EQUITY MARKETS HAVE A POOR WEEK:

Some modest positive news early in the weak was drowned out by rising oil futures prices and a radical jump in unemployment numbers. The Dow Jones Industrials were down 3.39% and the S & P 500 was down 2.83%.

REITS BOUNCING BACK: Real estate investment trusts (“REITs”) outperformed other major market benchmarks during the first five months of the year. The FTSE NAREIT all-REIT index was up 6.5%, for the period, while equity REITs rose 8.2%. Self-storage and residential REITs were the biggest gainers, posting returns of 21.1% and 15.6% respectively. The REIT gains have helped the group recover from last year. Equity REITs posted a return of -17.8% last year. This is a great example of the premise behind asset allocation. People who jumped out of REITs last year missed out on gains of 2008 when REITs have been a good counterbalance to equity investments. One of the many things we as financial planners must assume in making projections are investment returns. In times like the present, clients will challenge even fairly conservative, long-term return assumptions.  Evidently, however, there are still optimists out there. The governor of Pennsylvania, Ed Rendell wants to sell the toll-taking rights on the Pennsylvania Turnpike for an up-front payment, pay off some debt, and invest the remaining $10 billion with the state pension fund, set aside a bit for inflation, and pocket an average 12 percent each year, or $1.1 billion, to fix rundown roads and bridges.

MUNICIPAL BONDS GET A SHOT IN THE ARM: 

Markets hate uncertainty. Fortunately, the U.S. Supreme Court just took some uncertainty out of the municipal bond market. A federal appeals court had held that individual states may not exempt residents who own same-state municipal bonds from state income taxes.  This case was accepted to the U.S. Supreme Court (Dept. of Revenue of Kentucky vs. Davis) which decided that states may continue to exempt their residents from paying taxes on that state’s municipal bonds. Clarifying the tax status of state municipal bonds for local residents removes an issue that had been weighing on the market for municipal bonds in addition to the general credit issues affecting the markets. Keep Reading...

For the week the Dow lost -2.39%, the S&P 500 -1.81%, Nasdaq -1.27%, and the Russell 2000 -0.78%. Markets around the world also offered poor weekly returns with the one key exception in Russia which soared +9%.GROWTH:  The US economy grew by +0.6% (in size) during the 1st quarter of 2008 (i.e., quarter-over-quarter change expressed as an annualized result).  The change in the size of our economy from the 1st quarter of 2007 to the 1st quarter of 2008 was +2.5%.  By comparison, China’s economy grew by +10.6% for the 1st quarter of 2008 when compared to the first quarter of 2007 (Commerce Department, Financial Times).MORE INSIGHT ON ECONOMIC PREDICTIONS:

According to a recent report by USA Today, of those economists who believe the US is either already in a recession or will enter into one later this calendar year, 89% of this group anticipates that the economic downturn will be short and shallow in duration and intensity as opposed to long and deep. The Wall Street Journal ran a report at the end of 2007 in which a variety of seasoned financial experts were asked where the markets were headed in 2008. The predictions were mostly bullish – Dow 14,000 – Dow 15,000 – Dow 16,000. A couple more accurately predicted flat markets in the face of staggering oil prices and a weak housing market. But none of the experts expected a 10% decline in the first quarter alongside a massive credit crisis. Keep Reading...

GOOD NEWS ON AGING: Two research reports published in the April edition of the American Sociological Review conclude that the happiest Americans are the oldest. Among the findings: Older Americans have learned to be content with what they have.  They are more socially networked. 75% of people age 57 to 85 engage in one or more social activities at least every week (e.g., socializing with neighbors, attending religious services, volunteering, etc.). Those in their 80s were twice as likely as those in their 50s to do at least one of these activities. In general, the odds of being happy increased 5% with every 10 years of age. DEATH OF THE DEATH OF THE ESTATE TAX?:   John McCain said that if elected he will raise the estate tax exemption to $5 million and reduce the tax rate to 15%.  Both Hillary Clinton and Barack Obama said that they would set a $3.5 million exemption and leave the tax rate at 45%.  John McCain would index the exemption amount to inflation. Neither Democrat candidate would do so. None of the three would eliminate the estate tax.  It tooks like we will be living under a federal estate tax regime for a long, long time….the only question is the rate of tax and the amount of the exemption.  In any case, the credit shelter trust strategy (which is in so many existing estate plans) will continue to be an effective way to reduce overall estate tax for a married couple who are both U.S. citizens. HELPFUL BUDGETING/CASH FLOW WEBSITE:   I checked out www.mint.com this weekend, and I am very impressed with what I have seen so far.  This software is a good way to organize your cash flow and budgeting. There are two very attractive attributes to this software:  It is 1) fast and easy, and 2) free. THE MARKETS:  The roller coaster was moving up this past week. The Dow Jones Industrial Average was up 4.25% (down 3.13% for the year) and the S&P 500 was up 4.31%  (down 5.31% for the year)  [Past performance does not guarantee future results.] Some of the upward movement was driven by positive earnings reports from, among others, Caterpillar, Intel, IBM, Google and Honeywell. Each exceeded expectations. On the other hand, Citigroup and Merrill Lynch reported massive write-downs on their housing-related debt and other debt instruments. Both companies saw their share prices increase. The U.S. dollar slid again and commodity prices increased. These views are provided by my good friend and business associate Doug MacGray. Doug is a certified financial planner. If you need the assistance of a great financial planner, please let me know and I will get you in contact with Doug.

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713

STRUGGLING ECONOMY: Clearly, we are in a poor situation. Almost all data that came out last week was negative, and the markets responded in kind. The job numbers were negative.  Construction spending fell by -1.7%, mostly due to a drop in residential construction. Consumer credit grew by $6.9 billion. Factory orders dropped -2.5% in January.   JOB LOSSES IN PERSPECTIVE: Last month there was a net loss of 63,000 jobs. In the recession of 1980, in April payrolls declined by 145,000, 2.3 times what was lost in February 2008. Of course, since the total number of employees in April 1980 was a little under 91 million versus today’s almost 138 million, this 145,000 loss represented even a far greater percentage decline. Maybe more important, since February 2008 was the second month of job losses, a potentially better reference point would be the 431,000 jobs lost in May 1980, the second month of that year’s recession.   DECREASING EQUITY: In the fourth quarter of 2007, homeowners’ equity fell to its lowest level in more than 60 years. The national average for owners’ equity as a percentage of household value dropped to 47.9%. In 1945, the percentage was 84%.  (Federal Reserve’s Flow of Funds report for the fourth quarter of 2007: www.federalreserve.gov/releases/z1/).   A COLLEGE SAVINGS ACCOUNT….FOR YOURSELF:  Almost everyone knows that a Section 529 College Savings Account is a good place to put money because you enjoy tax-free growth if you ultimately use the money for qualified education expenses. Occasionally, I have worked with young couples who have started putting money into a plan, naming themselves as the beneficiary, temporarily, until they started having children. However, I believe that the use of these accounts should and will be used much more extensively by baby boomers for themselves.

More and more people are proactively planning what they will be doing in retirement, and for many, it is to move on to some different type of career. I had a very high executive client at a Fortune 500 company who retired and went to law school. But consider some of the following possibilities:

• A semester at sea studying marine biology
• A year-long French lit course in Paris
• A fall session exploring art in Guadalajara
• A summer of music appreciation in Vienna
• An ecological field trip to Costa Rica  

(See http://www.petersons.com/Â for more possibilities.)

Keep Reading...

As we head into the third month of the year and what seems like the third year of this year’s presidential election, I hope you are well and that you are weathering the choppy economic environment as well as all of life’s other challenges.

LAST WEEK’S MARKETS:

The markets advanced for the first four days of the week, but gave it all back on Friday. The Dow [-0.93%; -7.53%], the S & P 500 [-1.66%; -9.38%], and the NASDAQ Composite [-1.38%; -14.36%] all declined for the week.  Many investors getting out of stocks moved to the quality of U. S. Treasury securities, driving their prices up and yields down. T-bills dropped well below two percent, meaning lower returns ahead for money-market funds and other short-term investments. If the Fed lowers rates again in March, rates on T-bills, CDs, and money-market funds could slip to near one percent.  Once again investors will have to move further out on the yield curve or take on greater risk, to maintain higher levels of income and return. The average taxable money market fund in the USA was yielding +3.05% last week, down from +4.75% just a year earlier (source: iMoneyNet). Keep Reading...

FORECLOSURES OVERHYPED?: 
The foreclosure figures used by much of the media come from RealtyTrac, a source that counts each filing in the foreclosure process. One house has to go through several steps in the process (each with its own “filing”), so counting each one as a separate foreclosure, as many in the media do, is inaccurate.

HOME VALUES DECREASING?:
In a one year period, home prices have decreased by about 4.5 percent.  However, since January 2000, the national average home price has risen by 80.45 percent, according to the S&P/Case-Shiller index of home prices.  Declines from record highs should be put in perspective. However, according to Moody’s Economy.com, nearly 8.8 million homeowners, or 10.3% of the total, have mortgages that are higher than the value of their houses.

A SLUMP IN HOUSING ACTIVITY:
Housing starts were up overall in January of 2008, but all of the gains were in the multi-unit construction area. Single-family home construction actually dropped 5.2%. Even worse, building permits fell 3.0%, the lowest level since 1991, which doesn’t look good for the future of the housing sector.

LEAVING YOUR ESTATE TO YOUR CHILDREN “IN EQUAL SHARES”:
Four out of five people split what they have equally among their children, according to an article in this month’s Money Magazine. When I was drafting estate planning documents, I found the percentage even higher, but I always asked questions to make sure it was right for them. Here are some circumstances which could dictate that “equal shares” may not be right:

One of your children has an addiction, such as gambling, alcohol, drugs

One of your children got a full scholarship to college for whatever reason (grades, athletics, etc) but you paid for all four years of your other children’s tuition.

One of your children takes you into their home in your old age, while your other children live far away.

One of your children provides significant monetary assistance to you in your old age, while your other children are unable or unwilling to do so.

One of your children is smart, ambitious, and/or independent and sets out on their own at age 18, while another languishes at home living off of you well into their 20s (or even later).

Keep Reading...

SERVICE JOB LOSSES CAUSE MARKET LOSSES:  
The Institute for Supply Management (ISM) non-manufacturing index dropped from 54.4 in December to 41.9 in January. Anything higher than 50 on that index shows expansion, and anything lower shows contraction. This is the lowest reading since October 2001. The markets were spooked by the ISM numbers and ended up giving back the gains of the past two weeks.

WHAT WILL MOVE THE MARKETS THIS WEEK?:  
Reports on retail sales and industrial production in January, along with earnings releases from some 45 companies in the S&P 500 will give investors clues on how corporate earnings are holding up during this period of economic weakness.

STATES WITH THE MOST MILLIONAIRES:
In three states at least 7% of the citizens are millionaires, New Jersey, Maryland, and Connecticut. There are five additional states with greater than 6% (Hawaii, Massachusetts, Virginia, Delaware, and Alaska).

LOTS OF FINANCIAL SERVICES PROVIDERS:
If all the financial information you receive makes your head spin, one of the reasons may be this:  There are approximately 30,000 firms in the U.S. that actively market financial services including 9,000 banks. I have a lot of competition. I bet a large percentage of those companies are located in the 8 states referenced above, as well as California, New York, and Florida.

HOME PRICES:  
According to the U.S. Commerce Department, the median price of a new home in December 2007 was $219,200, down from $244,700 in December 2006.

MUTUAL FUNDS SHARE CLASSES:
If you are not familiar with the differences between various mutual fund share classes, don’t buy them. I would always be happy to help walk you through this if you need assistance. Typically mutual funds are offered in ‘A’, ‘B’, and ‘C’ shares to consumers, and ‘I’ shares to institutions (there are other types not pertinent to this discussion). A prospectus will reveal the differences for the particular fund, but in general, an ‘A’ share charges a sales charge (load) up front based on a percentage of your purchase. ‘B’ shares charge no upfront load, but charge loads when you sell the shares, although such loads often go away if you own the fund for several years. A ‘C’ share generally has no upfront load, and if there is a back end load, it usually goes away after a year. Why, then, would you buy anything but a ‘C’ share? ‘C’ shares typically carry the largest annual fees and ‘A’ shares the lowest. An ‘I’ share usually carries the lowest annual costs and no sales charges, but they are only available with very high minimum investments.

Here’s my shameless plug….we use the funds that have the most reasonable annual expenses, and we get the loads waived. For many of the mutual funds we use, due to the volume we enjoy, we can often get ‘I’ shares, meaning the lowest annual fees and no sales charges. Thus, we often find that much of our fee to our clients is offset by savings in mutual fund expenses. The bottom line is that you should know going in what all the fees are…and if you have an advisor that does not give you a good explanation, ask again.

If you would like to speak with Doug or schedule an appointment to meet with him, please give me a call at 302-368-7132 Ext.12 and I can provide you with Doug’s information.

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713