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"I wasn't affected by
inflation -- I had nothing to inflate." —Gerald
Barzan
The Markets
It was another positive week for the markets
as earnings season got underway and investors are hoping to
hear good news from corporate America.
The release of the March minutes of
the FOMC caused much of Wednesday’s weakness as the
Fed said their main focus was still fighting inflation.
That meant there is virtually
no chance for a rate cut in the near term. Many companies
are expected to show slower earnings growth after the double-digit
gains of recent quarters. The most important factor for the
market is that the earnings meet expectations.
The markets seem to advance regardless of the news. And certainly,
the news has been anything but pleasant. In fact, it's been
a long litany of frightening news from a burst housing bubble
to a pull-back in corporate spending to a failing war in Iraq
to confrontations with North Korea and Iran on nuclear weapons.
Through it all markets have been rising. What can we say --
abundant liquidity (money printing and expanding credit),
easy borrowing terms, and low interest rates trump everything
including a parade of bad news?
We remain bullish on inflation protecting
securities. (Precious Metals, Mining stocks, inflation bonds,
natural resources
mutual funds). We feel most asset classes
(Stocks, Bonds, Real Estate) continue to be fully valued at
present. As such, our focus will likely
continue to be on capital preservation in this environment,
rather than reaching for higher yield by increasing portfolio
risk. While we have learned that markets can do anything,
we have also learned that there are times to be aggressively
bullish and times to be cautious.
| Returns through 04/13/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
0.4 |
1.2 |
13.2 |
6.7 |
4.6 |
7.0 |
| Nasdaq Composite |
0.8 |
3.2 |
7.1 |
7.1 |
7.3 |
7.4 |
| Standard & Poor's
500 |
0.6 |
2.4 |
12.7 |
8.8 |
5.7 |
6.9 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly.
Three-,
5-, and 10-year returns are annualized. Assumes dividends are
not reinvested.
Achieving a six-figure bonus at work or winning the top prize in
a professional golf tournament certainly are two types of windfalls
anyone would love to get their hands on. But receiving a large tax
refund or coming into an inheritance may be more plausible scenarios.
Even a modest infusion of money, such as the $2,548 average refund
the IRS issued in 2006, can yield lasting value if applied to a pressing
financial need or future goal instead of the pleasure of a shopping
spree or vacation.
You can put a tax refund or other newfound wealth to work in a number
of ways. Some ideas include:
Building an adequate emergency fund. As the
first step toward financial security, experts often recommend
setting aside the equivalent of
three to six months' expenses that could be drawn on in case
of a sudden need. To make sure that money will be available
on short notice, emergency reserves should be held in a relatively
liquid investment,
such as an interest-bearing savings account or a money market
fund. Also make sure that your emergency fund keeps up with
increases in
your expenses and the impact of inflation.
Paying down debt. Judging from the nation's
slide into a negative rate of savings during 2005, reducing
credit card balances and other
consumer debt should be a priority for many households whose
burden of debt restricts their ability to save and invest
for the future.
Reducing high interest borrowings usually makes sense as
well for those with smaller debt loads, in part because
interest payments on
credit cards, auto loans and unsecured consumer loans are
not tax deductible.
But even on loans such as home mortgages where interest payments
are tax deductible and interest rates are relatively low, paying down
debt can be a sensible move. Using a windfall to trim such a loan
can increase the amount of money available for saving or lower cash
flow needs in retirement, for example.
Investing for the future. If you are prepared for a financial surprise
and have debt under control, you can turn to more forward-looking
uses of newfound wealth. Take a close look at your goals to help you
decide how to invest the extra money. Are you on track to reach some
goals but behind on others? Should you increase the amount you contribute
to your employer-sponsored retirement plan or 529 college savings
plan, for example?
Protecting against risks. Adding to your insurance protection is
another financial planning improvement to consider in the event a
windfall comes your way. There are many forms of insurance that protect
against the cost of accidents, illness, disability and death. However,
there are no one-size-fits-all policies. Instead, the insurance decisions
you make should be based on your family, age and economic situation.
For example, there are two basic types of life insurance: term policies,
which pay a death benefit for a specified period of time, and whole
or universal policies, which have no term limit and accumulate value
over time but generally cost more than term policies.
In addition to maintaining adequate coverage
for your home, auto and the like, life insurance is a virtual
necessity if you have a
spouse and children in order to cover their living and other
expenses in the event of death. Life insurance may be less
important if you
don't have dependents to protect. (On the other hand, disability
insurance, which provides an income stream if you are unable
to work, is important for everyone.) Your advisor can help
you navigate and
select the most appropriate and cost effective life insurance.
With the rising cost of health care, longer life spans, and uncertainty
about the future of Social Security, you may also want to consider
long-term care insurance, which helps pay for nursing home or at home
health care if the need should arise. A qualified insurance professional
can help you evaluate the types and cost of long-term care policies,
as well as the adequacy of the insurance you already have.
These are but some of the possible uses for
a windfall. In the short run, however, keep in mind that
you don't need to be expecting
a refund to make use of the planning opportunities that tax season
opens up. So, even if you're not anticipating a windfall from
Uncle Sam or another tax collector, you may want to review
your overall financial situation and planning priorities
while many of the details
are fresh in your mind from completing your tax chores.
This article is not intended to provide specific investment or tax
advice for any individual.
Is the Fed really fighting
inflation or causing it? We believe this article answers
that question:
Money
and Inflation: The Tendency to Deny Reality
With inflation in the news, here are
some relevant quotes from days of yore...
“I sincerely believe ... that banking establishments
are more dangerous than standing armies, and that the principle
of spending money to be paid by posterity under the name of funding
is
but swindling futurity on a large scale.” —Thomas Jefferson,
1816
“It is well enough that people of the nation
do not understand our banking and monetary system, for
if they did, I believe there would be a revolution before tomorrow
morning.” —Henry
Ford "The financial system has been turned over
to the Federal Reserve Board. That Board administers the
finance system by authority of a purely profiteering group. The system
is Private,
conducted for the sole purpose of obtaining the greatest
possible profits from the use of other people's money" — Charles
A. Lindbergh Sr., 1923 “In the absence of the gold
standard, there is no way to protect savings from confiscation
through inflation. ... This is the shabby
secret of the welfare statists' tirades against gold. Deficit
spending is simply a scheme for the confiscation of wealth.
Gold stands in
the way of this insidious process. It stands as a protector
of property rights. If one grasps this, one has no difficulty
in understanding
the statists' antagonism toward the gold standard.” —Alan
Greenspan, 1966
2 9 3 1 8 4 3 6 5 7
What is the next term in this sequence?
Click here for the answer.
Best Regards,
P.S. Please feel free to forward this newsletter
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