Monday, June 30, 2008

IRS Hikes Mileage Rates

The IRS has announced a couple of changes in the deductible mileage rates for taxpayers starting Tuesday, July 1, 2008. The changes are due to the dramatic increase in gas prices in the first part of 2008.

  • The business mileage rate will be set to 58.5 cents per mile which is up 8 cents.
  • The medical mileage rate will be set to 27 cents per mile which is also up 8 cents.
  • The charitable mileage rate will remain at 14 cents per mile – this is a rate set by statute and not the IRS, so they cannot move it

The 8 cent hike is not without precedent. In 2005, in the wake of Hurricane Katrina, the IRS raised the rate 8 cents to 48.5 cents, but they moved it back down to 44.5 cents for 2006. The rate was increased back to 48.5 cents in 2007 before increasing to 50.5 cents at the beginning of 2008.

Maybe Congress will get together and decide that helping a charity should give you a bit of a larger break on the mileage. I know it will never happen that they will agree on anything, but it was a thought…

Sunday, June 29, 2008

Clean Up Your Financial House

Have you ever asked yourself, “How can I keep track of all my accounts?” The easiest ways are not as tough as you may think.

Consolidate them and use on-line bill pay. That’s it.

Okay, maybe that is not the whole story, but consolidate where and when you can. I try to have my clients that are worried about missing something do the following:
  • Have one checking account and one savings account
  • Manage your time and your money more efficiently by using your bank’s on-line bill pay service. It is a quick way to setup reminders and pay bills.
  • Setup automatic payments for recurring bills.
  • Have one IRA and/or Roth IRA - it is okay to have one of each
  • Have only your current 401(k)/403(b) Plan - rollover previous 401(k)and/or 403(b) plans to your IRA - one client “forgot” about $150,000 at a previous employer
  • Have one brokerage (taxable) account. It helps to cut down on errors at tax time. Stop looking for multiple reports, and only look for one account.

These are simple things, but the more spread out you are, the more time it takes for you to know and understand where you stand financially.

If you need some help gathering all of your assets into one place, give us a call. We are happy to help. Whether you want for us to manage the assets or simply hold them in your accounts, we want you to clearly understand your financial position.

Saturday, June 28, 2008

Looking Back

Remembering where we have been every now and then is always a good idea. Birthdays, anniversaries, reunions, etc. all seem to bring back memories from days gone by.

Today, I will attend the 60th anniversary party of my grandparents, so I thought this was a good time to reminisce about how things in the investment world have changed over the last 60 years.

On Saturday, July 3, 1948, the Dow Jones Industrial Average was sitting at 190.06. The 30 Dow stocks looked quite different, but there were a few familiar names - American Tel. & Tel. (AT&T), DuPont, GE, GM, Proctor & Gamble, Standard Oil of California (eventually become Chevron), Standard Oil - NJ (eventually become ExxonMobil), Texas Company (became Texaco then merged with Chevron), and United Aircraft (became United Technologies). To tell you how long it has been, one share of GE in 1935 would have been $35.05... fast forward to 2005 and that 1 share would be worth $10,094.40... These titans of industry were the building blocks of the economy both then and now. Can anyone really imagine not having a GE, GM, AT&T, or ExxonMobil?

In 1948, the Dow Jones was dominated by commodity type companies like both Standard Oils, National Steel, International Nickel, Bethlehem Steel, American Smelting, U.S. Steel, and American Can. Today's Dow looks to be much different and diversified - 6 diversified industrial material companies, 5 financial firms, 4 tech firms, 3 commodity firms, 3 retail firms, 2 telecoms, 2 industrial companies, 2 medical firms, 1 chemical, 1 auto, and 1 entertainment firm.

The NASDAQ was still over 20 years from starting (1971), the world wide web (WWW) was not even a thought (1991), and the biggest issue of 1948... the presidential election where Truman beat Dewey - yes the press had problems with elections back then too.

There have been eleven different U.S. Presidents during the time, but some things still haven't changed... Congress was still arguing about taxes and Social Security. There have been 5 wars (Korean, Vietnam, Desert Storm, Enduring Freedom, and Iraqi Freedom) and countless skirmishes. The Cold War ended, and capitalism and democracy spread globally.

Today the Dow sits between 11,000 - 12,000, the economy is no longer a regional or national one but a global one, and as the US and world has changed, so has the Dow and investing. The main lesson here is that being invested for the long term, no matter how bleak in the short term, will pay off handsomely.

Much has changed over the past 60 years, but it was with forethought and determination that the men and women of the business world grew our economy and our nation into the financial leader of a global economy. The next 60 years will change even more, and who knows which companies will lead us into it. The one common thread will be adaptability and creativity of the financial market.

Happy Anniversary Robert & Gladys.

Friday, June 27, 2008

Dow Drops 358 as Oil Hits $140

The Dow dropped 358 points on Thursday as oil hit a record $140 a barrel on threats from Libya to cut output and comments made by OPEC's president. The drop in the Dow brought the index to a two-year low.

General Motors (GM) fared even worse after the oil rally with the stock hitting 50 year lows. The automaker dropped 10.8% to $11.43.

Financials remained under pressure as Goldman Sachs lowered their outlook on the group. Citigroup (C) and Bank of America (BAC) were both down more than 6% at the close.

The NASDAQ could not escape the downdraft as Research in Motion (RIMM), maker of the Blackberry, and Oracle (ORCL) started the ball rolling with good earning reports but forecasts that put a damper on future expectations. The NASDAQ ended up down almost 80 points.

The commodities market fared well with oil leading the way with natural gas, gold, silver, platinum, copper, corn, and soybeans. The comments by the OPEC president of oil possibly reaching $150 this year along with Libya stating that they may cut production due to the market being well supplied just fueled the commodity even higher. Speculators seem to be rushing into the market, and it is unknown exactly how much of an effect they are having on driving the price higher. Congress continues to have hearings on oil market manipulation, but at the moment, nothing has been done. The soft dollar is also not helping to curb the increase in prices.

Thursday, June 26, 2008

World Energy Demand Seen Growing

The Energy Information Administration reported on Wednesday that the world's energy demand will grow approximately 50% between now and 2030. The regions with the largest growth are predicted to be developing nations like China, the Middle East, and Africa.

Despite the global warming issues, coal will be the fuel most used to produce electricity with most of the demand coming from the emerging countries. The report also stated though that a global mandate to control greenhouse gases could alter the fuels that are used in the future.

  • Natural gas use will continue to grow as this cleaner burning and more efficient fuel is used whenever possible to replace oil.
  • Nuclear power will become even more important as countries around the world build plants including an estimated 15 in the U.S.
  • Wind, biofuels, and hydroelectricity will continue to grow, but the growth of these technologies will not do much to curtail the use of fossil fuels

The use of alternative energy in developed countries will continue to grow, but in the emerging nations around the world, coal and oil will still be the chief sources of power for electricity and transportation. Without a global mandate to control greenhouse gases, the production of greenhouse gases will grow 51% between now and 2030.

Wednesday, June 25, 2008

Fed Holds Rates Steady

This afternoon The Federal Reserve (The Fed) held short term interest rates steady at 2%. This is a move that most economists predicted, and where we move from here is a matter of discussion.

On the one hand, the economy does not seem to be on the verge of recession as earlier in the year, but it has still not picked back up. The Federal Stimulus checks have gone out, but they have not shown up in much of the data thus far. Additionally, the June unemployment report surprised everyone with a jump to 5.5% versus the May 5.0% report. These items have more than a few economists predicting that we are currently pausing, but we may need more cuts.

On the other hand, we have seen inflation rise. The Fed's statement was focused on discussing the rise in inflationary pressures that usually means a rise in rates in the not too distant future. The vote today was 9-1 with the 1 being for a rise in rates. Most economists believe that we are currently pausing before a rise in rates some time between this fall and next spring.

The market responded favorably to the news of the steady rates, and commodities across the board dropped with oil giving up more than $2.50 to $134.50 prior to the closing.

Several mutual fund managers discussed inflation as being some thing that The Fed could not really target. They stated it is the growth from India and China that is really to blame for pushing up prices due to production not being able to keep up with demand. When the global economy starts to catch up, inflation will taper off.

Tuesday, June 24, 2008

'Twas the day before...

The Fed and all through the market not a trader was moving... You get the gist of it.

The Fed started its two-day meeting today in Washington, D.C., and the market remained largely unchanged today with some minor moves, but nothing to really hang your hat on. Most analysts expect The Fed to leave the rates unchanged tomorrow when they announce the overnight rate at 2:15 EDT due to the recent data reflecting a still sluggish economy.

There is still some growing concern about the rise in inflation with oil and food prices being two of the biggest culprits. Interestingly enough, corn has actually risen more than oil this year, and we continue to hear both sides of the debate about corn prices and ethanol production. That is a story for another day though.

Tomorrow we will most likely see the rates remain unchanged, but the real kicker could be the comments made by The Fed that accompany the decision. Look for the market to be tame for most of the day, then right before the announcement, look for some hedging or "bets" to take place.

It should be interesting...

Where are the tech innovators?

An interesting thing has happened over the last few years… tech innovators have gotten older. Gates and Ballmer (Microsoft), Ellison (Oracle), and Jobs (Apple) are all over 50. Remember when all of these men and companies were just upstarts?

Well, times are a changing. We have now reached the end or the beginning of the end of some of these careers. Gates has left Microsoft after a 2 year swan song; Ellison is so busy with his sailing that I would be surprised if he hits the office twice a week; and finally, Jobs has been hampered by pancreatic cancer in the past, and his appearance at the Apple Conference started the health rumors anew.

All of these men are important in the history of technology innovation, and with their careers slowing down, where do these companies go from here? Ballmer has not been a big success at Microsoft (MSFT), and the team under him is also not exactly fresh blood. Ellison has no clear heir apparent, and who knows... maybe he will be there another two decades. Jobs is probably the most important to his company, and while Apple clearly has brilliant minds, not one of them is Jobs.

Not to fear though, a new crop of leaders is emerging. Sergey Brin and Larry Page from Google, Mark Zuckerberg from Facebook, and probably 10 other soon to be billionaires that we have never even heard of... yet.

In the end, the big guys will be there, but the nimbleness and fire will be gone. A new wave of innovation is coming be it in energy, communication, transportation, or ??? We do not know where it will begin, but we will all be looking for it...

This little walk down memory lane has been brought to you by the retirement of Bill Gates.

Monday, June 23, 2008

Going Green vs. Going Organic

Going green has become all the rage, and while it is obviously the right thing to do from an environmental point of view, it can easily be expensive. Is it worth the cost?

Remember when everyone started wanting every food to be organic? It was a great idea, and the number of people that were willing to pay extra for organic food seemed to grow every day. Unfortunately, food and oil prices have recently risen dramatically, and suddenly everyone is shying away from organic food and its cost. Whole Foods, The Fresh Market, etc. have all seen a large decrease in foot traffic and sales over the last few months. Will the same thing happen to going green?

The answer is almost definitely no. The reason is pretty simple. Little one time changes here and there can help save money and energy. From compact florescent bulbs (CFLs) to programmable thermostats to dripline irrigation systems each will cost more initially, but in the end, they would each save the homeowner money and be environmentally friendly. This is much different from eating organic foods because that is an increased every single week… not just once. These are just little examples, but they can make a big difference when a neighborhood, community, or city makes the change. By the way, did you know that some insurance companies will give you a “utility credit” for a home that is more energy efficient? It can save you as much as 10%... Usually it is new homes that will qualify.

There are some things that definitely do cost more by going green, but as with most new technology, the initial costs are high, but they start to come down (CFLs have become much, much cheaper and better). Hybrid cars are still too pricey, and if you check the calculators on how long you need to keep the car to save money, you will notice it is not yet very economical... but it will be in the future.

The question is what does the future hold? Will cars continue to be hybrids or will batteries become better allowing for longer trips? Will solar energy or wind energy become more readily available? What will the energy source(s) of the future be? All of these answers have different business possibilities and investment opportunities, yet in the end, which will be the winner? Only time will tell...

Want to learn more about going green? Visit The Green Guide – the site includes information for your green home, green products (from towels to beer), and a green buying guide.

Sunday, June 22, 2008

US Energy Secretary Blames Oil Production on Rise in Prices

On Saturday, the US Energy Secretary, Samuel Bodman, said the lack of sufficient oil production had lead to higher oil prices and not speculation or manipulation in the financial markets. These are quite surprising comments, and the fact that they were said before a conference of oil producing countries and oil consuming countries is also interesting timing.

Saudi Arabia, the host country, has stated repeatedly that they will increase production as necessary to keep up with demand, but Bodman said they have not. Bodman points to the ever increasing demand from developing countries (China, India, etc.) as the reason for needing the increased production globally. Saudi Arabia has already agreed to build infrastructure to allow for 12.5 million barrels a day in production, but they have not signaled wanting to increase oil production beyond that.

Saudi Arabia’s thoughts are that if the continued record oil prices start to hinder growth in the US and global economies, the demand for oil could drop which could start a dramatic downswing in oil prices. The issue is how to control production and the cost of oil while balancing the global economy and growth. This is not an easy task.

Do not think that Bodman only blames the oil producing countries though. Bodman clearly stated that the oil consuming nations must also do their part by becoming much more efficient with their oil consumption. From energy efficiency to alternative fuels, oil consuming nations must chip in to help.

This is a conference that the world will be watching.

Want to know more? Read the Yahoo article

Friday, June 20, 2008

NYSE Short Interest at a Record High

Yesterday the NYSE released its mid-month short interest report for June. Since the end of May, short interest on the NYSE has grown by 7%. This is the third time in 2008 short interest has increased by more than 5%.

Historically short interest in the market has been considered a contrarian indicator, but during the past few years the emergence of hedge funds and long/short funds has somewhat skewed the numbers. In the end, short positions are usually held by "short term" or "day" traders, and they are much more inclined to move quickly to cover a short position and lock in any profit or loss than a long term investor. Thus, even as the numbers on the short side grow, the end result should be a market that at any point could turn and have the shorts covered. Any momentum to the upside could bring a dramatic move to cover these shorts. This one issue should be seen as something that should provide a bit of cushion.

The NYSE Press Release - link:


NYSE Group Inc. Issues Short Interest Report

New York, June 19, 2008--The NYSE Group, Inc. today reported short interest as of the close of business on the settlement date of June 13, 2008.

Based on information received from members and member organizations, short interest increased to 17,654,028,383 from 16,431,281,684 shares on May 30, 2008. This is an increase of 1,222,746,699 shares and is an all time record.

The short interest on June 13 was equal to 4.6 percent of the total shares outstanding.

The short interest in warrants as of June 13 amounted to 1,012,976 warrants, compared to 1,153,676 warrants the previous period.

As of the settlement date, there were 3,715 stocks and 10 warrants available for trading. Of these, 3,172 issues had either a short position of at least 5,000 shares or a change of 2,000 shares since the last monthly report.

A short sale is any sale of a security that the seller does not own or any sale that is completed by the delivery of a borrowed security.

Thursday, June 12, 2008

News - June 2008

The themes driving the economic discussions and the markets continue to be the same factors in play that have dominated the past several months. The only episode rivaling the run in commodity prices seems to be the endless presidential primary season and ensuing general election campaign. The exhaustive news coverage of these events can even cause the most fascinated observer to become weary. Thankfully (and assuming there will be no McCain v. Obama Supreme Court coup de grĂ¢ce), the presidential race will come to an end this fall, while the duration of the bull-run in commodities is a bit less predictable.

The increasing cost of crude oil and gasoline has remained foremost in the commodity discussion as prices at the pump have eclipsed the $4 per gallon level in many U.S. cities. Crude oil prices have continued to soar from $96.29/barrel on December 31, 2007 to $127.78/barrel on May 30, 2008, which is actually down a few dollars from the peak during the month of May. Congress has looked into whether there are any manipulative practices influencing the price of oil on the financial markets, and it appears that they do see speculation, but nothing that appears to be widespread illegal manipulation of prices.

Consumer confidence recently registered at the lowest levels since the previous President Bush was in the White House. The weak housing prices, rising energy costs, and a shaky job market are all adding to consumer jitters. Statistical evidence of a weaker economy and a cautious consumer oftentimes has been a harbinger of prosperous moves higher by the equity markets. In fact, since mid March through the end of May, we have already seen the NASDAQ rally over 15% and the S&P 500 rebound by roughly 10%.

The unemployment data for May showed an unexpected spike as the jobless rate increased from 5.0% to 5.5% in one month. There are many economists who have offered an explanation for the unusual monthly spike. One reason is that it is estimated that the job market needs to produce 100,000 jobs each month to match the additions to the labor force. The past five months of job data have shown negative job growth without much of a rise in the unemployment rate, so the lag in the rise of unemployment could have shown up in the data this month. Others have challenged the data and the seasonal adjustments, attributing the rise to the end of the school year, which added thousands of teenagers and college graduates into the labor force.

The always anticipated sell-off in May did not materialize this year. The NASDAQ was a notable outperformer for the month of May, gaining 4.6% along with small cap stocks, as the Russell 2000 also rose by 4.6% during the month of May. The S&P 500 was up 1.3%, while the Dow Jones Industrial Average lost 1.2% for the month. All of these measures are negative for the year while rebounding since March. The Dow Industrials and S&P 500 are off 3.8% for all of 2008, the NASDAQ, despite its recent strong performance, is down 4.6% for the year, and the Russell 2000 is only off 1.8% for the year.

In the U.S., we are, on aggregate, larger consumers of commodities as opposed to producers of these valuable resources. Several economies have thrived, in part, due to the rising prices paid for those resources. The U.S., Japan and Europe seem to be lagging behind Canada, Latin American, Russia and some Asian countries, which are large producers of energy and natural resources compared to their relative consumption.

International markets have been mixed for the year. As we have said, the developed economies, which are larger consumers of natural resources, have struggled compared to the other markets. The developed international market as measured by a popular ETF has declined 3% for the year while the most widely followed emerging markets ETF has been slightly negative for the year by 0.5%. China’s and India’s stock markets have struggled this year while some of the other foreign markets have done better. For the year, the Latin American ETF has produced a gain of 20.2%, while the Canadian ETF has added 8%, and finally an ETF focusing on Russia has gained 10.4% through May 31st.

Financials continued their struggles, falling 6.95% during the month of May and extending the year-to-date losses to 13.77%. Many analysts had believed that the Bear Stearns bailout would mark the bottom for the financials as fear reached a peak. Unfortunately for many investors, numerous financial stocks have eclipsed the lows of March after rebounding temporarily in April. The Federal Reserve actions have had a positive impact on the functioning of credit markets; however, these improvements have had surprisingly little positive impact on financial stocks.

Despite continued volatility in the markets, the major averages and indices have not breached the lows reached during January and tested in March. Some market technicians (those who use charts and trends as proxy for investor psychology) have opined that it’s likely the market has seen the worst. We are loathe to suggest with any certainty that we have, indeed, seen the worst, but the market does seem to be signaling that the economy may stabilize and begin to strengthen towards the end of the year.

The rest of 2008 is sure to be filled with political uncertainty and posturing, and uncertainty is not something the financial markets typically embrace. However, there is some historical evidence that the uncertainty, fear, or even exuberance related to political leadership changes are frequently exaggerated. We’re confident that the U.S. economy and financial markets will have success in the future regardless of what change the 2008 election brings.