it occurs – could prove less revolutionary than they expect. A modest shift in the balance of political power is not going to solve America’s deep – seated fiscal problems overnight. As this truth dawns on more people, we feel that the stock markets will give back at least a portion of its gains. After the huge gains the stock market posted last month, it is only reasonable to expect some backing and filling as traders take profits ahead of the flood of corporate earnings reports due later in October.

As prudent investors, can we still ring up enough profits during the rest of the current market cycle to justify a sizable commitment to common stocks? Part of our plan, of course, is to always own the right stocks and mutual funds. That is where, we feel, the biggest profits lie in wait. But, as we discussed in the past, it is also essential to manage our fixed – income assets wisely in order to generate the desired income yield.

Meanwhile, we’re maintaining a two-pronged strategy: As long as there is a reasonable prospect for double-digit returns, we will want to continue to maintain a substantial exposure to common stocks (and mutual funds). But we will also take profits more frequently so that we could gradually increase our weighting in fixed-income securities as Wall Street’s bull matures.

As far as the equity portion of our portfolios, we added positions in Enerplus Resources Fund (ERF), Raytheon Company (RTN), AT&T, Inc. (T), Visa (V), Verizon (VZ) during the quarter. We sold our positions in Visa (V), and Google (GOOG). Both are still very good companies but we wanted to raise the additional cash for better opportunities. We also sold our small positions in Apollo (APOL) and Research In Motion (RIMM). Both of these companies’ earnings momentum has diminished significantly and felt that the cash could be put to better use.

In the fixed income area, skimpy yields on bonds and cash equivalents meant that we were busy purchasing “bond substitutes” or in this particular case, master limited partnerships, such as Niska Gas Storage Partners (NKA) and Tortoise MLP Fund (NTG). NKA currently has a yield of 7.4%, while NTG is currently estimated to yield 6.7% with most of the distributions qualifying as a tax deferred return of capital. As far as bonds are concerned, we added two bond funds that focus on intermediate maturities, typically five to eight years. The Dodge & Cox Income Fund (DODIX) has an average duration of 3.8 years and a current yield of 4%. The Double Line Total Return Bond Fund (DLTNX) currently is investing heavily in mortgages and has an ultra-low average duration of two years, which implies a fast payback of principal. This fund has a current yield of 12% and pays dividends on a monthly basis. Additionally, DLTNX was purchased through Schwab fee-free, which means there should be no brokerage fees associated with the “buys” and “sells” of any transactions on this bond fund. Granted, the share prices of these funds will fluctuate, but we feel they will reward us well with the income over the next year or two.

Quarterly Investment Update – 2nd Quarter 2010

Tue, 06 Jul 2010 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2010

July 6, 2010

Dear Friends and Clients,

The rally in the stock market since March 2009 was interrupted during the second quarter by more economic problems – this time emanating from Europe. At the end of April, Standard & Poor’s downgraded the credit rating of Greece to BB-plus, which is referred to as “junk” status. Though this downgrade did not necessarily come as a shock to some investors, since, this has been anticipated for several months, money quickly piled into US Treasuries and Dollars, and out of Euros. For 13 months, from March 2009 to April 2010, share prices zoomed higher in New York and most bourses around the world. However, the months of May and June brought a great deal of doubts about the strength and durability of the economic upturn and investors responded by marking stocks down. The Dow ended the second quarter down 1082.61 points, or 10% at 9774.02, its first quarterly drop since the first three months of 2009. The Standard and Poor’s 500-stock index posted its worst quarterly performance since the final three months of 2008 when the financial crisis was in full swing by falling 11.9% during the quarter to 1030.71.

It appears that the European Central Bank and the International Monetary Fund have managed to stem the debt crisis in the European Union for now by orchestrating a multi-billion euro bailout akin to that of the United States only two years prior. However, time will show us how much the bailout will help Greece and the European Union. While Greece represents only 2% of the economic production of the 27-member European Union, the ECB and IMF have found it necessary to bail the country out at the expense of the other countries in the EU while other member-states, such as Spain and Portugal, continue to show debt problems of their own.

Meanwhile, the European Union debt crisis prompted investors to flock to investments seen as safe heavens. Gold rose 11.9% to $1245.50, finishing the quarter just shy of its record high of $1257.20. U.S. Treasury prices also rose sharply, driving the yield significantly lower. The yield on the U.S. Treasury 10-year note finished the quarter at 2.96%, down from 3.84% at the end of March and making Treasury’s one of the best performing asset classes for the quarter. Since the end of the quarter, the yield has continued to come down even further to as low as 2.88%.

We should not be confused about the reason for the recovery of the US Dollar. Investors are again seeking the dollar as a safe haven against uncertainty and an existing debt crisis in the European Union. However, despite the perceived safety of the dollar, we must remember the US has its own debt crisis to be concerned about. As of May 2010, the US Government has posted a record 19 consecutive monthly budget deficits. For the current year, the Government projects a $1.5 trillion deficit which is even higher than the $1.4 trillion deficit for last fiscal year. Even the White House budget director stated that “the United States must tackle its deficits quickly to avoid the kind of debt crisis that hit Greece”.

We are at a tricky moment for the stock market and the global economic recovery. It’s clear, by now, that the U.S. economy will be growing more slowly in the second half of 2010 than the first. Businesses and governments are likely to reduce spending and consumers, who drive most economic growth, are not expected to take up the slack. Such factors as expired government tax credits on new home purchases as well as less stimulus spending could hold back growth. The European debt crisis could slow U.S. exports and world trade. Also, state and local governments are likely to rein in spending and raise taxes as they struggle to close budget gaps. As a result of these factors, and as expected, the Federal Reserve’s policy – making arm said on June 23, that it had decided to keep short-term interest rates near zero for “an extended period” in light of continuing threats to economic growth, including “developments abroad” as well as the persistently high unemployment rate and continuing weakness in housing and consumer spending.

Our firm continues its strategy of extracting healthy yields form bellwether equities and fixed income securities and positioning our assets for a coming inflationary environment.

As far as equities are concerned, we added new small positions in Total (TOT), RWE (RWEO), Novartis (NVS) and Sealed Air Corp (SEE). These stocks exhibit healthy yields in addition to growth potential and limited risk.

Regarding fixed income securities, we closed out our entire position in Build America Bond fund (BAB). We were able to exit BAB at a great price, anticipating a short-term surge in bonds pending the European Union’s debt crisis.

Quarterly Investment Update – 1st Quarter 2010

Tue, 06 Apr 2010 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2010

April 6, 2010

Dear Friends and Clients,

The stock market extended its rally during the first quarter; battling back from a steep February selloff amid continues global economic and political uncertainty. The Dow jones Industrial Average gained 428.58 points or 4.1% and the broad Standard & Poor’s 500 – stock index rose 4.9% to 1,169.43. But what direction is the economy really headed to? Familiar, trusted signposts are steering investors in three directions at once! The stock market thinks corporate profits are going to be just fine. Bonds say we are in for a slow halting economic recovery with low inflation. Gold disagrees with the other two, muttering darkly about rapid inflation ahead, possibly heading to an inflationary depression. So who is right?

Even though disagreement is the norm among the co-called financial gurus, as long as we have been investing, I can’t remember a time when the markets themselves painted such sharply conflicting pictures of what the future holds. Let’s try to rationalize what these three signpost s are telling us about the direction of the economy.

First of all, stocks are looking forward to a strong sustained upturn in company earnings. Analysts estimate that operating profits for the businesses comprising the S & P 500 Index will surge 37% this year. Bonds are not nearly so upbeat. The 10-year treasury yield peaked in at just under 4% last June and has traded sideways ever since, despite mammoth federal deficits ($1.5 trillion in the past 12 months). Meanwhile, gold hit an all-time high above $1,200 an ounce in December, before trailing off a bit lately. Somebody must be awfully worried about the value of paper money – even though the current inflation rate as reported by the authorities is only around 2%-3%.

So how do we cope with these contradictory market signals? Well, the first thing to realize is that each signpost has its own time horizon. Stock investors tend to operate on a short time horizon of six to 12 months. It is very difficult to project corporate sales and earnings beyond that frame. Bond investors take a longer view, because the rising or falling phase of the interest0rate cycle usually lasts several years. Gold investors look farthest out of all – they brood over the inexorable decline, slow or fast, in the purchasing power of the dollar.

Once we understand the time preferences of these three groups of investors, the current market environment begins to make sense. In other words, the stock market’s rocket ride since March 2009 is not foreshadowing a new economic boom. It is simply telling us that corporate bottom lines will improve dramatically in the next couple of quarters over last year’s depressed levels. Bonds, on the other hand, are cautioning us that the business rebound may throttle down in 2011 and 2012. The prospect isn’t a threat to stocks right now, but it could mean that we will need to exit some of our economically sensitive stocks later this year. Finally, as far as the long term (three to five years0 is concerned, gold is giving us a warning sign, that as it soars to new highs, it serves as an indictment of U.S. monetary and fiscal policy. Unless Washington quickly takes decisive steps to reverse decades of mismanagement, we are headed for higher inflation rates and a series of financial disruptions – probably between 2012 and 2015, when social spending on the retiring Baby boomer will explode.

Ideally, then, as long-term investors, we would like to own assets that will 1) benefit from this year’s economic growth, 2) provide a bond – like income yield when business activity slows, perhaps in 2011 and 3) protect us from the inflation that may lurking in the years ahead.

As we pointed out in the past, our strategy, of extracting healthy yields from bellwether equities and fixed income securities as well as to position our assets to the development of an inflationary environment should provide us with the desired results during this economic climate.

As far as the equity portion of our portfolios, we have added small positions in Exxon Mobile Corporation (XOM), Government Property Income Trust (GOV), Bank of NY Mellon CP New (BK), Vodafone Group (VOD) and GlaxoSmithKline (GSK). We sold our positions in St. Joe Company (JOE), China Mobile (CHL) and the SPDR S & P China ETF fund (GXC). Regrettably, we decided to pull the plug on China Mobile because the Chinese government is forcing companies like CHL to sacrifice its financial integrity to prop up other sectors of the economy.

In the fixed income area, Bernanke & Co. reaffirmed their position of “abnormally low” rates for an “extended period” at the March 16 ^th Fed meeting. Based on those comments, we don’t expect a meaningful rise in rates before late summer or early fall. Thus, most of the fixed-income portion of our portfolios are being invested in short and middle maturities. We have also continued to add positions in the exchange-traded Power Shares Build America Bond Portfolio (BAB) and the Vanguard Intermediate – Term Tax-Exempt Fund (VWITX).

Quarterly Investment Update – 4th Quarter 2009

Thu, 31 Dec 2009 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2009

January 8, 2010

Dear Friends and Clients,

As we bid adieu to 2009, let’s take a moment to count our blessings. The old year turned out happier for the markets than any of us had a right to expect.

Yes, it is certainly nice that the S & P Index held onto its gains through the end of 2009, increasing 5.5% in the 4th quarter, and surging 23.5% for the year. But I am even happier about what didn’t happen.

For one thing, despite their best efforts, the Democratic-controlled Congress still has not got ‘around to raising our taxes. Granted, they are working overtime on it, and they will undoubtedly succeed at some point. The Bush -era breaks for dividends and capital gains sunset at the end of 2010. What’s more, both the House and Senate versions of the healthcare “reform” include tax increases that will probably affect all of us hard. However, they did not get very far in terms of increasing taxes this past year and that is something to celebrate.

The biggest event that didn’t happen, of course, is the collapse of the financial system and the advent of the Second Great Depression. We came frighteningly close in February and early March. However, the application of a trillion dollars worth of band aid by the government stopped the unfolding calamity and avoided the total-meltdown scenario.

Utilizing a $700 billion financial bailout and historically low interest rates, the government thus far has stabilized the economy. The cost of stabilization: a $1.4 trillion U. S. budged deficit in 2009, an estimated $1.5 trillion budget deficit for the government’s 2010 fiscal year, and a monetary base growing vociferously. In our 3 ^rd quarter letter, we noted the excess reserves held at the Fed had increased by $853 billion year-over-year. Since our last update in the third quarter, those excess reserves have ballooned more than 23% to $1.06 trillion.

There will be many challenges for investors to face in 2010. We will have to work hard to keep ‘our gains safe from the erratic and sometimes downright tricky behavior of both Wall Street and Washington.

As we plan for the New Year, the following factors suggest that the recovery in the economy and financial markets will continue:

we are losing -a key to a revival of consumer spending.

At the same time, we have to recognize several risks that temper our bullishness:

So, what is an investor to do in such an economic climate? Our firm’s strategy involves a two-pronged approach: 1) continue our fundamental policy of extracting healthy yields from bellwether equities and fixed income securities, 2) position our clients’ assets to respond promptly to the development of an inflationary environment whereby the Federal Reserve will be forced to reduce the massive excess reserves from the system.

To achieve our first goal of receiving a healthy income from high-yielding bellwether securities, we will maintain our exposure to such securities and add to our positions as valuations permit. As you know, these securities are vital to our investment strategy of capital preservation and income generation. During the past several months, we have made an intensive effort to re-design our portfolio reports with the sole purpose of helping each of you to become better informed regarding your investment goals. Specifically, we modified the classification of the investment holdings on the portfolio statement 50 that you would be able to see a better stratification of your portfolio in relation to its allocation between “Equity” and “Fixed” investments.

To achieve our second goal of positioning portfolios for changes in the economic environment, especially concerning inflation, we have taken some positions to gain exposure to increasing interest rates in the event of any inflationary pressure. Because it is· difficult to predict just when the big upturn in rates will occur, we have continued to invest our fixed income portion of our portfolios in short-term and middle maturities of four to eight years. Specifically, we have used some of our cash reserves to purchase Vanguard GNMA Fund (VFIIX), the I Shares Barclays 1-3 year Credit Bond Fund (CSJ) and Vanguard Intermediate Term Tax Exempt Bond Fund (VWITX), with current yields of approximately 4%, 3.9% and 3.79% respectively. We have also purchased the Freddie Mac step-up bonds and classified these in the intermediate maturity category, even though they carry a nominal maturity of 15 years. These bonds yield 4% – 4)1,% at the outset, but they step up to 5% after 5 years, 6% after another four years and 7% after another three years. Thus, you are never more than five years away from the next “pay hike”.

Expanding upon our second goal, we have also started allocating a modest percentage of our wealth to long-term bonds once the benchmark 10-year Treasury note reached our trigger of the 3.80% yield. Specifically, we have been buying the Power Shares Build America Bond Portfolio (BAB). These bonds are taxable debt issued by states and local authorities and is partially subsidized by the U. S. Treasury with a current yield of 5.7%.

Furthermore, in an effort to remove some underperforming stocks and further diversify our risk outside of the United States, we sold large positions in EBay, Inc. (EBAY) and Microsoft (MSFT) during the quarter. Most of the proceeds from those sales were used to purchase shares of China Mobile (CHL) and SPDR S&P China ETF (GXC) as well as some electric utilities. In addition to the attractive yields, we saw these firms as undervalued from a long-term perspective and believe we entered these positions at competitive prices.

As we enter a new year, especially 2010, I encourage you to review and update your financial plan. Taxes are almost certainly going up at the end of 2010, and may do so sooner if some kind of health care “reform” package clears Congress. A review of your retirement and estate planning goals are an essential part of your financial plan. I want to thank all of you for giving our firm the opportunity to sterile you. We thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. As always, please contact me should you have any questions or comments. Best wishes for a Happy New Year!

Quarterly Investment Update – 3rd Quarter 2009

Fri, 02 Oct 2009 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2009

October 2, 2009

Dear Friends and Clients,

A little over six months ago, the financial world was in a panic, and stocks were crashing around the globe. Today, financial advisors are more upbeat as investors are experiencing one of the most spectacular market rebounds on record. From the March 9 closing low, the Standard & Poor’s 500 Index soared 58% in just 133 trading sessions -the steepest ascent in such a compressed time frame since 1933. Most foreign markets in the industrialized countries have fared almost as well in local -currency terms and some of the emerging markets have done even better.

We have also enjoyed some impressive returns in all of our portfolios but this is no time to be smug. History suggests that it won’t be too long before the market’s trajectory starts to flatten out and possibly throw additional caution into our investment strategy. Furthermore, beyond the market’s own behavior, there are certain economic signs that we find troubling and that call the rally into question.

The U.S. government is on track to run a budget deficit of about $1.5 trillion in the fiscal year ending September 30, 2009, more than triple last year’s then-record deficit of $454 billion. Moreover, the Obama administration is forecasting another mind -boggling $1.26 trillion deficit in the fiscal year ahead. These are big numbers. As a percent of the nation’s total output of goods and services, the deficit has never been larger in the past century, except during World War I and II. Yet, the dire consequences of these fiscal excesses have not affected the bond market. In fact, Treasury yields have dropped rather sharply over the past couple of months -from 4% on the 10-year note in mid -June to below 3.5% lately. The reason for this is probably due to the Federal Reserve under Ben Bernanke forcing interest rates on short -term money down to almost zero. Once Bernanke withdraws his emergency measures and starts raising interest rates, bond yields will pop up significantly.

With the third quarter of 2009 now in the books, we are approximately one year beyond the $613 billion Lehman Brothers bankruptcy. Since that time, the monetary base in the United States has approximately doubled to $1.80 trillion. An $853 billion increase in excess reserves contributed to the majority of this rise. Essentially, this historic excess of base money in the Federal Reserve System serves as a backstop for the glut of bad loans still held by many financial institutions, preventing the prices of banks’ troubled assets from naturally adjusting to lower levels.

Over the past 12 months there has been much debate as to the implications of allowing such a large amount of excess reserves to exist in the financial system. To put the $853 billion increase into context, this figure has never measured more than $5 billion since its initial recording in 1959, with the exception of a one-time spike to $19 billion in September 200l. Abnormally high excess reserves warrant concern because a larger monetary base introduces much greater inflationary risk into the economy, since banks will have more money to lend to their customers thereby expanding the money supply. Yet, for the time being, consumers continue to struggle with high debt and banks continue to stockpile this money rather than lending it out. Consumers, however, have paid down their debt by more than $100 billion since this time last year, and they are currently decreasing their debt at a rate of 10% per year, according to the latest Federal Reserve statistics.

In summary, we’re dealing with an economy and market very different from what we got used to during the “good old days” of 1982-2000. There’s more uncertainty. Up trends are likely to be shorter and down trends more sudden and unforgiving. We’re adapting -in part, by selling more frequently and reinvesting the proceeds in the strongest and safest stocks and mutual funds. We will continue to take profits in some of our over-valued equity positions, as we believe prices may have run up too far in the near-term. Despite improved sentiment regarding the economy, the markets must contend with various economic and political issues in the coming months. In consideration of these issues, we do not intend to tie up the fixed income portion of our assets at a fixed rate of more than six or seven years. Beyond this point, the resale value of our bonds, and other fixed assets, can undergo wide fluctuations. We are also keeping the average maturity of our fixed income portfolios at five years or less.

It is important to note that, in every market environment, many investing opportunities exist which offer conservative and attractive risk-adjusted returns. Our first priority is the preservation of your capital and we continue to monitor the markets in order to achieve your goals and provide you with the value of our integrated wealth management services. Again, thank you very much for the trust and confidence you have placed in our firm as it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 2nd Quarter 2009

Mon, 06 Jul 2009 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2009

July 6, 2009

Dear Friends and Clients,

Before we get into the investment portion of our update, let’s provide some perspectives regarding basic financial planning considerations with respect to your overall financial goals. We will begin by discussing our portfolio management services as they relate to the overall financial planning industry as well as the overall economy.

As was noted in the past, we have tried to stress the importance of our firm’s portfolio management services and how they relate to the financial planning process. We created Farmand Investment Services, Inc. to provide the fee -only form of compensation for our investment management services and provide the best quality of financial consulting services. We made an intensive effort to stress the significance of all aspects of the overall financial plan -income tax planning, retirement planning, estate planning and insurance planning as well as investment planning. We have always stressed our commitment to you that, as your CPA Financial Planner, you have the most trusted financial advisor regarding your business as well as your personal financial requirements.

We bring this topic, again, because the sad truth is that anyone can call themselves a financial planner. The current economic turmoil that we have experienced during the past year is finally bringing a need to regulate the financial planning industry’s “ethics” and “competence” issues. Unveiling its proposal for financial services reform on June 17, the Obama Administration is calling for reforms in five key areas -including the regulation of investment advisors and broker/dealers. A power struggle in Washington will shape how investors get the advice they need. On one side are stockholders and other securities sales people who work for Wall Street firms, banks and insurance companies. On the other are investment advisors who often work for themselves or smaller firms. Brokers are largely regulated by the Financial Industry Regulatory Authority, which is funded by the brokerage business itself, whereas Advisors are regulated by the States or the Securities and Exchange Commission. Congress is considering legislation to break down the statutory barriers that impose different regulations on “brokers” and “advisors” and to have one standard of care, a “fiduciary” standard that applies to both broker-dealers and advisors where both should have a fundamental first responsibility to their customers -the investor.

In our view, the best way to restore the public’s trust and protect the public from unscrupulous or unethical financial intermediaries is to require any financial professional who offers advice to adhere to a fiduciary standard, which places the interests of the client ahead of the interests of those who offer the advice, which has always been an integral part of the code of ethics of the CPA -Financial Planner.

As far as the overall economy is concerned, never, since our inception in 2002, has the obsession with macro economic trends so overwhelmed the interest in fundamental security analysis. Because macro events indeed dominated all returns in all asset classes in 2008, many are incorrectly rationalizing that macro events will exclusively dictate all future performance. At this point and in these incredible times, the purpose and benefit of fundamental security· analysis, as well as disciplined investment supervisory services, actually needs to be re explained, especially to new clients.

First of all, our firm provides Investment Supervisory Services, defined as giving continuous advice to a client or making investments for a client based on the individual needs of a client. Through personal discussions in which goals and objectives are established and based on the client’s particular circumstances, our firm enters into a portfolio management agreement that includes an “investment policy statement” that specifies the level of risk in relation to the client’s targeted rate of return.

Based on that investment policy statement as well as the stated objectives of the client (growth and value, tax efficient, balanced, or income), we begin the process of creating and managing a portfolio that generally has at least a combined asset allocation of 50% equity and 50% fixed income investments.

Our investment strategy for our fixed income asset allocation consists of bonds as well as other investments such as Master Limited Partnerships (MLP), Real Estate Investment Trusts (REIT’S), preferred stocks, as well as high-yielding, stable, large -cap growth stocks. This strategy focuses in providing the required amount of income to accomplish the goals of the client, especially if they are dependent on that income.

Our investment strategy for our equity asset allocation consists of companies that we think will grow and prosper for an extended period and stay with them until they reach their full value. Typically, with bonds or cash, all you get is the income, whereas with growth and value stocks, you also get the potential for appreciation depending on the value of companies we own. The best measure of such greater potential yields is the company’s free cash flow (FCF) yield. This refers to a company’s profits plus depreciation minus capital expenditure. In addition, we achieve diversification by investing in asset classes that range between 20 to 25 different industries. Within each industry, we seek to establish a weighted position by purchasing anywhere between one and five securities. The various asset sectors of each industry are allocated based on the current economic environment as well as the client’s individual goals. We also use mutual funds and/or Exchange Traded Funds of various asset classes in different industries to satisfy the proper allocation requirements, depending on the size of the portfolio as well as the goals of the client.

As far as the investment climate is concerned, the major stock indexes have staged one of the most dramatic turnarounds on record. Since the March 9th lows, the Standard & Poor 500 Index surged almost 40% to a June 12 ^th closing high of 946.21. The Standard & Poor 500 stock index closed during the second quarter at 919.32, up 15% and 1.8% higher for the year. The quarter marked a period of healing for financial markets around the globe. As investors became more comfortable holding riskier assets, they shifted out of U. S. Government debt. But while the waves of fear that had sent stocks to their lows have abated, the focus now is on the market’s economic and profit underpinnings.

As share prices recover, it is tempting to hope for a return to the “good old days” of 2003 -2007 or even the 1990’s. However, we are not that naive. The financial crisis of the past two years has proved far more damaging than almost any of us foresaw. The housing collapse means that banks will lend hesitantly, and consumers will borrow very carefully for at least the next two or three years -possibly much longer. The federal government is running a mammoth, almost unthinkable budget deficit. Furthermore, President Obama’s healthcare and environmental initiatives, if enacted, virtually guarantee huge deficits far into the future. This is an unsustainable path. Either taxes must rise substantially, or investors around the globe will demand much higher interest rates on Treasury debt to compensate for the risk of inflation. In either case, America’s economic growth rate over the next several years or possibly longer will fall short of what we became accustomed to from the 1980’s onward. Given these sobering facts, it would be unrealistic to look for a smooth, steady stock market recovery stretching out for years on end. Instead, we are gearing up for a market climate that may experience steep, dramatic rallies but, at the same time, we will also have to deal with sharp pullbacks.

As far as our strategy is concerned, we realize that even though the investment climate has radically changed, it still makes sense to keep our core holding of quality stocks and mutual funds. Very few investors can consistently grow wealth by going to the extremes of being “all in” or “all out” of the market. However, it is essential that we continue to be more cautious about our investments by limiting our risk. We do this by paying more attention to individual stocks and mutual funds than the market as a whole. In addition, we take additional defensive measures by taking some profits in some of our over-valued positions and limit our buying to the strongest, safest positions.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 1st Quarter 2009

Fri, 10 Apr 2009 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^st QUARTER 2009

April 10, 2009

Dear Friends and Clients,

As we provide you the portfolio reports for the first quarter of 2009, Washington Policymakers continue to thrash about choking the economy with one hand while attempting to revive it with the other. Daunting long-term economic issues such as soaring national debt, tax increases on America’s most productive citizens; vastly expanded government controls over healthcare and energy production-plus the struggles we’ve already got with unemployment, foreclosures and plunging retail sales continue to prevail. Yet, despite the grim headlines, the Standard & Poor’s 500 Index has now soared over 25% since its March 9 low, the biggest percentage gain over such a brief period since July 1938.

Are our problems over? Well, not quite. But the recent surges in the major stock indexes signals that a recovery for the financial system is a lot closer than most investors thought possible just a few weeks ago. It is not that Treasury Secretary Tim Geithner’s Private Public Investment Program (PPIP) represents a huge departure from what was proposed over the past year or so. But they finally seem to have found terms that risk -averse, profit ¬motivated investors are willing to accept. Even if banks were relieved of all their toxic loans tomorrow, many credit-worthy borrowers -businesses as well as consumers are reluctant right now to take on new projects and purchases. Falling sales have scared business managers and rising unemployment has done the same for consumers. It will take some time (months, not days) for confidence to be restored. That means, in turn, that the stock market should experience plenty of ups and downs in the weeks and months ahead.

As harsh as the current economic situation may be, let’s discuss some reasons of why the stock markets should stabilize and may be about to embark on an upward rally:

All in all, our portfolios’ performance during the last several months of 2008 and the first quarter of 2009 dramatically eroded the results of the past several years. We believe that performance can rebound just as quickly as it fell in many of our undervalued stocks and mutual funds that we own. Of course nobody knows yet whether the March 9 index lows represented the bear’s last growl, or whether prices will plumb even greater depths in the weeks ahead.

In summary, it is essential that we continue to be more cautious about our investments by limiting our risk. We do this by paying more attention to individual stocks and mutual funds than the market as a whole. In addition, we take additional defensive measures by taking some profits in some of our over-valued positions and limit our buying to the strongest, safest positions.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 4th Quarter 2008

Wed, 31 Dec 2008 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2008

January 6, 2009

Dear Friends and Clients,

As we provide you the reports for the fourth quarter and the year ended December 31, 2008, this is a good opportunity for us to reflect on 2008 as well as to plan ahead for 2009. As far as 2008 is concerned, six years of stock gains disappeared as the economy crumbled and markets crashed around the world -the worst since the Great Depression, wiping out $6.9 trillion in stock market wealth. But the year’s chaos went far beyond the stock market. Credit markets that drive lending became paralyzed, plunging the country further into recession and touching off an unprecedented rush for the safety of treasury bills, notes and bonds.

As far as the general investment climate for 2008 was concerned, there was a great deal of volatility but there was no real surprise until September 15, 2008 when Lehman filed for bankruptcy. At that point, in my opinion, “fear” became the biggest factor that started one of the biggest disruptions of the financial markets. A close analysis of the S & P 500 Index shows that from January 2, 2008 through December 15, 2008, the S & P was down by a little over 17.5%. However, from September 15, 2008 through November 21, 2008, the S & P 500 lost in excess of 37% of its value for a total year-to-date loss in excess of 54.5%. Between November 21, 2008 and the end of the year, the markets somewhat recovered. For the record, the Standard & Poor’s 500 Index was down 38.5 percent for the year ended December 31,2008.

Also in 2008, we had another presidential election and the United States elected a new President, President -elect Barrack Obama. In addition, the make -up of the House and Senate shifted further. On the plus side, President-elect Obama is slowly trying to win the confidence of skeptical investors. While Obama is clearly a man of liberal convictions, it appears that he is reaching toward the center for advice on a variety of pressing issues and the choices are resonating fairly well with the business community.

As far as the outlook for the general economy is concerned, we continue to feel that it will eventually recover but a turnaround may take longer than we had originally anticipated. On its own, private enterprise is highly resilient. However, the government (via the bailouts) is now a senior partner in many of the nation’s largest financial institutions. As a result, management of these firms is unlikely to embark on a campaign of exuberant lending anytime soon. Tight credit could prevail for quite a while, slowing the recovery. Furthermore, there is a real risk that Wall Street’s problems could be foreshadowing much tougher conditions on Main Street -for example, sharply higher unemployment in 2009 and a raft of business failures. For a time, a weaker economy could feed back into the financial markets, driving stock prices lower.

On the other hand, some analysts feel that the bottom was reached on November 21 ^st and the growing effort to tackle the financial crisis is driving money creation to record -high rates. They feel the monetary base is soaring-thanks to the numerous bank bailouts, with year over-year growth of more than twice the previous peak. They feel that this amount of newly created money is like a massive heap of gasoline -soaked tinder, just waiting for a spark that will set off a positive explosion in the economy as well as the stock markets.

Admittedly, more than four trillion dollars has already been pumped into the system to rescue it. Most of those funds, however, are still sitting in bank vaults earning a modest rate of interest. But ultimately the money will find its way into the economy where banks can generate a higher rate of return. Add to that the very real prospect of upwards of a one trillion dollar stimulus package once Barack Obama takes the oath of office. Other countries are also on the act. China has already announced a massive stimulus package of its own and that nation is likely to increase their spending as well.

However, we are not convinced we have seen the end of this bear market. Even though the markets stabilized somewhat since Friday, November 21, 2008, we continue to feel that there may be some deep underlying problems in the economy. The economy will likely struggle for a number of months to come and the psychological wounds investors have sustained especially since the beginning of October -will take time to heal. Chances are the blue chip stock indexes will revisit the intraday low of 741.02 set on Friday, November 21, 2008.

As far as the strategy for 2009, our basic investment strategy remains the same, however, due to the extreme plunge we have seen in the stock prices over the past three months, we have tried and will continue to exercise an extra measure of caution in both the taxable accounts as well as the retirement accounts. Cash was the most valuable asset in 2008 and we were fortunate by building up our cash reserves in late 2007 and early 2008 and we will most likely continue to do more of the same in the short-term. We intend to use most of our existing available cash as well as any new cash from any short-term rallies, as an opportunity for us to continue to build up the fixed income side of our portfolios for both the taxable as well as the retirement accounts.

As far as the equity side of our portfolios, we continue to feel that the individual companies and mutual funds that we own will provide us with our desired returns as their undervaluation begins to be recognized. The only “value” position we sold in our portfolios during 2008 was Chesapeake Energy, which is still a very profitable domestic energy holding, but was sold for a very nice profit when oil peaked in the summer. In fact, we began to build a new position in Chesapeake Energy in October primarily in the retirement accounts for most of our portfolios. Other than building up positions for asset allocation purposes for some of the portfolios, there have been very few additions in our value and growth strategy of our investments.

On the fixed side of our portfolios, our greatest losses came from the large cap financial industry as well as the real estate industry. That is really the unfortunate part of the credit crunch because the steady flow of the income was reasonably expected and relied upon, which make the financial planning process that much more challenging. We continue to feel that the basic fundamentals of investing regarding reliable high yield income as well as corporate growth will provide us with our desired returns. In addition to what we already own in our portfolios such as money market funds, short-term bonds, REITS, limited partnerships and preferred stocks, we have added the Vanguard Inflation -Protected Securities Fund (VIPSX) and the Exchange-traded I-Shares Lehman TIPS Bond Fund (TIP) in late October and November for both the taxable as well as the retirement accounts.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Special Investment Update – November 6, 2008

Thu, 06 Nov 2008 12:00:00 GMT

SPECIAL INVESTMENT UPDATE

November 6, 2008

Dear Friends and Client

U.S. stocks ended one of their worst months on record, but signs of further easing in credit markets lifted battered shares for the week ended Friday, October 31, 2007. For the week, the Dow gained 11.3 percent, the S & P 500 rose 10.5 percent, and the NASDAQ advanced 10.9 percent. The month of October, though, was a different story. The Dow lost 14.06 percent, its worst one-month percentage drop since August 1998, while the S & P 500 lost 16.83 percent, its worst one-month percentage slide since October 1987.

Since our last quarterly investment update, it seems that just about everything that could go wrong has. Retail sales and industrial output were skidding while unemployment and foreclosures surged. Even the passage (after much dickering and delay) of a $700 billion financial “stabilization program by Congress proved unable to stop a waterfall plunge in stock prices during late September and most of October. Many overseas financial exchanges sustained even greater damage. A month or so back, it still seemed possible that with quick action from Washington, America might be able to skirt anything more than a mild recession. Unfortunately, congress bickered back and forth and, even after the TARP bill passed, it took Treasury Secretary Hank Paulson a couple of weeks to figure out what to do with his new powers. In the meantime, some key developments have changed:

Given these developments, plus the severity of the market selloff during the past several weeks, it is prudent to assume that a recovery for stocks (and afterward, the economy) will take longer than we might have expected as recently as a month or two ago. That is where we stand today. But where are we headed? Yes, it has been a very tough market. The big question is whether last month will go down in history as a major market bottom.

Technically and fundamentally, the stock market has all the symptoms of being near a bottom. Of course, we are in a market that has managed to defy the usual rules, so nothing can be ruled out. As you can see from the enclosed chart of the 5 & P 500 Index, we are hopeful that the bottom was reached on Friday, October 10 with the horrible intraday low of 839.80. That intraday low was tested again on Monday October 27 after worldwide stocks posted huge declines on economic worries. However, to get a real, sustainable bottom, we will be looking for evidence in the weeks ahead that buyers are growing braver and sellers less bold. Trading volume in advancing stocks should run well ahead of that in decliners -not just for a day or two, but for at least two weeks at a stretch. The tribe of stocks touching new 52-week lows should diminish substantially. Gold prices, spreads between T bill yields and bank rates and other “fear” indicators should retreat.

Based on historical precedents, markets tend to bottom when economic conditions are at their worst -and it is hard to imagine them getting worse than they are today. Fortunately, the Fed and the Treasury Department have known conditions were getting pretty bad for some time. Policy makers have therefore been enacting measures to correct the situation, the affects of which have yet to be fully felt.

Also, the decline in energy costs will eventually help halt the slide in stock prices. Oil, at the moment, is selling for under $65 a barrel, which in the short-term will reduce business expenses and increase profits. Just as high oil prices add to inflation while reducing everyone’s disposable income, lower oil prices stimulate the economy and help keep inflation in check.

Now that the election is over, the question now is what kind of performance we can expect for the economy and the markets over the next four years under President Obama. He is taking office with the economic background so bleak that almost any change over the course of his term will represent an improvement. The odds are overwhelming that stock prices will be higher in 2012 when he faces the voters again. Still, the stock market is just one part of the economy, and under Barack Obama, the United States needs to recover from a downturn whose severity has not yet been determined. He will face a budget deficit of around $500 billion when he is sworn into office -a shortfall expected to climb to $1 trillion next year. Because of the deficit, the financial climate might end up affecting the new president’s policies more than his policies will affect the financial climate. There are significant ramifications for the new Administration’s policies to deal with as far as the economic crisis as well as domestic priorities on taxes, health care, energy, the environment, labor relations and trade. Early on, we can expect a second stimulus package to help boost the economy with some of the bigger ticket terms will likely unfold towards the end of 2009. Furthermore, we can expect an increase in the capital gains rate and dividends rate from 15% to 20%.

Wall Street’s shattered confidence is slowly mending. The extreme market volatility we have experienced lately will end. Believe it or not, 500-point daily swings in the Dow are not normal. In fact, with the exception of a few trading sessions around the 1987 crash, the gigantic ups and downs we have had to deal with since the middle of September are unprecedented in the past 75 years. Nature will put a stop to it, because this degree of volatility makes it next to impossible for businesses and consumers alike to form intelligent long-term plans. The economy has to function somehow, and it will, but it can’t under these conditions. However, it may take weeks or even a few months for the volatility virus to work its way out of the system.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 3rd Quarter 2008

Tue, 07 Oct 2008 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2008

October 7, 2008

Dear Friends and Clients,

During the quarter ended September 30, 2008, the stock market was prodding along on an upward trend until we got to Black September. The worst turmoil was in the credit markets, especially after Lehman filed for bankruptcy protection September 15 ^th . Many investors bailed out of any debt that wasn’t backed by the U. S. government, and lending between banks ground to a halt. For a time, the markets stabilized on the promise of a rescue plan. But on September 29, after traders and investors watched with disbelief the House’s rejection of the bailout bill, stocks were swept by waves of selling. The Dow suffered its biggest point drop in history (777 points) and closed at its lowest level in three years, which amounted to a 27% decline from the record close hit last October. On the final day of the quarter, stocks staged a rebound amid hopes Congress will approve a rescue plan sooner than later and the Dow gained

485.21 points to close at 10, 850.66 The Standard & Poor’s SOD-stock index was off 9% from the end of June and down 26% from its high.

On the surface, the third quarter losses in stocks seemed like a continuation of the first half of the year, but underneath there were some notable differences. Despite bleak headlines about banks and brokerage firms in distress, financial stocks in the S & P ended the quarter essentially flat from three months ago as some healthier banks and smaller institutions posted gains. Despite a worsening job market and the rising tide of mortgage delinquencies, consumer-discretionary stocks were also more buoyant than the broader market-falling just 1% -as oil prices declined and some investors began to think a recession was already built into share prices. Real damage was done to the stocks that had done well during the first half of 2008: energy and materials. The most visible reversal was oil, which finished the third quarter down 28% and materials stocks fell 23%.

As far as the U.S. dollar is concerned, it mounted an explosive rally in the third quarter, persuading some investors that its long decline had finally touched bottom. Over the course of the quarter, the dollar strengthened 11.8% versus the euro and rallied 12% against the British pound. However many believed that the dollar strengthened not because the U.S. looked better but because the rest of the world, particularly Europe and the U.K., looked worse.

Now that, we have reviewed the third quarter, let’s look at the positives to be hopeful about the economy and the stock market over the next 12-15 months. As far as energy prices are concerned, they have down shifted into a new, lower trading range. Since July, crude oil has skidded 34% while natural gas plunged 45%. Granted, these fuels are still considerably more expensive than they were a couple of years ago, leaving plenty of room for energy producers to make money. But, according to analysts, the drop will save consumers -in America and around the world-approximately $1 trillion a year over what they would have laid out for petroleum had prices remained at the July peak. This should have significant ripple effects for Main Street as well as Wall Street.

The recently enacted Emergency Economic Stabilization Act of 2008 has a good chance to restore investor and consumer confidence. However, the whole process made me wonder whether we need to fix our congressional problems before we fix our financial problems. The original Paulson Plan consisted of 3 )1 pages, resembling the Resolution Trust Corp. of the early 1990’s, to absorb hundreds of billions worth of bad assets from the banking system. Sure it had its flaws, but it was very clear in taking dead aim on dysfunctional mortgage and credit markets. Congress responded with a 400-plus page package loaded with sweeteners. Lawmakers added stipulations on equity warrants for participating institutions, restrictions on executive compensation, a supplementary insurance scheme, as well as new bureaucratic oversight functions. This dilutes the thrust of the policy response and the impact on market anxiety. Investors responded to the rescue plan with the Dow Jones industrials plunging as much as 800 points on Monday, October 6 -the largest one-day point drop -before recovering to close with a loss of 370. However, it was encouraging to see the index make up, in an hour and fifteen minutes, more than half of what it had lost in the first five hours and forty -five minutes of trading, which leads me to believe we may be in the vicinity of a major bottom. Even though the devil is in the details, the rescue plan has a good chance to work if used aggressively.

As we begin the fourth quarter and as bad as conditions appear in the headlines, I feel that the crisis is closer to its end than its beginning and that better times are coming, probably before year-end but most likely in 2009. The central banks are trying frantically to shore up the balance sheets of financial institutions. Their efforts go well beyond the $700 billion rescue plan the U. S. Congress finally passed, to include, among many similar initiatives, massive lending by the Federal Reserve. On Monday, for instance, the Federal Reserve increased the credit it may extend to banks some $900 billion dollars. Since last Friday, many European governments announced measures to help their banking sectors as well. All this is necessary because banks around the world have become nervous about loaning money. Governments are determined to flood the world with money and restore banks’ confidence in each other. Many analysts argue that major central banks should also do a coordinated cut to interest rates to get credit flowing again. The government’s key objective, therefore, is to make lenders willing to start lending once more and thus create more liquidity by recapitalizing the banking system. However, what can’t be solved with money, at least not immediately, is the psychological damage. Once there is enough liquidity in the financial system to get us out of this credit crunch, it could do wonders for people’s confidence and the plunge in stocks could reverse in a very dramatic way.

In summary, we continue to be more cautious about our investments and will continue to take additional defensive measures by taking some profits in some of our over-valued positions and limit our buying to the strongest, safest positions. Fortunately, the basic make-up of all of our portfolios should make it through safely and provide all of us with value beyond what the markets give us.

We feel confident that we will have a very good year in all of our portfolios during 2008. Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 2nd Quarter 2008

Mon, 07 Jul 2008 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2008

July 7, 2008

Dear Friends and Clients,

During the quarter ended June 30, 2008, the stock market began the quarter on an upward trend. In fact, the Standard & Poor’s 500 Index was up over 12% on May 19 when it closed at 1426.63 from its March 10 closing low of 1273.37 for this year. Then, the persistent pressures from the credit and housing markets as well as the soaring crude oil prices took all those gains away in June, and we are now testing the lows for this year again. This was not in the playbook for a presidential election year. Indeed, the S & p’s first -half decline of 12.9% was the steepest since 1940 for a year Americans have gone to the polls to choose a president.

Needless to say, we are in a very tough phase for the stock market, and there may well be more thunder and lightning before the storm passes. Obviously, if there is anything we, as investors, crave in these unsettled times, it is stability and a little more peace of mind. But, volatility is a fact of life in the market place. We know at least some of the reasons for the market’s sharp drop: soaring energy prices, the ongoing turmoil in the housing and credit markets as well as rising unemployment. Our main concern is whether these trends are about to get worse or improve.

In terms of the current update of the economy, the Commerce Department, at the end of June, reported that it grew at a one percent annualized rate in the first quarter, helped in large part by stronger sales in U.S. products overseas. However, the housing and credit crunch has turned out to be more persistent and more damaging than we had imagined. The unemployment rate continues to go up but the consensus is that the second -half of the year will be less difficult than the first half. As far as oil is concerned, tensions in the Middle East, speculators, as well as supply/demand are bringing record prices of crude oil to unprecedented levels. This has the affect of weakening the dollar and the concern on Wall Street is that higher energy prices will hurt consumer spending, which accounts for more than two-thirds of the U.S. economy. As far as interest rates are concerned, recent comments by the heads of U. S. and European central banks indicate a growing concern about inflation and marked a policy shift toward potentially higher short-term interest rates in the future. U. S. Federal Reserve Board Chairman Ben Bernanke suggested recently that the fall in the dollar was a threat to further inflation and left a clear impression that higher rates were on the horizon.

Let us now briefly discuss the most noteworthy and puzzling piece of economic data that we feel had the greatest impact on the U. S. as well as the world economy -the straight- pattern in oil prices. First of all, the price of oil has gone up so fast, we are hopeful that we are close to a tipping point. Since mid-May, most energy stocks have lagged well behind the increase in oil and natural gas prices. As bullish as we are on the long-term outlook for energy stocks, a near-term pullback in the price of crude oil could lay the foundation for a broad stock market rally in late summer, possibly stretching to year-end. However, from a long-term perspective, our nation desperately needs better leadership to guide us through the development of new energy resources. At the end of June, the House Energy and Commerce Committee convened hearings with the aim of blaming high gasoline prices on speculators and proposing legislation to end their practice. Speculation may add volatility but it ignores the supply/demand fundamentals. Our government should use its resources to encourage new energy resources within our boundaries and develop alternative energy supplies or promote conservation. This would include a complete overhaul of the restrictions imposed by the Environmental Protection Agency. And currently, neither Congress nor any of the Presidential candidates seems ready to step up to the plate.

Even though the basic fundamentals of our investments have not changed, the state of the economy has caused us to be more cautious as far as reducing our risk. We are rooting for a rally, but we need to see some real improvement in both relative and absolute performance of the financial shares if the broader equity market is to mount a sustainable advance. The market itself should give us a good deal more clarity soon. Technically, stocks are about as deeply depressed as they ever get without launching a powerful bounce lasting several weeks (or longer). If it is healthy and vigorous, with ample breadth and volume, we will gain more confidence. On the other hand, a so-so rally like the one we had off the March lows would signal more trouble ahead. In that case, we will continue to reassess the economic and financial background to determine how our investments could be affected.

We continue to have a positive outlook for stocks but we will continue to take defensive measures and use any correction as an opportunity to buy more of our favorite stocks and mutual funds. Furthermore, we will take additional defensive measures by taking some profits in some of our over -valued positions and limit our buying to the strongest, safest positions. As an example of taking some profits, in early July, we sold all of our remaining positions in Chesapeake Energy for over a double since we purchased it in the summer of 2006. Even though this natural gas producer company continues to have wonderful attributes, we made the sale to fund more compelling purchases.

Quarterly Investment Update – 1st Quarter 2008

Mon, 07 Apr 2008 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2008

April 7, 2008

Dear Friends and Clients,

Wow, for eight long months now, a ferocious ‘credit crunch has trapped investors into a deep freeze. Not only stocks and real estate, but even some of the (reputedly) safest bonds and money market instruments fell victim to this deep freeze. The Standard & Poor’s 500 stock index was down 10% for the quarter ended March 31, 2008.

During the past 35 years, we experienced too many financial crises to count. From the Watergate scandal (1973-1974) to Jimmy Carter’s runaway inflation and skyrocketing interest rates (1979-1980) to the 1987 stock market crash; and then the S&L meltdown (1990), the Asian contasion (1998), the collapse of the Internet bubble (2000-2002) and finally, the subprime debacle (now). Always, it seemed that “the authorities” (primarily the Federal Reserve) were facing a new and complex threat that could have unraveled the whole financial system. Yet in the end, cooler heads prevailed and life went on. As long as we live and breathe, risk walks with us.

This investment business is full of paradoxes-truths that surprise, and even shock, because they appear to go against everything we thought we had learned in other areas of life. Take fear, for example. Most of us try to avoid scary situations if we can. And yet, in the financial markets, an all-enveloping sense of fear often signals a great buying opportunity. When fear prevails, as it does now, share prices for very good companies gets knocked down with the bad. Our job is to pinpoint those companies that will outlast the trouble and to buy these at fear-cheapened “value” prices.

As far as the current market environment is concerned, early in March, the stock markets put in a climatic low with much striking resemblance to the great bear market bottoms ofthe past. Then, on March 11th, the Federal Reserve unveiled a plan to lend certain banks as much as $200 billion of its own treasury bonds and bills for 28 days. The move raised hopes that it would ease the credit crisis that has caused financial markets to seize up. Several other Fed initiatives have helped prop up stocks since, including its bailout of Bear Stearns, which was purchased at a fire-sale price by J. P. Morgan Chase. Despite the flurry of bad news in recent weeks, stocks have been on a solid upward trend, in terms of volume and breadth, as well as percentage gains.

Let’s now take a look at the direction of the market for the remainder of 2008 and find out why we are now a few steps closer to the end of this troubled period for stocks and the economy.

First of all, we feel that the stock market’s relentless slide from the highs of last summer and autumn is clearly showing signs of exhaustion. In fact, it is quite possible that the “bottom” was reached on March 10, when the Standard & Poor’s 500 Index touched its closing low for the year at 1273.37. The number of individual stocks making new lows has shrunk dramatically, compared with the January 2008 and the August 2007 lows for the indexes. That is the typical pattern as the market carves out a major bottom. The indexes can’t go up until a lot of individual stocks stop going down, which is what’s happening now. This pattern continued throughout the end of the quarter where very few individual stocks were making new lows on the latest downward lunges.

Another indicator regarding the direction of the market is the massive cash reserves that are building up in money market funds. A recent article noted that investors have recently poured $3.4 trillion into money funds, the traditional parking spot for cash awaiting investment in the stock market. How significant is that figure? As a percent of the total market value of the S &P 500 Index, money fund assets now stand at virtually the same level as they did at the two historic stock market bottoms of the past quarter-century: in August 1982, when the great Reagan bull market began, and in March 2003, when the first bull market of the new millennium lifted off.

We feel that the pieces are falling into place for a much stronger stock market but we are not so naive as to think there won’t be any more shocks. There will be. We are in a critical stage right now for stocks as the markets carve out a durable base. We continue to feel that the Federal Reserve, so far, is doing all it can to balance low interest rates and high liquidity to keep economic growth at a sustainable rate but without allowing inflation to accelerate. But we don’t feel that there is too much more that can be done without inflation being a primary concern.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 4th Quarter 2007

Mon, 31 Dec 2007 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2007

January 8, 2008

Dear Friends and Clients,

First of all I want to thank many of you who called me to not only discuss your investments but also to provide words of encouragement regarding the turbulence the markets provided us during the fourth quarter. This counter seasonal weakness that has dragged on for almost three months now was not what we expected but the vote of confidence is certainly appreciated. We have to admit that we were not thrilled with the way the old year winded down on Wall Street. The S & P dropped in both November and December, the first back-to-back losses for those months since 1974. It certainly was not a typical third year in the presidential cycle. Wall Street ended the year with a painful fourth quarter but managed to finish 2007 on the plus side for all the major stock averages. The Standard & Poor 500 index ended up with a gain of 3.53 percent for 2007.

As investors, we have to be able to calmly sit back, analyze our investments and rationalize where the economy will be in 2008. The challenge for the U. S. economy pits the powerful forces of expansion against the almost equally formidable downward pressures that lead to recession.

The negatives are obvious. Clearly, the downturn in the U. S. housing market has dealt a body blow to the banking system. Bad mortgage loans, in turn, have prompted bankers to pull in the reins on other types of lending. The result being that credit is becoming harder to get, even for respectable borrowers, and the wheels of commerce are slowing. One school of thought goes so far as to suggest that the overall U. S. economy may shrink in 2008, bringing on a sharp drop in corporate profits, which is not a friendly scenario for the stock market.

As far as the positives are concerned, the following three factors point toward a stronger economy at least in the second half of 2008, and perhaps a continuation of the bull case scenario for the stock market.

Despite the above positive factors, we have to reckon with the increasing possibility that a weak economy may hinder corporate earnings growth in the first half of 2008. This possibility became more evident as stock prices plunged in the first week of the New Year after the government’s much anticipated employment report showed weaker-than-expected job growth and a rise in the unemployment rate. Investors had been awaiting the jobs report for weeks as they tried to determine whether the economy would continue to benefit from robust consumer spending even as sectors like home construction, mortgage writing and manufacturing slow. Wall Street is concerned that areas of weakness could puncture growth and even tip the economy into recession if consumers can’t depend on a solid job market.

In summary, we do not feel this is a time to be complacent about our investments or the economy in general. Regardless of the poor fourth quarter performance and the poor start of the New Year, we remain hopeful for 2008 as a whole. Many sectors of the U. S. economy are thriving, most notably export-oriented industries like agriculture and high-tech equipment. Once investors get some sense that the housing slump has hit bottom, the stock market could stage an explosive advance. In the meantime, we must be prepared for a lot of volatility. The vicious sell-offs we saw in July/August and October/November were probably not the last. Fortunately, the basic make-up of all of our portfolios should make it through safely and provide all of us with value beyond what the markets give us.

All in all, we continue to have a positive outlook for stocks but we will continue to take defensive measures and use any correction as an opportunity to buy more of our favorite stocks and mutual funds. We feel confident that we will have a very good. year in all of our portfolios during 2008.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 3rd Quarter 2007

Tue, 02 Oct 2007 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2007

October 2, 2007

Dear Friends and Clients,

We are certainly glad that the third quarter has ended and it appears that the markets are settling down from the summer correction. For the quarter ended September 30,2007, the Standard and Poor 500 index was up 1.6%.

As we discussed in our Special Investment Update, dated August 6, 2007, we pointed out our concerns regarding the turmoil in the nation’s mortgage and corporate credit markets and the ongoing problems in the housing sector. The infection began to spread to other areas such as good quality mortgages and commercial paper. As you can see from the enclosed three-month chart of the Standard and Poor 500 Index, from late July to mid-August, the stock market appeared to take off on a downward path. You will note that the low point of the correction was hit on August 15, 2007 with a closing price of 1406.70, which represents a 9.2% correction.

Then, on Tuesday, September 18, 2007, Ben Bernanke’s interest rate cut lit the fuse. The Fed gave investors all they could have hoped for and more. First, the central bank voted to cut the crucially important federal funds rate (the interest rate at which banks lend overnight money to each other) by a half a point, to 4.75%. But they did not stop there. In an even more dramatic gesture, the Fed pulled a surprise. They slashed the discount rate by half a point, too, to 5.25%. In normal times, nobody pays attention to the discount rate, because almost nobody borrows at that rate. The discount window is typically reserved for emergency loans that the Fed makes to institutions facing financial difficulties. Last month, the Fed slashed the discount rate by a half a point -and even urged healthy institutions to take advantage of the concession. Now Mr. Bernanke and company have dropped the discount rate again. It is as if Bernanke is saying to the financial markets: “I’ve got a firehose full of cash, and I’m going to keep shooting it until this credit panic is thoroughly under control.”

However, the following Tuesday, September 25, 2007, we heard more talk about the possibility of an economic downturn after the gloomy reports on consumer confidence and housing prices. Clearly, the housing slowdown -which has proved to be longer and deeper than most of us initially expected -is putting a damper on the overall economy, the consumer sector in particular. So is a recession really in the works? It is going to be a close call.

Well, how should we, as investors react to all these economic reports? We have to continue to be aware of the Federal Reserve’s increasingly difficult position of balancing low interest rates and high liquidity to keep the economic growth at a sustainable rate but without allowing inflation to accelerate. However, we feel confident that Ben Bernanke has administered the right medicine in the right dose, at the right time. Instead of waiting, Bernanke is acting quickly to relieve an obvious credit crunch. Of course, there is no guarantee that Bernanke’s actions to date will be enough to revive economic growth. Another downshift may be called for at the Fed’s October 31 ^5t meeting, perhaps before.

As far as our own assessment of the current economic outlook is concerned, we feel confident that, despite these day-to-day jitters, the economy will avoid a recession. Corporate profits, in the aggregate should continue to grow in the quarters ahead. As the fourth quarter rolls on, investors will gain confidence that Ben Bernanke’s rate cuts came just in time to keep the economy growing in 2008. This confidence will spur another wave of buying that will hopefully push all the major stock indexes up to new highs for the year, assuming the geo-political picture remains the same.

During the quarter ended September 30, 2007, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value in order to raise cash. Specifically, on the fixed-income side of all of our portfolios, we sold all of our remaining long-term and zero-coupon bonds and replaced them with short-term bonds as well as REITS and preferred stocks. On the equity side of all of our portfolios, even though their basic make-up is value and growth oriented stocks, for taxable accounts, we have continued to purchase high yielding investments such as limited partnerships, preferred stocks, REITS, investment trusts as well as high yielding dividend-paying stocks of domestic corporations from selected equity industry groups. For non-taxable accounts, such as all retirement accounts, we have continued to purchase growth and value-equity investments in selected industry groups. In addition, for all accounts, we have used some of our cash to establish or increase asset positions in our favorite stocks and mutual funds to properly allocate our weighted industry sectors.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Special Investment Update – August 6, 2007

Mon, 06 Aug 2007 12:00:00 GMT

Special Investment Update

August 6, 2007

Dear Friends and Clients,

We are writing this Special Investment Update to remind everyone about the rarest commodity of all -“calm”. After the rough sessions that the stock markets had during the past two weeks, investors who were not prepared for this type of volatility could be on the verge of a state of panic. When the markets get into a tight spot, as they are now, “calm” is one commodity that suddenly grows more valuable than anything else.

As expected, the stock market is obviously in the midst of a full-blown “correction”, and like all market pullbacks -it has a nasty side. Financial stocks, particularly those with any ties to mortgage lending, have been savaged. Of course, we are concerned about the turmoil in the nation’s mortgage and corporate credit markets and the ongoing problems in the housing sector, but we continue to feel that these factors won’t be enough to derail the economic expansion -or the bull market for stocks. The stock market could experience some further selling in the short-term but we do not feel that this is the beginning of a real bear market -the kind in which stocks continue falling for over a year. No major bear market has ever taken place alongside strong worldwide economic growth, which is what we have today. Furthermore, according to the International Monetary Fund, this growth should continue until 2008, at the earliest.

As we discussed in our last Quarterly Investment Update on July 2, 2007, Wall Street is a two-way street. We have clearly seen what kind of damage can result when market volatility picks up on the downside. Once that bottom is reached and the market finds its footing again, we are going to see some fantastic volatility -this time, on the upside. To put this “correction” in the proper perspective, let’s review the market’s performance over the past five years. During this period of time, the blue chip Standard & Poor 500 index has more than doubled and numerous foreign stock markets have fared even better. Equally surprising, stock markets throughout the world have achieved these enormous gains without suffering a major 15% -20% setback along the way (like the meltdown in the summer of 1998, which interrupted the market boom of the Clinton years). It has been a pretty much steady, more or less peaceful, seemingly irresistible climb.

The Standard & Poor 500 Index is down 7.7% from its record set last month, which means it has covered most of the ground to a 10% pullback traditionally defined as a “correction” that shakes speculative excesses out of a bull market. Whether the market actually reaches that threshold may depend on the financial sector, analysts say. The financial sector is now bearing the brunt of investors’ jitters over the economy and the shakeout in risky mortgages, which analysts feel could spill over into other comers of the credit markets.

As far as bonds are concerned, they have become a safe haven for investors who fled stocks by pushing prices on Treasury securities, sending the yield on the benchmark 10-year note down to 4.698%. Investors will now turn their attention to tomorrow’s meeting of the Federal Reserve’s policy making committee. Despite the market turmoil, the committee is expected to leave its interest-rate target at 5.25%, where it has been for more than a year. But it is likely to reinforce that its principal concern is that inflation might rise. As investors, we have to be aware of the Fed’s increasingly difficult position of balancing low interest rates and high liquidity to keep the economic growth at a sustainable rate but without allowing inflation to accelerate. According to the Wall Street Journal, by Friday afternoon, the future markets saw more than 80% odds the Fed would cut rates a quarter of a percent point by its late October meeting and a high odds it would cut another quarter point by the end of next January.

During the month ended July 31, 2007, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value in order to raise cash. In addition, since bond yields have continued to drop nicely over the past month, we have raised additional cash by selling all of our zero-coupon bonds. As far as the remaining long-term bonds, we plan to continue to finish selling these and gradually shorten the maturities on the fixed-income side of all of our portfolios.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 2nd Quarter 2007

Mon, 02 Jul 2007 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2007

July 2, 2007

Dear Friends and Clients,

As you can see from the enclosed charts of the Standard & Poor 500 Index, stock prices continued their upward momentum for the quarter and six months ended June 30, 2007. In summary, the Dow Jones Industrial Average ended the quarter up 8.5%, the best quarterly gain since 2003. The broad Standard & Poor’s’ 500 stock Index was up 5.8% for the quarter and the technology-focused NASDAQ Composite Index was up 7.5% for the quarter. Despite the stock market’s second-quarter strength, everyday investors remain jittery and an increasing number of big investors are betting on a pullback. The stock market started getting anxious again in June, just as it did in late February and early March.

As we discussed in our last quarterly Investment Update letter, we have to be alert for some fairly dramatic swings in the days ahead, continuing the pattern we’ve seen lately of growing volatility. Of course, volatility is a two way street, up as well as down. As far as we’re concerned, this volatility has brought us wonderful opportunities during the past six months. Even though most stock indexes have climbed during the first six months of this year, the number of individual NYSE issues touching new 52-week highs peaked way back in December. As the market pushed upward to new highs in February, and then again in May and June, fewer and fewer individual stocks marched on to their own new highs. This lagging breadth, plus the continued stickiness in bond yields, is slowing the stock market’s advance-and will eventually stop it cold, for a time. At some point this summer, we feel that we’ll get another pullback in the blue chip market, indexes. However, we feel that any weakness will likely be short-lived because there’s still too much idle cash in the hands of corporations, private-equity funds and the general public.

The word from America’s housing sector is pretty grim right now. A couple of weeks ago, the monthly poll from the National Association of Home Builders revealed the gloomiest outlook among builders in 16 years. We’re told the Home Builders’ sentiment index fell to its lowest level since February 1991. At that point in time, .the national housing market was approaching a major bottom, from which a spectacular 14 year boom emerged. Sub-prime mortgages and their impact on both the housing market and the financial system are legitimate concerns, but we feel the housing slump is close to it major bottom in most parts of the country. We’re not saying that home prices are as depressed today as they were back then, but we have taken advantage of the volatility by adding this new asset sector, Homebuilding, to our Portfolios. This is the first new asset sector that we have .added to our equity portfolio thus far.

As far as bonds are concerned, we have seen more and more evidence that rising bond yields are starting to hinder the stock market’s advance. As you can see from the enclosed chart of the benchmark 10-year Treasury note, bond yields for the quarter have risen from 4.5% in early March to a closing high of 5.25% on Tuesday, June 12, 2007. The Federal Reserve did not clarify their position the direction of interest rates at their June 28 ^th meeting and left the benchmark rate unchanged at 5.25%. We’re still hoping that rates will cool off to some extent as the summer wears Qn. In fact, bond yields have dropped nicely over the past two weeks. Assuming bonds continue to behave in the same manner, it could provide us with a nice short rally in stocks before the market takes a “summer siesta”.

During the quarter ended June 30, 2007, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors’ of stocks and mutual funds that have substantially appreciated in value in order to raise cash. As far as the remaining long-term bonds and zero-coupon bonds, we plan to finish selling these and gradually, shorten the maturities on the fixed-income side of all of our portfolios.

For taxable accounts, we have continued to purchase high yielding investments such as limited partnerships, preferred stocks, RElTS, investment trusts as well as high yielding dividend-paying stocks of domestic corporations from selected equity industry groups. For non-taxable accounts, such as all retirement accounts, we have continued to purchase growth and value-equity investments in selected industry groups. In addition, for all accounts, we have used some of our cash to establish or increase asset Positions in our favorite stocks and mutual funds to properly allocate our weighted industry sectors.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 1st Quarter 2007

Mon, 02 Apr 2007 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2007

April 2, 2007

Dear Friends and Clients,

Enclosed is the basic chart of the Standard & Poor 500 Index for the last three months ended March 31, 2007. As you can see from the chart, stock prices began the quarter and year with their continued upward momentum by posting a 52-week high of 1461 on Tuesday, February 20, 2007. At this point, the stock market had put on a stupendous rally since last summer with very few dips. After such a long period of low volatility, we were prepared for the market to crack somewhat and so it did. The very next week on Tuesday, February 27, 2007, all the major stock indexes fell sharply with the Dow’s 416-point tumble leading the way.

The major stock market sell off, which continued throughout the week ended March 2, 2007, was attributed to the slumping housing sector as well as the stock market correction in China that was due to an attempt by the Chinese government to tighten credit. Then during the following two weeks, the problems in the subprime mortgage sector took center stage. Many analysts reflected that these problems, while serious, probably will not spread to the wider economy. As investors began to grasp that the subprime mortgage troubles were limited in scope and manageable, the stock market found its footing and began to move higher. The stock market got a big boost on Wednesday, March, 22, 2007, when the Federal Reserve Bank hinted that there will be no more interest rate hikes. In January, the Federal Reserve had left itself room to “firm” (raise) interest rates further if inflation concerns warranted. By dropping that language, the central bank now implies that additional credit tightening is unlikely. Wall Street immediately began to speculate that the Fed’s next move may be to push interest rates down. With almost half the gains occurring even before the Fed’s announcement, the Dow’s weekly gain of 370.60 was the best weekly point gain in four years and the biggest weekly percentage gain since last July. The following week ended March 30, 2007, stock prices backed off, digesting the prior week’s powerful gains.

We’re very encouraged with these developments and as we mentioned in the past, we happen to agree with the interpretation that the Federal Reserve’s next move may be to slightly push rates down. However, we’re not counting on a runaway rally just yet. In the days and weeks ahead, a number of news items could challenge the idea that the Fed might cut interest rates anytime soon. In addition, the continuing drama in the nation’s real estate markets will keep Wall Street looking over its shoulder. Over-all, we can expect a lot of sharp back and forth action as the stock market carves out a durable base.

The past few weeks have been torturous for many investors, especially if you read the scary headlines in the newspapers. But, as we discussed during our last seminar in November as well as though these Quarterly Investment Updates, we knew that a correction was imminent and we were prepared for the volatility. So far on a closing basis, the Standard & Poor 500 index has dropped, at worst, only 5.9%, from the February 20 high to the March 5th low. Even though we expect some further bottom testing during April, this “correction” is proving to be unusually gentle by historical standards.

During the quarter ended March 31, 2007, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value in order to raise cash. In addition, since we’ve had a nice bond rally over the past two months and the prices of long-term bonds and zero coupon bonds have increased in value, we have started selling these bonds or bond funds to raise cash. During this pullback, we’ve been shopping like crazy to take advantage of buying opportunities.

For taxable accounts, we have continued to purchase high yielding investments such as limited partnerships, preferred stocks, REITS, investment trusts as well as high yielding dividend-paying stocks of domestic corporations from selected equity industry groups. For non-taxable accounts, such as all retirement accounts, we have continued to purchase growth and value-equity investments in selected industry groups. In addition, for all accounts, we have used some of our cash to establish or increase asset positions in our favorite stocks and mutual funds to properly allocate our weighted industry sectors.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 4th Quarter 2006

Sun, 31 Dec 2006 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2006

January 3, 2007

Dear Friends and Clients,,

Enclosed is an article from the Wall Street Journal (Tuesday, January 2, 2007) reflecting the 2006 year end closing numbers on the major stock indexes. As we previously noted, this performance is especially notable for a midterm election year, which is normally the weakest period for the stock market in the four-year political cycle. Our own portfolios performed remarkable well during 2006, especially when you consider that we held a sizeable position in safe but slow-footed bonds and other fixed investments. But, after four good years in a row, can the markets hand us another winner in 2007?

Ever since our last quarterly investment update, as well as our seminar in early November, stock prices continued their surge upward, at least if you were looking at the blue chip indexes. The Standard & Poor 500 posted its highest weekly close on December 15, 2006 at 1427.09. This was the highest weekly close for the S & P 500 since September, 2000. Then, for the week ended December 22, 2006, stock prices backpedaled as traders grew weary ahead of the Christmas holiday. After the huge run we’ve had since last summer, it’s understandable that investors would want to bank some of their gains, especially as they do their year-end tax planning. Then, for the last trading week of the year, traders returned from the Christmas break in a good mood. The stock market put together two strong back-to-back sessions since the holiday, with the Dow Jones Industrial Average closing on Wednesday, December 27, 2006 at another all-time high. The markets finally settled down for the final two sessions of the year. How far the strength will carry into 2007 through, is an open question. History suggests that 2007 will be very profitable. It’s the third year of the presidential term, and there hasn’t been a losing third year for the stock market since 1939 when World War II broke out.

However we don’t want to get too comfortable. We definitely feel that “caution” should be our strategy for the immediate short-term. First of all, smaller stocks ran into some profit-taking, a sign that the huge advance off the June-July lows is starting to narrow. Other signs are beginning to show the same results-insider selling is increasing, the number of individual stocks making new 52-week highs appear to have peaked and the NASDAQ, which had led the Dow from August to November, is now lagging, which tells us that investors are not willing or are less confident to take more risk. We don’t want to read too much into these developments but some gradual leveling off is expected.

During the quarter ended December 31, 2006, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value in order to raise cash. Since the prices of long-term bonds and zero coupon bonds have increased, we have stopped purchasing any new bonds or bond funds for now. However, for taxable accounts, we have been purchasing other high yielding investments such as limited partnerships, preferred stocks, REITS as well as high yielding dividend paying stocks of domestic corporations from selected equity industry groups. For non-taxable accounts, such as all retirement accounts, we have continued to purchase growth and value-equity investments in selected industry groups. In addition, for all accounts, we have used some of our cash to establish or increase positions in international equity investments such as the Ishares MSCI Japan Index Fund. We feel that Japan’s economy is on the upswing again, and the stock market is cheap. Not only is the Tokyo stock market trading near its lowest PIE ratio in 25 years, but the currency (yen) is also cheap. According to the Federal Reserve Bank of St. Louis, the yen’s “real” (inflation-adjusted) exchange rate against other major currencies has sunk to its lowest level since 1985.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 3rd Quarter 2006

Mon, 02 Oct 2006 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
3 ^RD QUARTER 2006

October 2, 2006

Dear Friends and Clients,

Before we discuss investments, let’s briefly discuss our upcoming Fourth Annual Investment Seminar at Amelia Island and its main purpose. In addition to having a wonderful time and eating some good food, it serves as a good opportunity for us to discuss our investments that we made during the past year as well as to discuss the investment climate for next year. It should also serve as a wonderful opportunity for you to evaluate your own personal financial plan before the end of the year as you do your year end tax planning. This is the primary reason that all of our CPA/financial planners (A.B., Terry and I) will be available at the seminar. Our seminar has also had a great affect in providing us good feedback on what we’re trying to accomplish as a firm on a more personal level and we encourage all of you to make every effort to attend. Even though formal invitations will be forthcoming, please mark your calendar for Thursday, November 9, 2006 at PLAE’ Restaurant at Amelia Island Plantation, Florida.

As far as the investment climate is concerned, the third quarter has passed with stocks doing remarkably well since the June lows. Normally, in a midterm election year, the third quarter is a bummer for stocks. But stocks defied the norm by ending the quarter on a positive note with the strongest quarterly percentage gain on the S & P 500 since 2004. In fact, the Dow Jones industrial average reached a milestone last Thursday by briefly trading above its record high close of 11,722.98 set on January 14,2000. We may have a few bumps on the way, but the economic conditions continue to look very positive for stocks. Also, the third quarter really turned things around for bonds. As recently as the end of June, Wall Street’s best and brightest were complaining over interest rates. Soaring energy and metal prices were conjuring up the specter of accelerating inflation and the inevitable response -a damaging credit squeeze by the Federal Reserve. Suddenly, those fears are vanishing into thin air and it’s hardly surprising that bond yields have nosedived. The yield on the benchmark lO-year Treasury Index has skidded from a peak of 5.24% on June 28 to as low as 4.53% recently. We’re delighted, of course, with these results because the share prices of our long-tem1 bonds and zero-coupon bonds have increased dramatically. However, as value-oriented investors, it’s important for us to maintain our price discipline. Many stocks and mutual funds have risen sharply in recent weeks, making them less attractive than they were in June and July. In fact, we wouldn’t be at all surprised if stocks and bonds “corrected” some of their recent gains over the next few weeks. At the seminar we’ll discuss, in more detail, what we should expect from both stocks and bonds for remainder of 2006 as well as 2007.

During the quarter ended September 30, 2006, we continued with our strategy of reviewing all of our portfolios with regards to asset allocation and continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value in order to raise cash. Since the prices of long-term bonds and zero coupon bonds have increased, we have stopped purchasing any new bonds or bond funds for now. However, for taxable accounts, we have been purchasing other high yielding investments such as limited partnerships, preferred stocks, REITS as well as high yielding dividend paying stocks of domestic corporations from selected equity industry groups. For non-taxable accounts, such as all retirement accounts, we have continued to purchase growth and value equity investments in selected industry groups.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 2nd Quarter 2006

Mon, 03 Jul 2006 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
2 ^ND QUARTER 2006

July 3, 2006

Dear Friends and Clients,

The Second quarter has passed without a great deal of conviction by most investors as far as which direction the overall market is heading. Stocks and bonds struggled during the quarter as concerns over inflation, interest rates and the economy pounded markets worldwide, with the major stock and bond average indexes slipping into the loss column for the year earlier last month before finally rebounding this past week, with the blue chip S & P 500 posting its best weekly percentage gain since January. You would think that the correction is over after last Thursday afternoon’s Federal Reserve announcement of increasing their target for the federal funds rate to 5.25 percent, as had been widely expected. Before the announcement, the Dow was up approximately 80 points but ended the day up 216 points. Why? Is this the end of the string of interest rate hikes? We’ll know more details within the next several weeks. However, in the news release that accompanied the announcement, Ben Bernanke said the economic outlook will determine “any additional firming that may be needed.” The “any-may” combination leaves the door open to the possibility that further increases may not be needed. In other words, Mr. Bernanke did weaken the case for yet another rate hike at the central bank’s August meeting. In short, we may have seen the last interest rate increase unless of course inflation continues to run uncomfortably hot.

Even though we will discuss this issue in greater detail at our upcoming November Seminar, it’s important to point out why we felt that the purchase of long-term bonds and zero-coupon bonds during the past six months added more value and less risk to our portfolios. First of all, we analyzed all of the portfolios on an individual basis and determined that even a more aggressive 100% equity strategy inside an IRA could use the benefit of some long-term debt which would, at least, generate fixed income at current rates. In addition to the fixed income aspect, we feel that there is value in long-term bonds as well as zero-coupon bonds that will hopefully convert to long-term capital gains.

Once interest rates are stabilized and investors actually anticipate a “cut” in interest rates, then bonds and stocks should both advance. In the meantime, we’ll continue to view this back-and-forth action as part of the necessary base building process before the next bull market can take off. We’re not convinced it’s going to be all uphill for the rest of the year just yet without another possible pullback.

During the quarter ended June 30, 2006, we continued with our strategy of balancing our portfolios in favor of bonds or bond-like substitutes, especially in those taxable portfolios that virtually consisted of all value and growth type of equity stocks. As conservative, long-term investors, we have continued to reduce our over weighted industry sectors of stocks and mutual funds that have substantially appreciated in value to raise cash. We’ve been purchasing long-term bond funds, zero coupon bond funds, limited partnerships, preferred stocks and convertible bonds as well as selected individual stocks to achieve our goals.

In addition, we have been re-balancing the IRA portfolios from a very aggressive equity strategy and using the proceeds to buy into some long-term treasury bonds. We feel that long-term bonds have stabilized enough and can provide us good income and less risk to all of our portfolios. So even though we invest in primarily selected individual stocks that have value and growth characteristics, we feel that this is a good time to reduce our risk by investing some allocation of our total portfolios in income-producing security classes such as bonds and, we feel confident that this step will give us more assurances as conservative investors to achieve our goals.

All in all, we continue to have a positive outlook for stocks but we will continue to take defensive measures and to use any correction as an opportunity to buy more of our favorite stocks and mutual funds.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 1st Quarter 2006

Mon, 03 Apr 2006 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
1 ^ST QUARTER 2006

April 3, 2006

Dear Friends and Clients,

The First quarter of 2006 has passed without a meaningful pullback.. This has been very positive for the overall outlook for stocks. Looking ahead into the remainder of 2006, 2007 and 2008 until the time the next presidential election rolls around, most analysts feel that the market’s tenacity is a very bullish omen. But I would have to admit that I am a little surprised that we have not had any type of meaningful correction. Overall, the quarter ended on a positive note with all the major stock averages going up. The Dow and the Standard & Poor 500 Stock Index both gained 3.7% for the quarter. The NASDAQ Composite Index was up 6.1 % for the quarter.

Last Tuesday, The Federal Reserve Board decided to increase short-term interest rates, again, by another typical Greenspan -era rate of ¼ percent to bring the federal funds rate to 4.75 per cent, its highest level since April, 200 I. This is the 15 ^th consecutive quarter -point increase and the door. was left open for further rate increases. Once the news release at 2: 15 p.m. came out, the major markets immediately went down but the Dow Jones Industrial Average closed down only 95 points for the day. Furthermore, NASDQ declined less, on a percentage basis, than the Dow. By the next day, the stock markets quickly rebounded but ended down for the week. Now whether this was one of the last or close to the last interest rate increases should be decided in the near future as the economic gurus’ determine the rate of growth of the economy. We certainly hope that this increase is one of the last because our long-term treasury bonds should get a boost once interest rates stabilize. However, there maybe other factors beyond Chairman Ben Bernanke and the Federal Reserve Board’s control including increases in the price of oil as well as geopolitics, especially in China, that may push interest rates even higher.

During the quarter ended March 31, 2006, we continued with our strategy of balancing our portfolios in favor of bonds or bond-like substitutes, especially in those taxable portfolios that virtually consisted of all value and growth type of equity stocks. As conservative, long-term investors, we have continued to reduce our over-weighted industry sectors of stocks and mutual funds that have substantially appreciated in value to raise cash. We’ve been purchasing long-term bond funds, zero coupon bond funds, limited partnerships, preferred stocks and convertible bonds as well as selected individual stocks to achieve our goals.

In addition, we have been re-balancing the IRA portf9lios from a very aggressive equity strategy and using the proceeds to buy into some long-term treasury bonds. We feel that long-term bonds have stabilized enough and can provide us good income and less risk to all of our portfolios. So even though we invest in primarily selected individual stocks that have value and growth characteristics, we feel that this is a good time to reduce our risk by investing some allocation of our total portfolios in income-producing security classes such as bonds and, we feel confident that this step will give us more assurances as conservative investors to achieve our goals.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. Please contact me with any questions or comments.

Quarterly Investment Update – 4th Quarter 2005

Sat, 31 Dec 2005 12:00:00 GMT

QUARTERLY INVESTMENT UPDATE
4 ^TH QUARTER 2005

January 4, 2006

Dear Friends and Clients,

Enclosed is. your fourth quarter’s Investment Portfolio Report for the calendar year ending December 31, 2005. Please review this report very carefully and, as always, we welcome any questions or comments.

Since our last quarterly update, which we discussed in some detail at our investment seminar, the stock market’s upside momentum has been modest as oil prices eased and corporations continued to post healthy 3 ^rd quarter earnings. Enclosed is an article from The Wall Street Journal (Weekend Edition) for Saturday, December 31,2005 reflecting the year end closing numbers on the major indexes. For 2005, the Standard and Poor’s 500-stock index ended the year with a 3% gain. This is the measure that we want to exceed in our individual portfolios year after year.

Even though the quarter began with an upside momentum, stock prices fell sharply during the month of December to bring the Dow Jones Industrial Index to close down for the year. This was done in a month which is normally one of the strongest months of the year for stocks.

We kept busy during the quarter by implementing several important defensive measures to all of our portfolios as a whole.

As conservative, long-term investors, we have been taking advantage of this fourth quarter rally by easing out of stocks and mutual funds that could present problems during 2006. In addition, we have reduced some of the weighted allocation of stocks and mutual funds that have appreciated substantially during the year. Furthermore, we increased our allocation of bonds and cash equivalents into our portfolios, which we hope will prove valuable to us in 2006 for some good buying opportunities. In addition, we have reviewed all of the taxable accounts for purpose of developing some year-end tax planning strategies to make the portfolios more tax efficient.

Looking ahead for 2006, the stock market must recognize that the economic background has changed. On the plus side, corporate profits have surged to record highs but we must recognize the main issues facing Bernanke and the Federal Reserve Board in terms of how much the credit tightening will hurt the economy and for how long. Or, to put it another way, will inflation get the most focus for the Federal Reserve Board during 2006? We’ll have to wait and see how these issues will affect the economy. Some analysts feel that the bull market that began in October 2002 is essentially over. As far as ,the bond market is concerned, we continue to feel that interest rates will go up. In fact the 3·month Treasury bill yield ticked up to 3.98% as of December 31, 2005. This is the highest level in almost five years and will most likely go up to 4% very soon and then to 4 1;4% shortly thereafter.

All in all, we don’t foresee a major market downturn for 2006 but the blue chip indexes could easily pull back at some point during the year. As far as our strategy for 2006 is concerned, we will continue to take defensive measures and continue to use any corrections as an opportunity to buy more of our favorite stocks and mutual funds.

Again, thank you very much for the trust and confidence you have placed in our firm and it is always appreciated. On behalf of the entire staff, we want to extend to you and your loved ones our warmest wishes for the New Year.