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7/21/2008
Carl Stuart is a Certified Financial Planner and an Independent Registered Investment Advisor. He owns his own firm where he manages approximately $250 million of clients’ assets primarily on a fee basis, and has been in the business for 30 years.
In 2002 he was selected by Registered Rep. magazine as one of thee top 10 advisors in the United States. In 2007 and 2008, he was again honored by Registered Rep. magazine as one of the top 35 independent advisors in the country.
In 2008, Carl was listed in Fortune Magazine as one of the top 50 independent advisors in America and in 2009, he was listed as one of the top 1,000 advisers in the nation. Carl is Chairman of the Board of the Texas Presbyterian Foundation in Dallas, former Trustee and Chairman of the Investment and Finance Committee of Pine Manor College in Boston, Massachusetts, Board Member and Chair of People’s Community Clinic, past Chair of the YMCA of Austin, and past President of Big Brothers/Big Sisters of Austin. He and his wife Claire have been married for 39 years.
FINANCIAL AND INVESTMENT PLANNING
After continuing the upward move in stock prices in early October, U.S. equities sold off as the month ended.
The S&P 500 retreated 5.6% in two weeks. For the month the index declined 2%. The Dow Industrials were flat and the NASDAQ declined 3.6%. The Russell 2000, which tracks small cap issues, declined 6.9%.
As the stock market retreated, Treasuries rose moderately. On the last business day of October the benchmark 10 year note was priced to yield 3.38%. It had reached its monthly peak of 3.58% earlier in the week.
Mutual fund owners continue to move out of stocks. According to Barron’s, investors sold roughly $19 billion of equity funds in September and October. During the same period they purchased $90 billion of bond funds.
The government announced 3rd quarter Gross Domestic Product (GDP) grew at 3.5%. While this was welcome news, you can see from the previous numbers, equity investors did not celebrate.
Perhaps these are some of the factors that caused the tepid response. According to Barron’s and John Williams, proprietor of Shadow Government Statistics, 92% of the 3.5% GDP growth came from one time stimulants. Here’s how he breaks it down: 1.7% from auto sales prompted by “cash for clunkers,” 0.6% from new residential construction (the rush of first-time buyers to get in under the fast approaching deadline on the $8,000 tax credit) and 0.9% from an involuntary inventory buildup. He believes the auto and housing stimulants help cause the personal savings rate to fall from 4.9% to 3.3% in the previous three months.
As I write this, the U.S. House of Representatives has passed a healthcare reform bill, and gold surpassed $1,100 an ounce. We live in interesting times.
Perhaps the most important economic statistic is the recently announced 10.2% unemployment rate. When discouraged job seekers no longer seeking employment are added to part time workers wishing to work full time, the number rises to over 18% of the U.S. work force. It is no wonder some political pundits have suggested Americans are in a grumpy mood.
Businesses are unlikely to hire people, until they believe prospects are truly improving. Productivity numbers have been heading higher, because employers are not hiring workers but are meeting any new demand with a smaller work force. This phenomenon could persist for some time.
I believe the list of uncertainties investors face, and which I have described in previous letters, remains.
One news item in October could be a harbinger of future issues for the dollar. The central bank of India purchased 200 tons of gold from the International Monetary Fund. I wonder if this diversification of central bank holdings away from the dollar will continue. It seems a reasonable thing for the Indians to do. It is difficult to make a call that yen, sterling, or euros look more attractive than the dollar. Japanese government debt is at 200% of GDP, and the U.K. central bank and European Central Bank have engaged in aggressive policies to overcome the global financial crisis.
Gold has been in and out of favor for years. According to the New York Times, it would have to trade at $1,885 an ounce to set a new inflation adjusted high. I am not in favor of gold coins as an investment. The mark up at purchase and mark down at sale make for high transaction costs.
December is when mutual funds pay capital gains distributions. Because of the sharp decline in global equities in 2008, I doubt the distributions will be significant in 2009. It seems reasonable to assume portfolio managers have tax loss carry forward to off set realized gains this year.
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