What I see going on

I think many find it helpful to know what other people are doing during these trying times. More than anything else, I see folks looking for ways to spend less and save more. If you don't have an emergency fund, and still have your job, you need to make sure you have 3 to 6 months worth of expenses in case you are unlucky enough to get laid off.
The only thing we can control is our spending and how much risk we are taking in our portfolios. Last year was a disaster for portfolio management professionals as no diversified portfolio was able to weather the storm with any amount of success. The only investment that did well were Treasury Bills and cash. Does it make sense now to try to turn back the clock and get more conservative in light of what has happened? Well I really believe that 10 or 20 years from now we will look back on this time as the best buying opportunity of a generation. I wish I knew how many people have been telling me they don't have a long term time horizon. But unless you plan on jumping off a bridge at some point, every reader has a good chance of living to a ripe, old age. Do you want to run out of money when you're 93? what will you be able to do about it then? So my rule is, if you 80 years (young) or older, we can talk about having a more conservative portfolio--if not, you really need to hang in there, keep saving and keep adding to the market when it's down if you can. If you are unwilling to take on portfolio risk, then there really is only one other solution, that is to cut back spending and learn to live on a lot less. So you see, we always have choices....
Going back to my experiences lately, I am receiving more phone calls than I ever have in the past five years from people who want a financial plan done. Not because they are necessarily worried about their investments, but more so that they have been earning good salaries but not saving as much as they could. I view this as being a huge positive for the economy going forward. It obviously doesn't benefit our retail sector for Americans to be spending less, however in the long term, I see a much stronger economy developing, one that is actually able to with stand market gyrations and economic downturns better. Because when , you have savings you have a sense of security and you have flexibility.

February Results UGH

More bad market news. When will it end, or just stop going down? Barron's over the weekend suggested that a major rally is due because of the over-sold condition of the market. Art Cashin appears on CNBC every morning to give a trader's market take--he's the head of floor operations for UBS (been on the floor for decades)--he thinks the market is due for a good bounce...alright then, bring it on. Here are February's performance numbers as published by Investment Advisor Magazine:

The Monthly Index Report for March 2009

Index	Feb-09	QTD	YTD	Description
S&P 500 Index*	-11.0%	-18.6%	-18.6%	Large-cap stocks
DJIA*	-11.7%	-19.5%	-19.5%	Large-cap stocks
Nasdaq Comp.*	-6.7%	-12.6%	-12.6%	Large-cap tech stocks
Russell 1000 Growth	-7.5%	-12.0%	-12.0%	Large-cap growth stocks
Russell 1000 Value	-13.4%	-23.3%	-23.3%	Large-cap value stocks
Russell 2000 Growth	-10.4%	-17.2%	-17.2%	Small-cap growth stocks
Russell 2000 Value	-13.9%	-26.2%	-26.2%	Small-cap value stocks
EAFE	-10.2%	-19.0%	-19.0%	Europe, Australasia & Far East Index
Lehman Aggregate	-0.4%	-1.3%	-1.3%	U.S. Government Bonds
Lehman High Yield	-3.1%	2.7%	2.7%	High Yield Corporate Bonds
Calyon Financial Barclay Index**	-0.2%	0.4%	0.4%	Managed Futures
3-mo. Treasury Bill***	0.0%	0.0%	0.0%
All returns are estimates as of February 27, 2009. *Return numbers do not include dividends. ** Returns are estimates as of February 26, 2009.

2009 IRS Numbers

For 2009, the maximum contribution for 401k/403b plans is $16,500 for employees younger than 50 years old and $22,000 for those 50 or older if the plan allows for catch-up contributions. The annual gift tax exclusion is $13,000 per person. The estate tax exemption for this year is $3.5 million. If there is any way to save a little bit more in your retirement plan, now would be a good time to do it. Seems like saving is in vogue again (thank goodness), there is no better way to get a tax break and be able to buy investments at levels that, by most standards, are below intrinsic value than by contributing more to your retirement plan. Even $50 extra a month is worth it.

A New Year

If you are looking for more negative viewpoints or insights, you won't find them here. We all know by now that 2008 was the worst year for the market in 79 years--only 3 other times has the market been down more than 40% in a year. Of course, the only thing most of us care about is: when will it stop? Things looked pretty good until last week--we had very inconspicuously gone up by 20% from the November lows--now the market still stands at 5% above those same lows. That's how the market rebounds, slowly, quietly without fanfare. David Swensen, the manager of the Yale endowment fund who has written several books on investing and has had an average annual return of something like 15%, was interviewed in the Wall St Journal last week. In the interview, Swensen made an excellent point: you either have an aggressive portfolio that does well most of the time over the long term or you have a portfolio that is defensive whose goal is to not lose money. If you have a long term portfolio you have to expect there will be times you will lose money. We can't change what happened in the past-but we can affect the future by our behavior today. History has shown when the market is down and there is "blood in the streets" it is the wrong time to get more conservative, it's the time to get more aggressive actually. I know this concept is difficult because of the emotions--and I know I'm getting a little long in the tooth with my optimism--but I know this market will just one day, quietly, slowly without anyone really noticing start to go up in leaps and bounds. Research has shown if you are uninvested (sitting cash until the market stabilizes) and miss the best 10 days in a market rebound, your overall return will be diminished by 10%-30%. Hopefully we won't have to live through too many more 2008's in our lifetimes.

Positive Notes

Well, there isn't much point in restating what everyone already knows. What the market has experienced over the past two months and over the past year is unprecedented. All the bad news is out there--no need to recap here. What I want to focus on are a few (very few) positive things. First, inflation readings are actually negative. For anyone who has filled their gas tank the past month, WOW what a nice surprise from last spring. That's extra money in your pocket to spend, save or pay down debt. This is a huge help to consumers during these difficult economic times. Second, the economic recession officially started last December. The average recession has historically lasted 16 months--I do believe we are at the tail end of this rather than the beginning or middle. I know history has not been a good gauge lately but all this money the government is putting into the economic system will have a continued positive effect. Lastly, from a pure valuation standpoint, there are bargains to be had in both the bond markets and the stock market. Remember, bear markets mark a time when you should be taking more risk rather than becoming more conservative which is the exact opposite of what human behavior would dictate.

Words of Wisdom

In Monday's WSJ page A19, Opinion page, Burton Malkiel wrote a piece titled "Keep your money in the market". Mr. Malkiel is a professor of economics at Princeton University and best known as author of "A Random Walk Down Wall Street", a book that is fundamental reading for anyone interested in the art of investing. He writes, "A century of investing experience, as well as insights from the field of behavioral finance, suggest that investors who bail out of equities during times like theses are almost always making the wrong decision". He mentions that "the herd instinct is extraordinarily powerful": we think other people must be smarter than us, that's why they are selling and that's why we should sell. He suggests, that regular rebalancing and review of a portfolio occur on an annual basis and at that time, changes are made, rather than as a response to fear and despair over market conditions.
In Wednesday's WSJ, James B. Stewart compares bubbles and panics and how similar they are as they both measure extremes in the market. He chronicles the anxiety he felt entering a buy order when the market was tanking and then watching the market go down even more---not a good feeling, I know, I did the same. But I know as does he, that in the long term, markets go up. A financial crisis is about courage and about discipline of staying the course. If I knew when the market was going to hit a high to sell and when it hits a bottom to buy, I would be a very rich person today. Truth is, it is virtually impossible to time the markets, to know when to get in and when to get out. You set your course, structure your portfolio and make changes as life and circumstances dictate. I am here to help you stay the course.
Today, there are more fantastic investment opportunities available than we have seen in a decade. Municipal bonds are cheap, closed end funds are cheap stocks are cheap commodities are cheap--the only one thing that is not cheap are treasury bills and bonds. Everything else is on sale!!
Just thought it would be nice to counter what we hear on the TV all day long.

3rd Quarter in the Red

87% of all mutual funds posted losses for the year ending 9/30/2008, this according to an article in the Washington Post which you can find here: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/04/AR2008100400157.html
I think the worst part of this horrible bear market we are in and probably how it is the most dissimilar from previous bears, is that nothing seems to be doing well--except maybe Treasury bonds. Commodities, international, small cap, real estate...asset classes that are normally not perfectly moving in sync with the large cap equity markets, are all down....no safe havens. There are a few silver linings here, at least that I can see: the VIX which is a measure of volatility and often dubbed the "Fear Index" is at a very high level. This high level indicates an extreme in the market, which usually doesn't last too long. The S&P 500 right now is at 1048.9 which is down -28.8% year to date and down -32.98 from the high reached last October. The average downside for bear markets is in the -30% to -35% range.....we just need a few more people, besides Warren Buffet to see that there is value in the market and begin to buy. Notice however, that Mr. Buffet sees this debacle as a buying opportunity, not a selling opportunity, which is what made him a very wealthy person. Buffet is 78 years old and has seen many decades of different types of markets. Like him, I have faith in the markets and am optimistic.