December 2013 capped off a tremendous year for U.S. equities. The Federal Reserve has provided cheap money which has created rising asset prices. The question remains, “Is the real economy actually improving at the rate asset prices have risen?”

Stock markets around the world are more correlated than ever. It used to be that when the U.S. caught a cold, the rest of the world had pneumonia. Now that truism applies to China the world’s second largest economy, as well.

This past week, the slowdown in China coupled with the devaluing of the Argentinian Peso created havoc in the equity market. Additionally, some mixed news in corporate earnings fueled the decline.

We argued last year that top line sales growth may be difficult to achieve, though it seems that some companies are increasing sales and their bottom lines.

Corporations do have plenty of cash for buybacks and acquisitions. In September 2013, Applied Materials, Inc., a California maker of semiconductor manufacturing equipment, agreed to acquire its rival, Tokyo Electron, Ltd. in a $5 billion deal. We are likely to see more of these cross border deals as the world becomes a smaller place. Interestingly enough, while global deal making was more or less flat for the fourth consecutive year, annual volume in the U.S. was up 11 percent compared to 2012, according to Thompson Reuters.

President Obama has vowed to use his executive power to narrow the income gap. We are eager to see what his plan entails. If it means job training, infrastructure spending, fewer entitlements and more incentives, then we are on board.

Emerging markets are suffering as a result of China’s slowdown and a loss of confidence in many of their economic policies. And will Argentina ever get its act together? Weakening growth and high inflation has caused Tunisia and South Africa to raise their interest rates to avoid the stampede of capital out of their countries and, at the same time, to dampen inflation.

Bye Bye Ben – We will miss Federal Reserve Chairman Ben Bernanke. We owe Mr. Bernanke a debt of gratitude. Few of us remember how close we were to the brink of disaster four short years ago. Janet Yellen, the incoming chair (a Brooklyn girl!), has big shoes to fill.

New York seems to be suffering from Affluenza! Affluenza, you may ask, what is that? It is the importance placed upon a person just because of his/her pocketbook. America’s possession obsession is one of the ideals that must be changed if this society is to achieve greatness again.

We must be mindful that markets and moods can change rapidly. Adapting to swings in interest rates, gyrating stock markets and political uncertainty can cause a great deal of investor anxiety. The proper asset allocation is crucial, as is recognition of one’s own appetite for “downward volatility”, which in many instances can lead to good opportunities.

Abraham Lincoln once said, “We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.”

The future is rosy; we hope that we can help you smell the flowers.

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This past year may be marked not for what happened, but for what did not happen. The United States did not go over the fiscal cliff, nor did it default on its debt. The Federal Reserve did not stop buying bonds and mortgages, pushing the market to new highs, and inflation did not rise as many had predicted.

The lack of inflation has not pleased gold investors, who had a poor year — all very counter intuitive given the amount of money printing throughout the developed economies.

For us, the most troubling recent news was the weak agreement reached with Iran on its nuclear capabilities. It is clear to us that Iran is using these negotiations as a stalling tactic. Although we are pleased that hostilities did not escalate, we are very concerned about the ultimate showdown that we view as inevitable.

The worry throughout big corporate America is how to grow profits despite lackluster sales growth. Profit and sales growth are easier to come by in smaller companies that innovate. Technology businesses can experience growth by bringing new experiences to market — selling soap is a different story!

The latest retail report showed a 2.3% gain in sales on Thanksgiving and Black Friday. These are the weakest holiday results since 2009. Retailers went to great lengths to give big bargains as they were concerned about moving inventory off the shelves. Online retailing continues to grow, and bargains online were at least as good as in the brick and mortar stores of major retailers. Online retail sales rose 20% from last year on Thanksgiving. This is a clear trend.

What did happen this year is that the Earth showed further signs of climate change, a trend we expect to continue. The Middle East turmoil continued with Syria and Egypt in the headlines. The lowlights of the year were tragedies in Boston, Bangladesh and Oklahoma, among other places, — and the sad passing of Margaret Thatcher at 87.

We continue to believe in American ingenuity and courage. Despite many government initiatives, it has still been a long five years since the crisis of 2008 when the financial system almost came crashing down. Yes, growth has been anemic, but healing has occurred in many sectors, including the all-important housing sector. The healing has brought asset values back, but the hole was so big that the Federal Reserve, in our view, will be assisting the economy for at least the next two years, if not longer.

The concern that interest rates would move higher proved to be correct. On January 1, 2013 the ten year treasury was at 1.91%. As of December 3rd, it now stands at 2.78%. The direction of interest rates, particularly the ten year treasury because of its impact on mortgages, is a key question moving forward. Ten years ago, this rate was at 4.05% – so we are of the view that one should get as long term a mortgage as possible now.

Big companies have plenty of cash on their balance sheets to buy back stock, make acquisitions and make capital investments, if they so choose. These expected actions, coupled with additional cash on the sidelines and a low interest rate environment make it difficult to see a big stock market correction anytime soon. Those facts notwithstanding, no one ever went broke taking a profit… so we will be on the lookout to cash-in some of our chips when practical.

Obamacare and over regulation are the biggest threats we see to continued slow growth in our economy. If we could find solutions to improve both — ah, what a wonderful world this would be!

As we wind up 2013, we want to thank our clients for their continued trust and confidence.

Helen Keller said, “The best and most beautiful things in the world cannot be seen or even touched. They must be felt with the heart.”

From our hearts to yours, may you enjoy health, joy and peace in 2014.

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The Federal Reserve and its Chairman, Mr. Bernanke, decided last week to continue their bond buying program which has helped keep interest rates low and is supposedly keeping the economy from falling into another recession. With unemployment creeping lower due to the fact that people have decided to give up looking for jobs, the Fed is concerned about the possibility that housing will slow and that a showdown in Congress could lead to a government shutdown. (It did!)

Continued contentiousness about Obamacare has led the House of Representatives to vote for a de-funding of the Affordable Care Act. Though unlikely to be overturned, this is a strong signal that a good part of the nation’s population thinks Obamacare is poorly written and ultimately will result in lower quality care with a higher cost. Approximately $2.9 trillion, or roughly 18% of our nation’s GDP, is spent on healthcare. The Netherlands is the nation with the second highest spending as a percentage of GDP at 12%!

The shutdown and showdown in Congress is a huge embarrassment to our country. Aside from Denmark, no other nation requires a vote to raise its debt ceiling, and Denmark has never had an altercation in their government regarding this issue.

The U.S. government has already issued securities and legislated programs — why do we need to vote on a debt ceiling? A default on U.S. Government securities would be catastrophic for international confidence in U.S. markets — not to mention in the dollar’s role as the world’s reserve currency.

The gun debate rages on as we have seen even more killings. We must find a middle ground to prevent this madness.

The Food Stamp program costs the U.S. roughly $80 billion per year. This begs the question — are we going in the right direction? Lifestyles of government dependency are robbing many of the opportunity to establish lives of self-respect and upward economic mobility that come from work. Can we not create programs to foster that?

It certainly looks like the “bloom is off the rose” for J.P. Morgan Chase & Co. … There is no doubt that U.S. Attorney General, Eric Holder, is having a “whale” of a time as he tries to extract an $11 billion fine from the bank for its poor risk management. Can you imagine another situation where a CEO who oversaw a debacle such as this would be allowed to keep his position?

Cyber attacks are an increasingly troublesome issue. We should all make sure that we use the utmost care in releasing personal information on the internet. Please be diligent in protecting yourself in this area.

Blackberry lost a great opportunity to bring its new device to the forefront. Having once been the market leader, we are sad to see this innovator stumble so badly, but there is a strong lesson to be learned by this.

In your own investments and portfolio, do not become complacent and believe that what has worked in the past will continue to work now. The world continues to move faster. We must be nimble and also open to discovering new ways to protect family wealth and to achieve income and growth in this economy.

That is why we, as a firm, are dedicated to looking at different kinds of investments and evaluating new strategies to keep you on the right track in any economic environment.

Nelson Rockefeller said, “Wherever we look upon this earth, the opportunities take shape within the problem.”

Let’s take advantage of the opportunities together.

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The summer surge in the stock market has brought the averages up approximately 20% to date, a significant year by any measure.

More notable is that the interest rate on the U.S. government’s ten year note hit 2.7% in the last week of July — indeed a huge percentage increase in the benchmark interest rate over the past six months.

This situation has caused many investors to question their allocation to bonds. What should be noted is that memories are short in the investing world. Those investors who want a positive return and the preservation of capital (with some portion of their money) should not run from bonds. There is a reason to preserve capital — ask those who are older and wiser. Even Warren Buffett keeps plenty of cash on the Berkshire Hathaway balance sheet.

There was a flood of economic data released last week. What did we learn from it? The unemployment rate dropped from 7.6% to 7.4%, but payroll growth slowed. The issue of the Federal Reserve “tapering” bond purchases has become the focal point of the market.

In June, job growth slowed in both federal and state governments as the sequestration took hold. In the private sector during the same period, construction jobs rose while manufacturing growth slowed. In July, however, those trends reversed. On balance, we see a slow growth of jobs in both housing and manufacturing.

Countries like Indonesia, who have relied on China’s boom for the exporting of its resources, are feeling the pinch as China’s growth rate slows. This could be an issue for growth in the Pacific Basin.

Japan’s devalued Yen is helping its companies. Toyota’s sales are booming — who says that lowering a currency’s value does not help its businesses?

It seems that Europe has stabilized. Now is the time to look at companies that will benefit from Europe’s climb, and we are seeking opportunities.

Detroit’s bankruptcy has had very little “play” in the financial press. It is a very significant event, and we should take notice. Unless we are prepared to take on the unions that are largely responsible for the unsustainable pension and health care benefit costs, there are many more bankruptcies in store for our cities, and perhaps our states too. Only approximately 73% of state pension plans are properly financed. By one recent estimate, the total pension gap for states is $2.7 trillion, or put another way, 17% of U.S. GDP.

We would be remiss if we did not mention the future King of England, His Royal Highness Prince George Alexander Louis. Poor Kate Middleton being photographed by the world a day after giving birth. It may be great to be king, but being princess? Well… I am not so sure.

Look for a great deal of politicking as we move into autumn. New York’s mayoral race will shift into high gear and the debt ceiling debate will, once again, likely bring Democrats and Republicans to serious fencing and finger pointing.

The U.S. is climbing out of the abyss of the last decade and if we can get some responsible tax policy, it might be possible to close the deficit gap while creating good economic policy. This will require leadership on a national scale and, as of yet, we do not see who will provide it. Nevertheless, the darkest hour is always before the dawn.

If President Obama continues to get snowed in by Putin, people like Chris Christie will make fodder of him. We shall see, and that will make the next four months so interesting!

The late Michael Mansfield, former U.S. Congressman, Senator and Democratic majority leader said, “The crisis you have to worry about most is the one you don’t see coming.”

Stay nimble!

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Yep, IRS stands for It Really Stinks!

There is no one I know, Republican or Democrat, who is not outraged at what has recently occurred with the IRS targeting conservative organizations. The Obama Administration is having a tough time with a few scandals but that has not stopped the U.S. stock market from surging ahead. Despite the surge, since 2000, investors are not yet even on an inflation-adjusted basis. Furthermore, savers have been punished brutally with historically low interest rates that have put many retired Americans on a very restricted budget.

The stock market loves low interest rates but it particularly loves income producing stocks, which can explain the outperformance of income/high dividend stocks and Master Limited Partnerships (MLPs). As savers plunge into these stocks, valuations are becoming less relevant. Income vehicles are the new darlings of Wall Street.

The S&P 500 was up 2.20% in May after rising 12.7% in the first four months of this year. High dividend stocks beat the S&P 500, returning 16.4% through April but did lag slightly in May. This may be a warning that these stocks have gotten more expensive and perhaps that a rise in interest rates is coming.

We are not so sure of the latter. One of the reasons is that the U.S. needs interest rates to stay low so that its interest costs are manageable relative to the overall budget. If rates rise, it could be a budget buster that threatens President Obama’s agenda of entitlements, as the country would be forced to cut entitlements in order to attract foreign capital to finance its deficits. This scenario is no different than in other countries that must reduce their spending.

Interestingly enough, margin debt, the debt from people borrowing against their securities, increased to its highest level since June of 2007. Is this a sign of confidence or a rise in speculation due to a rising market and low interest rates?

U.S. companies spent $450 billion buying their own shares back in 2012 and are set to spend more this year. Because compensation is typically tied to earnings per share, reducing shares outstanding through a buyback is usually a good way to raise those earnings. Unfortunately for shareholders, buybacks are not always to their advantage. Very often companies buy back shares at the wrong time resulting in a waste of corporate cash and opportunity. The most destructive thing about buybacks is that they do not represent core “capital investments” and thus, do not necessarily create jobs.

The 16th Amendment created the federal income tax. According to the IRS, Americans spend 3 million man-years and $168 billion annually complying with the tax code. Everyone complains about the complexity, but will it ever change? I seriously doubt it. In reality the tax code is a good way of implementing social policy. In our view, more should be done in this direction because we do not believe that simplification will ever occur.

As China slows, Japan shakes, rattles and rolls, and Europe struggles, it is the United States that looks most attractive to investors worldwide. Corporations are flush with cash and their borrowing rates are at all-time lows. Energy and water are abundant resources in America and are delivering distinct advantages to us. Our challenge now, I believe, is to get our political house in order. If government can start to function at a more practical level, I believe that we are unbeatable.

The investor’s ultimate challenge is to capture the most upside with the least amount of downside risk. Clearly each investor must understand himself in order to achieve the best goals. It is our job to help guide you in these directions.

As our firm approaches its 25th year, I am proud to welcome my eldest son, Aaron, into our business.

Most recently, Aaron was an Associate at the law firm of Schulte Roth & Zabel in their investment management/hedge funds group. Aaron received his law degree from the Benjamin Cardozo School of Law. Prior to Cardozo, Aaron graduated from the Olin School of Business at Washington University in St Louis and interned at Bear Stearns and Lehman Brothers.

Aaron will be working closely with Andrea Tessler and our teams to learn all aspects of our business and of course with me.

As we face many challenges of the 21st century, and at a time where there seems to be so many problems, I thought of a quote I once heard by Calvin Coolidge, the 30th President of the United States, about the value of persistence. He said, “Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race.”

Have a great early summer!

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Wherever you look, the money just keeps flowing. Optimists believe that a combination of growth and austerity can get us out of this mess. Pessimists… well, they are pessimistic! Someone once told me that a pessimist will say, “Oh boy, things cannot get worse,” whereas an optimist will say, “Oh boy, things can get worse!”

The stock market’s steady climb has given rise to improved confidence as many companies report solid earnings. But, how many of these gains are due to stock buy backs rather than an increase in sales? That is a key question as financial engineering can mask the reality of what is really happening in our economy. It also makes you wonder if our government uses financial engineering in creating the budget…

Although the pace of manufacturing has picked up, of concern is that many companies are issuing negative guidance for earnings. This is a sign for investors to be cautious. After all, the Dow and S&P were up 11.25% and 10.73%, respectively, in the first quarter of the year.

The average U.S. household spent $2,912 on gasoline last year, representing nearly 4% of the average household income before taxes. That is indeed a nice bite out of a paycheck, but interestingly, the U.S. is among the cheapest countries in the world to purchase gasoline.

Some good news to report: as reported in the Wall Street Journal, the average high school advanced placement test scores rose last year for the first time in a decade. Florida had great advances in this category as students in that state received cash bonuses as incentives, once again proving the old adage that “money talks!”

Is capitalism broken? This question was discussed at a series of debates held by the Financial Times in Beijing, Shanghai, and Hong Kong. Our view is that capitalism is alive and well. For proof just look to the 212% rise in global exports since 2000. Contrarians argue that governments rather than private capital have driven much of that expansion. Nevertheless, even though governments have kept markets liquid and flowing, it is the markets themselves that have adjusted to new prices and supply and demand.

It is troubling that Wall Street and investors have been so instrumental in solving the housing crisis by purchasing homes and renting them out as opposed to individuals buying them as primary residences. What this means is that those renters will not be building equity for the future and will likely be more reliant on the government for their retirement. The issue of individual home ownership, the “American Dream,” is critical to address.

As we look to the second quarter and the year ahead, we expect that the sequester, payroll taxes, and income taxes will slow spending somewhat. These may be mitigated by the overall sense that the economy is improving.

Keep an eye on your allocation — take profits when they come easily and make sure that the risks you are taking are digestible in a market correction.

We have all been through an unprecedented time in the economy. Some have weathered it well, and some, well…

Aldous Huxley once said, “Experience is not what happens to you; it’s what you do with what happens to you.”

Enjoy the spring!

Filed under: Q2 | 2016 by Investment and Financial councel
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So the “fiscal cliff” came and went, and now we are looking at the political confrontation concerning raising the debt ceiling—O.K., that is now delayed for three months.

What was actually accomplished at the beginning of the year was a small step in reducing the deficit. What is truly required are reductions in spending, coupled with a sensible consumption tax.

As reported in The New York Times, spending on health care through Medicare and Medicaid (and other major social insurance and entitlement programs) are first and foremost, responsible for the growth in government spending. “Essentially, all the increase in spending relative to the size of the economy, and the potential tax base, has come from entitlement programs. About half of that increase, in turn, has come from health care entitlements specifically.” There is no question that as a nation, we must address these costs or we will go broke.

The idea of taxing savings and investment as opposed to taxing consumption totally undermines what we truly want to accomplish as a nation. Even though household debt has fallen, tax policy continues to favor both personal debt and corporate borrowing, while penalizing equity investing. Just take a look at high yield bond issuance last year versus equity issuance.

Banks were relieved of some of the capital burdens imposed by Basel III and are able to use assets that are “less desirable” as capital. This will help banks lend more during these challenged times, which is good news short term, but could spell trouble longer term — just another game of “kick the can” down the road.

Morgan Stanley cut 1,600 more jobs as the shrinking of Wall Street ranks continued. Commentary on the causes ranged from excess capacity to excessive compensation. Seems to me that by firing 1,600 people, the remaining staff will do just fine.

It appears that municipal credit is generally on the mend. This can be good news for infrastructure projects on the local level—sorely needed for sure. Have you been to JFK airport? Is it not a national embarrassment? Friends and clients from foreign countries continue to tell me how disappointing it is to land in one of the premier cities in United States and find a disorganized and dysfunctional airport, especially when compared to the modern airports in Asia and other international destinations.

South America seems to be gaining a lot of attention as a tourist destination as well as for its rich national resources. Peru, as an example, has been exporting copper and gold to Asia. Its gross domestic product rose 6.7% year on year in October 2012, as reported by the Financial Times.

Japan’s stock market is surging as the yen has been weakening — if debasing a currency and printing money (the way of the Western Nations) are the ultimate remedies for political irresponsibility, then the ultimate ending usually is inflation. When, is the question?

Over 90% of what the U.S. Treasury lent to businesses through TARP has been repaid. We tip our hat to TARP—well done. Those who were against TARP as those who were against the bailout of Mexico and Chrysler should have known better. They are examples of what government must do in a financial crisis.

As the market indexes surge, the housing market is finally also showing very positive signs. The pendulum swings no matter what the government does with taxes, because time heals most, if not all wounds.

As long as you remain balanced in your approach to risk — depending on age, risk tolerance and cash flow needs, you can expect good long-term results. The key is to stay the course!

Luck never made a man wise, so keep your wits about you. As has been said many times before, be greedy when others are fearful and fearful when others are greedy. Our job is to keep focused on the balance.

Ernest Hemingway said, “There is nothing noble in being superior to your fellow man. True nobility is being superior to your former self.”

Stay Warm.

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According to the Investment Company Institute, assets in retirement plans have reached a level of $18.5 trillion. The prospective tax on these funds is a huge receivable held by the U.S. Government. As baby boomers retire, the tax revenues from this pool of money will help with the nation’s deficit.

It is a disgrace that Congress cannot get its act together to serve the American people, but it is also disappointing that our President cannot lead the two sides to a compromise. Cliff or no cliff, this whole situation speaks to the need for reforming our federal budget process as well as federal election laws.

If all the shenanigans in D.C. result in higher taxes and lower government spending, we believe that interest rates could move lower (the ten year note could go down in yield!). If rates do fall, it will support the rate refinancing boom. In this event, consumers will have additional disposable income.

To the extent that BRIC countries (Brazil, Russia, India and China) are slowing, it could put a dent in world growth. Furthermore, if the fiscal cliff is not averted, the impact could be a 2-4% drag on the U.S. economy.

As we move toward year end, weakening corporate revenue is a new concern for investors. As a group, the S&P 500 companies experienced a revenue decline of 0.8% in the third quarter. Earnings of these companies, however, were still slightly better than expected.

Do dividends matter? Over 200 years, from 1802 to 2002, Barclays reports that U.S. equities delivered a compound annual nominal return of over 7%. Of this, a full 5% came in the return from dividends, 1.4% from inflation, 0.8% from real dividend growth and only 0.6% from revaluation of equities over the period.

Online holiday shopping is off to a brisk pace. It seems that Christmas shopping starts earlier every year. Promotions are bountiful and our expectation is for a reasonably good retail season. We are, however, concerned about the first quarter of 2013 as a likely higher tax environment may slow consumer spending.

All this does not present a pretty picture, but what it does do is get everyone’s attention on dealing with the problems—the time is now. The good news for the markets is that there is so much money around and big corporations are generally flush with cash, such that a resolution of these issues could have a very positive impact.

Hurricane Sandy walloped not only the environment, but took a nice bite out of the economy. The boomerang effect is that roughly $60 billion will be required to put “humpty dumpty” back together again. The good news is that these dollars will fuel economic growth next year.

What the “frack” is happening in the oil business? Could it really be that the U.S. is destined to be energy-independent by 2020, only eight years from now? Speaking of oil, the Arab spring is gushing chaos. Hopefully the U.S. will be able to exert enough influence to keep a lid on it, but our guess is that more chaos is going to follow.

Asset allocation will be critical next year. You should discuss your financial needs and objectives with your advisors in order to be prepared for the volatility, which we believe will be prevalent.

We end the year with a beautiful quote by Eleanor Roosevelt who said: “A mature person is one who does not think only in absolutes, who is able to be objective even when deeply stirred emotionally, who has learned that there is both good and bad in all people and all things, and who walks humbly and deals charitably with the circumstances of life, knowing that in this world no one is all knowing and therefore all of us need both love and charity.”

Let this wisdom govern our actions in the coming year.

May you be blessed with good health, joy and peace of mind.

Filed under: Q2 | 2016 by Investment and Financial councel
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Who will get hurt if America falls off the fiscal cliff? We’re going to find out if the Bush-era tax cuts expire and nothing is done to replace approximately $1.2 trillion that comes out of the economy.

The rich will pay more taxes (yawn if you’d like), the poor will continue to get subsidies (resent it if you’d like), and the guy in the middle… well, he will take it on the chin as always. The middleman will watch his taxes and cost of living rise, and unfortunately his retirement assets, although growing, will be taxed at the same higher rate as his wages.

In a Wall Street Journal review titled “Guidebooks to the City of the Future”, one of the interesting observations made is that “cities around the world are converging toward a single model: more bicycles and fewer poor people.”

“The economic malaise we are experiencing in America could be cured,” reports The Wall Street Journal. We need education and training for jobs that ARE available. My friends in the staffing business tell me there are plenty of jobs available—what there aren’t however, are qualified persons to fill those jobs!

In any event, chronic unemployment is likely to persist for some time. This is unfortunate, but a by-product of a civilization moving from industrial to the information age.

With American corporations so flush with cash, we need investment tax credits and accelerated depreciation to get corporations to make capital investments, and to spend money on education, as Microsoft has begun to do. If corporations use these excess funds to acquire other businesses as opposed to making investments, corporate profits may increase, but more unemployment will result—just the opposite effect that is needed on a social level. Clearly, this is an example of how government can “direct social policy” via a capitalistic mechanism. Do they not get it?

One of the scariest statistics about U.S. Government debt is that roughly 59% of it is due within 3 years! How problematic would it be if interest rates were to soar just as we need to roll our debt?

Incredible as it seems, August cash dividend payments of $34 billion set an all-time monthly record. According to Barron’s however, payout ratios remain very low, with companies distributing less than a third of what they are making; the historical payout rate is 54%.

The U.S. is at risk of losing tax payments from companies incorporating abroad. These companies are doing so to escape what they consider to be onerous taxation. Companies that have already made the move, according to The Wall Street Journal, include Eaton, Ensco International and Rowan, as well as a spin off from Sara Lee called D.E Master Blenders 1753.

Neil Armstrong, an American hero, passed away recently. A quiet and humble man, he was the first person to walk on the moon. He lobbied passionately for increased government spending towards our space program.

It was reported that U.S. households owe less today than when the financial crisis hit four years ago. Nevertheless, household debt is equal to 17.6% of assets, which is higher than the 14.8% that prevailed during the 1990’s. The good news is that household debt service was 10.98%, the lowest since 1994 and much lower than the 2007 peak of 14.08%. Refinancing of homes is a primary factor.

As we enter the fourth quarter, a very slow growing economy prevails. The stock and bond markets can do very well in these environments, though we believe that the stock market as a whole has gotten ahead of itself. Of course, we know all the geopolitical, tax and regulatory issues that continue to gnaw at this market.

Nevertheless money is so cheap, and the Federal Reserve is printing so much money (as are almost all Western nations) that a big selloff seems unlikely unless Iran, China, Congress, or taxes derail the slow growth.

Most importantly, stay well diversified and keep to your objectives.

Some wise men say, “Be faithful in small things because it is in them that your strength lies.”

Please let America return to the small things that we used to do right. Doing right is the most important.

Happy Halloween and enjoy the leaves turning!

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European Central Bank President Mario Draghi announced that the bank would do anything to keep the Euro alive and well. How about specifics, please?

We have heard so much discussion from Washington and Brussels about how they intend to save the economies of the U.S. and Europe. In the meantime, the rest of the world is watching them waste precious time. Corporations managed by good men moved forward by adapting to the new world orders. Why is it that politicians have lost the art of leading!?

The markets may pause while the Olympic Games are taking everyone’s attention from the real world. In the autumn, Spain and Greece will move center stage once more. There are also the market pressures of the U.S. elections where the markets clearly favor the Republican’s certain choice, Governor Romney.

Governor Romney began the Olympics by insulting our British allies. He will have to do much better to win in November. (As I write this, we are 100 days away from the Presidential election!) Actually, the U.S. and Europe have invented a new Olympic sport—it is called kicking the can down the road!!!

Interest rates are at all-time lows. Yes, they can go lower, but rates on mortgages are not likely to go much lower no matter what. If you are refinancing, go for the longest term practical. The debate on Obamacare continues… so much could have been done to improve on the legislation that was passed, particularly in the cost containment area. We are “sick” about the state of healthcare in this country.

Stockton, California filed for bankruptcy protection; San Bernardino and Mammoth Lakes followed. The bondholders of these cities were expected to take losses as property tax receipts fell and costs for retiree healthcare and pensions swelled. Warren Buffett said that the reduced stigma attached to these bankruptcies make it likely that other municipalities will follow.

The slowdown in U.S. growth is adding to fears that another recession could occur. Second quarter GDP rose 1.5% year over year. This rate is widely believed to be too anemic to bring about the job growth that is sorely needed. Mort Zuckerman, Chairman of U.S. News and World Report, pointed out recently that fewer Americans are working today than in 2000, despite the fact that our labor force has grown by 11.4 million. Discouraged workers who have dropped out of the labor market since the 2008 recession, coupled with large numbers of part-time workers with no benefits, explain this phenomenon.

It is also believed that the Federal Reserve will act because of the anemic growth. Is there a QE 3 in our future? We believe that the Fed will continue to encourage the markets with strong talk of continued low interest rates and potential support. If the economy stalls, we believe the Fed will put more pressure on Congress to produce pro-growth legislation. Mr. Bernanke, however, cannot produce much more in the way of growth without leadership from Congress and the executive branch.

JP Morgan was finally humanized by the revelation of its trading losses. Sandy Weill, the creator of Citigroup as we know it, came on television last week to say that he was wrong, and that big banks should be broken up into commercial and investment banks. This is the same Sandy Weill who lobbied to repeal the Glass-Steagall Act! Well, thank you very little Mr. Weill. Please stay retired. Jamie Dimon, Mr. Weill’s protégé, was heretofore viewed as the best banker in the country. What we learn from this is that things work until they don’t. Unintended consequences are often more powerful than the intended ones.

Mike Tyson once said, “Everyone has a plan until they get punched in the face.” Isn’t that the truth?

Our focus must be on producing legislation and policies that provoke change. One may argue about methodology, but we believe that Mayor Bloomberg has been out front and candid about the issues we face. Obviously, with the recent murders in New York City and rampage in Colorado, gun control is at the top of the list.

Aren’t you tired of hearing about the “fiscal cliff”? Why can’t we have an adult debate in Congress and discuss the issues and resolve them without the total politicization of this and all of our nation’s pressing issues?

Whatever happens in the U.S. and Europe, one thing is certain—the world is searching for leadership. It desperately needs it. The danger is that if circumstances become dire, a very bad or potentially dangerous leader could emerge. We must also be vigilant about this, but more importantly, we cannot and must not let that happen. That is why I have written repeatedly that we as U.S. citizens MUST get involved in the direction of the country.

The future is very bright for America. Our energy resources are being exploited like never before, and our water resources are the envy of the world. What is missing is the proper road map.

The markets have responded well to corporate results. Construction and home improvement boosted growth in the second quarter, but more slowly than in the first. Software and equipment purchases by corporations also remained a bright spot. Spending on durable goods and cars was a definite weak area for consumer spending.

We are not surprised at the market’s recent strength because good companies with strong balance sheets, in many cases, are paying bigger dividends than bonds are paying in interest. With the almost certain continued printing of money, getting principal back from a bond with a fixed coupon is looking less and less attractive. At some point, inflation is likely to take hold and rising dividends will protect the equity holders, whereas bondholders will be stuck with a fixed coupon.

As always, remember to contact us with any update on your financial situation or of any changes in your status. Keeping your allocation current is as important as knowing your concerns.

“Interesting Times” these truly are… we could all use a little more certainty and predictability now, but as we have all learned, the only constant is change.

Enjoy the rest of the summer!

Filed under: Q2 | 2016 by Investment and Financial councel
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