Jamison Financial Group

Private Briefing: Entering 2012′s Second Quarter

rich.jamison — Wed, 09 May 2012 15:52:22 +0000

The first quarter of 2012 (Q1) recently came to a close as we ushered in the beginning of spring. Much of the financial news over the past few weeks has been focused on reviewing Q1’s performance. There were a number of nail-biting days, especially near its close, but overall it was a solid quarter. However, that is history. Let’s look instead towards the future as we head into the spring months and the second quarter (Q2).

I begin below with an idea of what we see for the near-term future based on where we are and what is happening today. I conclude with several news items about the Jamison Financial Group.

There are many events to look forward to in spring – new blossoms on flowers, seasonal cookouts, warm weather and, now that basketball’s March Madness¹has concluded, the official beginning of the baseball season. Yup, it is time to pull out the baseball mitt and turn more attention to America’s favorite pastime.

Much has transpired in the off season. Some wily veterans have decided to hang up their cleats for the next phase of life. Others are starting careers with a new team. It would not be the beginning of baseball season (or any sport for that matter) without the baseball “experts” pontificating about which team will prevail at the end of the season. This is the part that always makes me smile. How in the world can anybody know at the beginning of April who is going to win the World Series in October?

The baseball season is a marathon. Teams play 162 games during the course of the regular season. With so many variables in play, there is absolutely no way that any expert or everyday baseball fan can determine with any degree of certainty which team will be crowned the World Series champion. While it might make for good television ratings or great water cooler conversation, would you want to attempt to pick a winner at the beginning of the season and be held to that selection at the end of the season? I would surmise the answer to the question would be, absolutely not. What if the star player gets hurt? What if the brilliant rookie prospect turns out to be a bust? You are stuck riding that selection into the sunset.

Why then, would it make sense to invest your money that way? My point is, “It doesn’t!”

Turn on your TV, radio or computer², or pick up a newspaper or magazine (essentially, whenever you want) and you’ll find financial experts giving you their opinions. Usually they are talking about why this stock or that stock is going to be the best performing over the next five or ten years, or even over just the next year.

Think about how much can change in just a year’s time, let alone an entire decade. From the beginning to the end of 2008 the S&P 500 lost 38% of its value³. Similarly, from the beginning to the end of 2009 the S&P 500 gained 23%³. Those are just one year time periods. Think about ten years. Who would have imagined in 1999 that the decade of 2000’s would post the first decade loss for the Dow Jones Industrial Average since the 1930’s³? This is why it is so important to have flexibility in the financial markets, and more importantly a logical, organized game plan for navigating the markets. Here’s what we see today.

The Domestic Equity market continues to present attractive potential opportunities. More than two-thirds of U.S. stocks continue to trade in an overall positive trend – as do the major stock indices. So, while the risk in the market is a bit higher than it was at the beginning of the first quarter of 2012 we will continue to, on a judicious basis, focus on U.S. stocks as an area of opportunity in this market.
2011 was a poor year for the international markets; however, International stocks have been the most improved asset class so far in 2012, and the majority of the improvement has come from countries within the Latin America and Asia/Pacific regions. Countries like Mexico, Peru, Thailand, and Malaysia are among the strongest areas of the International market at this time. This looks like a strong trend in its early stages of development.
Interest rates remain relatively low in the Fixed Income market. The question that is swirling around the market is not if, but when, are rates going to rise? Due to the inverse relationship of bond prices and rates, when rates rise it will adversely affect bond prices. During the first quarter of 2012 long term U.S. Treasury rates decidedly entered a positive trend, suggesting the rates are likely to continue to rise. This also means that Treasury bond prices have come under pressure.

That’s the current outlook based on our combination of fundamental and technical analysis. We want you to know we are holding on the reigns of your portfolio, and we are holding on tight. If you would like to become more familiar with our investment process and the tools we use to identify market leadership across major asset classes and within asset classes, please contact us at your convenience. Otherwise, enjoy your spring, whether it is on the links or in the yard.

And now, here are three news items regarding our group. All three are positive but one carries a little sadness with it also. Let me begin with that one.

Irv Cantor joined us at the beginning of 2009 with the intent of cutting back on some of his business life in order to enjoy its other aspects. As you all know, he didn’t lose a step over the next few years. Somehow, he just kept going full speed ahead the way he had always done. I like to say that, between Irv and Sheila, they make the Energizer Bunny look like a slacker. If he hasn’t already spoken with you, he wants you to know that he has made the decision to actually retire. The rest of us will be picking up where he leaves off. So you will be hearing from Sheila, Billy and me. Irv didn’t want it to surprise you when we called about your portfolio.

This news is both positive in that Irv will have more time to enjoy life and negative in that we will all miss the multiple daily conversations to which we have grown accustomed. We wish him the absolute best. I know you’ll agree that he’s earned it!

The second item is a very happy announcement. Many of you have already had contact with William (everybody calls me Billy) Rogers who officially joined us in March. Billy has assumed responsibility for Client Services and Administration as his starting point. Please feel free to ask him for anything you may need.

Billy spent ten years with Merrill Lynch where he handled a number of functions from back office to trading to account management. He has the background and experience to know this business from pretty much all sides. And as he is a licensed Financial Advisor, he will be moving ahead into other areas also just as quickly as we can get him acclimated to our unique philosophy and investment style. From what I’ve seen so far, I don’t expect that will take long.

For my final item – and, as hard to believe as this may be – is one that Sheila was a little shy about my mentioning. (Told you it was hard to believe!) Sheila has been informed that she is one of those chosen by Five Star Professional for the 2012 Five Star Wealth Manager award and will appear with the other award recipients in the May/June issue of Manhattan Magazine. This is an honor that she never applied for – never even knew she was in the running for – until the notification. Here’s how she came to be chosen and why we are all so very proud of her.

Manhattan magazine teamed up with Five Star Professional to conduct extensive research to find Wealth Professionals that are proven to provide their clients with exceptional service. This is the largest and most widely published wealth manager award program in North America. They reached out to all FINRA reps, all brokers dealers, and IAR’s (over 71,900 service industry professionals and 1,900 firms) in New York County and asked each professional/firm to nominate a Wealth Manager they feel provides exceptional service to clients.

Once all the nominations were compiled, Five Star Professional started an extensive review process based on 10 objective criteria that each nominee is scored against. Among others, these criteria include licensing, time in the industry, favorable regulatory and complaint history, client retention, assets administered, education/professional designations and availability to new clients. As a final step, Five Star Professional survey 1 in 12 high net worth households in New York County (80,000 consumers) to uncover positive and negative experiences with their wealth manager⁴.

Now here’s the part that I think is most important. There are over 88,400 registered financial advisors in the geographic area covered. Of these, there were over 1,000 candidates nominated. Of those, only 75 award winners were chosen for 2012; only about 7% of the nominees and less than 0.1% of all Wealth Managers in the region covered⁵.

I think you will find Sheila’s reaction to this even more interesting. She felt that the most important aspect of the award was that it showed she was meeting her clients’ needs. The magazine will be available on-line beginning in May at:

http://media.modernluxury.com/digital.php?e=MANH

So, that’s all I’ve got for the end of Q1 and looking into Q2. If you have any questions or comments, we’re all here for you. Just give us a call when you would like to talk.

P.S. Please share this information with anyone you know whom you think would benefit from it.

If you haven’t read my March Madness investing analogy, you can find it on-line at: www.jamisonfinancialgroup.com under a) the Weekly Highlights for week ended March 16 and b) the after-tournament follow up at the March 16^th Supplement.
I would like to caution you about unsolicited emails that show up in your inbox. While there is much publically-disseminated information available based on someone’s best guess as to what will happen to the markets or to specific investments in a month, 6 months, a year, etc., there are many emails that are based only on getting you to buy something. These are based on the boiler room tactics of days gone by – often called “pump and dump.”
Daily Equity and Market Report. Staff. Dorsey, Wright & Associates. April 13, 2012
The following research declarations are included:
- Inclusion on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine.
- Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future.
- Five Star Professional is not an advisory firm and the content of their articles should not be considered financial advice.
- The Five Star award is not indicative of the wealth managers’ future performance.
- The 2012 Five Star Wealth Managers do not pay a fee to be included in the research or the final list of Five Star Wealth Managers.
- Wealth managers may or may not use discretion in their practice and therefore may not manage their clients’ assets.
How was I chosen? Christine Hodges. Five Star Professional. February 22, 2012.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of April 15, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

Nothing in the above is meant to be, nor should it be construed as, investment advice or recommendations to buy or sell any security. Individual securities whenever mentioned are for illustrative purposes only and may not be relied upon as investment advice.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Tax and/or legal information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended April 27, 2012

rich.jamison — Tue, 08 May 2012 00:06:09 +0000

by Sheila Jamison

You’d never guess what the biggest expense is for those of us over 50.^* It used to be healthcare. But thanks to Baby Boomers being so caught up in the housing craze, it’s our mortgages and property taxes, according to data from the Employee Benefit Research Institute. The research group analyzed data from 5,000 households across the country between 2000 and 2009.

While retirees spent less money as they aged, housing-related costs consumed close to half of their total expenses in 2009. Americans 50 to 64 spent a median of $18,828, or 47% of their total expenses, on mortgages or rent, as well as insurance, property taxes and repairs.

In individuals in the 85-and-over age range, these expenses fell to $9,533, but still accounted for 43% of their total costs. It seems in this age range individuals paid more in health care as they aged.

Even people with little or no mortgage still paid considerably on maintenance costs, utilities and property taxes — which never seem to go away for home owners.

Now for the scary part about Baby Boomers:

97% have not saved enough for retirement.
10,000 will turn 65 today … and every day for the next 18 years!
34% have NO money saved for retirement.
58% have not calculated their retirement needs.
Now for the scary part about retirees:
33% rely on Social Security payments ALONE. Social Security – if it’s around – will only provide ~ $26,000 of income at the maximum level. (NOTE – the U.S. Poverty level for a family of four is $22,300!)
62% will retire with less than $25,000 in savings.
35% will retire with less than $100,000 accumulated.
ONLY 2% will have an adequate income from savings, pensions and IRA’s.

Our parents, and us, have risen to the challenges before us. Pretty big achievements when you consider those challenges included the Great Depression, World War II, the dot com bubble, the 9/11 terrorist attacks and the big one for us – the 2008 financial meltdown.

As good Americans we met each one of these challenges, survived them and even grew stronger. Now is really no different. It’s time we all took responsibility for our future.

Here are four steps we recommend:

Determine and teach your children the difference between what we want and what we need. We recommend that a time-out be called when you feel you really must have something. That doesn’t mean you can’t have it. It simply means, give yourself time to analyze the purchase and make sure you REALLY want it … and can really afford it. This simple technique has helped many people get out of a spur of the moment purchase they would have regretted later.
Save at least 15% of your paycheck. We call it “pay yourself first”. You’re worth it!
ALWAYS pay off credit cards – every month.
Take advantage of the tax deferment that the IRS gives you by investing in your 401k and IRA plans.

We believe that these ideas are like counting cards. Few can do it, but when used properly it stacks the odds in your favor.

We know that we are preaching to the choir. When we saw this study, we felt we really had to make some comments! Thanks for listening to my rant! The week’s recap continues below.

*When I saw this, I felt I should call it to your attention. I asked Rich to move over so I could write about it for this week’s Highlights – however reluctant he might be to do so. I also told him he was still doing the recap that followed my article … and he was just barely within hearing distance by the time I got out those words! I guess his reluctance was much less than I thought it would be.

Source:

The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings. Ruth Helman, Mathew Greenwald & Associates; and Craig Copeland and Jack VanDerhei, EBRI. Employee Benefit Research Institute. March, 2012.

For the Week Ended April 27, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	+1.5%	+ 8.3%
S&P 500	+1.8%	+11.6%
NASDAQ	+2.3%	+17.8%

The Russell 2000 (small caps) gained 2.7% this week, taking it to +11.4% YTD.

Source: Briefing.com. April 27, 2012

Overview

U.S. economic growth at 2.2%
U.S. housing market bottoming?
Corporate earnings strong
UK enters recession
Eurozone confidence falls
Spain downgraded by S&P

This past week balanced out the rather disappointing ones that preceded it earlier this month. Trade started on a soft note this week, but stocks were able to rebound for four consecutive days of gains. That put the S&P 500 back above the 1400 mark again also. This was the best weekly performance for the broad market measure in six weeks.

The overall upbeat week appeared to be driven by widespread strength in corporate earnings, which offset reports of global economic weakness and the particularly concerning renewed signs of economic struggle in Spain. CNBC reported that as of the 254 S&P 500 member companies who have already reported their last quarter’s earnings, 72% beat expectations, 12% were in line, and only 16% missed their targets. Of those surpassing expectations, Apple grabbed the spotlight with almost unbelievable earnings. Despite “mediocre” iPhone sales here by AT&T and Verizon, the rest of the world – especially China – more than made up for their mediocrity.

And so the market rose, even while U.S. economic data indicate slowing growth including a lower-than-expected Q1 growth rate (GDP) of 2.2%. Data from the eurozone paint an even gloomier picture (growing confirmation that its countries are entering recession).

The Standard & Poor’s downgrade of Spanish government debt on Thursday caused Spain’s bond yields to rise and the euro to fall on Friday. It appeared to show ongoing eurozone debt crisis fallout again. As I pointed out several weeks ago, there is an increasing fear that Spain is the next Greece.

The political repercussions of the wider-reaching European austerity measures also rose to the forefront again this week. The Dutch government was forced into early elections and France’s president Nicolas Sarkozy is to be challenged in a runoff election next month by Francois Hollande. Hollande (a Socialist), in light of the people’s disgust for the various debt-reduction, cost-cutting measures to be implemented in France, promises to increase public spending.

The U.S. Federal Reserve Board said it would continue, but wouldn’t expand, its existing efforts to stimulate the economy. It reiterated its plan to keep interest rates low through the end of 2014. even though the growth rate was weaker than what had been widely anticipated, it wasn’t so poor as to rekindle calls for further quantitative easing,

U.S. Economy

Our GDP, the basic measure for our overall economy, expanded at a 2.2% annual rate in the first quarter, slower than the anticipated 2.5% pace of growth. Yet in this number we learned that household purchases rose 2.9% and homebuilding grew at the fastest pace in two years. While those are positives, government spending fell and business investment in equipment and inventories grew less than expected.

Other reports this week also pointed to slowing economic growth here.

Both the weekly Bloomberg Consumer Comfort Index and the Conference Board’s confidence index for April showed consumer confidence dropped.
Weekly initial jobless claims decreased slightly but remained above 385,000 for the third straight week.
The Department of Commerce reported durable goods order fell by 4.2% (versus an expected 1.7%).

One particularly bright note, our housing market may be showing signs of bottoming. The National Association of Realtors reported the index of pending sales of existing homes rose by 4.1% in March (after gaining 0.4% in February) while only a 0.5% gain had been expected. The March pending home sales figure was 10.8% higher than a year earlier. New homes sold at a 328,000 annual rate in March, down from 353,000 in February but up 7.5% from a year earlier. The S&P/Case-Shiller index of property values in 20 cities fell 3.5% in February. That is its smallest 12-month decline we’ve seen in a year. Many who are supposed to be “in the know” are pointing to these as signs of a housing market turnaround. I certainly hope so, but personally think the jury is still out at present … and you know how little confidence I place in predictions!

Global Economy

Europe

There were several recent weeks that Britain was the (relative) bright spot in Europe. However, their Office for National Statistics reported that the UK slipped back into recession in the first quarter of 2012. The nation’s gross domestic product shrank 0.2% after contracting 0.3% in the last quarter of 2011. That puts their GDP 4.3% below the peak it reached in the first quarter of 2008 – that was before contracting for five successive quarters through late 2009. The UK is reportedly the eleventh European Union member country to have entered recession.

Standard & Poor’s downgraded Spain’s long-term credit rating by two notches (to BBB+ from A) with a negative outlook. S&P cited “the deterioration of Spain’s budget deficit trajectory” and “the increasing likelihood” that Spain’s government would need to provide more fiscal support to the country’s banks. Spain’s national statistics bureau reported that the country’s quarterly unemployment rate reached 24.44%, the highest in the eurozone.

The European Commission reported that economic confidence in the eurozone fell in April. Its overall economic indicator fell to 92.8 in April (from March’s 94.5). Industrial and consumer confidence both declined in April. A separate gauge measuring private sector activity, Markit’s preliminary composite purchasing managers’ index, fell to 47.4 in April (from 49.1 in March). Italian consumer confidence slid to its lowest level since 1996.

Asia

China’s latest manufacturing reading still pointed to tighter activity, despite its improvement from the prior month..

The Bank of Japan announced it would increase its stimulus efforts to fight inflation by purchasing more government bonds. It is increasing its asset-purchase program by a net ¥5 trillion. With near-zero interest rates, Japan’s central bank’s main stimulus tool is asset purchases.

Sources: The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; www.NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; www.markit.com; the New York Times; www.standardandpoors.com; www.djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; www.dol.gov; www.fxstreet.com

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of April 27, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended April 20, 2012

rich.jamison — Mon, 23 Apr 2012 19:07:15 +0000

by Rich Jamison

Taxes are today’s subject … particularly their impact on the highest earners, the ones paying at the top marginal tax rates. Before we get into that, I felt you might like to know that the topic of college tuition has brought in still more comments. The topic ranks among the highest comment-generators in the last five or so years. That says so much about how important it is to so many people. After all, its competition for attention included the financial collapse; an event the likes of which we hadn’t seen since 1929 and the following decade.

I can’t include them all but here’s one that caught my attention. As with last week’s, this too comes from someone I have known for decades (let’s call him Peter) and whose ideas and opinions I deeply trust. Back when I was contemplating leaving the corporate world to strike out on my own, I sought his counsel. I still remember sitting at his kitchen table for hours one afternoon listening to and discussing his thoughts on what makes a business successful. He ran a successful small business and I wanted the best ideas I could get. He shared openly and freely with me.

I mentioned scholarships as one means of making college more affordable. I put forward Dennis’ point that these included athletic scholarships as well as academic ones – and that preparation for these was better started early than late. This prompted Peter to speak of the other side of athletic scholarships. His words are clear and succinct so here are his directly quoted points. I think they again emphasize the complexity of this issue that results from the costs involved.

I am smack in the middle of sending three kids to college, all on my dime. The only reason I am able to do this is because I planned for it! I started a college fund almost the day after I graduated from college. I figured if I ever had kids, I would need the fund. If I never had kids, well, I guess I could have retired already! (Editor’s note: This statement particularly grabbed me!)

But my specific comment involves athletic scholarships. None of my children qualified for athletic scholarships, but I know several kids who did. It is very important to realize that an athletic scholarship involves a lot more than just “making the team”. It is an enormous responsibility and commitment in terms of a student’s time, effort, and energy. It involves hours of training and practice every day, along with keeping up both performance and grades. Many students have enough trouble simply adjusting to the college environment, i.e., getting everything done without their parents there to remind them, and avoiding the temptations that come with the new found freedoms of college life. To add the additional responsibilities of maintaining an athletic scholarship may be too much for many kids. (Italics mine. I felt this is a point that many parents may not consider … but they should.)

Athletic scholarships are great, and a great way to finance a college education. They are just not for everyone!

As I noted earlier, this is a subject that concerns almost everyone – and we all have our particular perspectives based on our experiences. CCNY didn’t have any scholarships when I attended. It had no need for them as it was free! Further, it wasn’t sports-oriented. CCNY had been an athletic powerhouse once. We still had teams (I was a pretty good sprinter) but sports had been de-emphasized since the 1950’s basketball point-shaving scandal. Having no personal experience with someone on a scholarship, the extra work involved hadn’t even occurred to me prior to Peter raising the issue.

In the interest of presenting all sides of this issue for thought and consideration, please jump in if you have something you feel is important to add. And ladies, the comments so far have been heavily male-dominated. Perhaps there is another side of this that we are completely overlooking so far. If so, please let me know.

Now let’s move on to today’s topic; one that bears on everyone and everything – taxes. The political rhetoric gets continuously more monotonous. The bad news is that it hasn’t really gotten started yet. What we’ve heard is only preliminary. That means it will become even more obnoxious over the next six months as both sides gear up for the real ballgame.

I firmly believe each side has the right to present its opinions and arguments. However, many of these are let fly in sound bites without regard to facts and truth. I remember studying WWII in college and learning of Goebbels’ (the propaganda minister) Big Lie principle. That is, if you say it loud enough and if you say it long enough, people will believe it. Direct quotes¹ from his party speeches say,

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

“The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly – it must confine itself to a few points and repeat them over and over”

I don’t want to get into the merits of one party’s “honesty” versus the other’s. I think both sides play in sound bites. But that puts the onus on us to find out what is actually so – that is, to determine the facts instead of interpreting what sound bites are telling us. The challenge for me personally is putting aside a strong anti-corporatism (i.e., the “Military-Industrial-Congressional complex” … if you will permit my expansion of Eisenhower’s phrase) sentiment to see through to underlying facts. My scientific training is often key to digging out the data from the fertilizer (trying to keep this polite).

When we speak of taxes, we are talking about something that is central to both our economy and to us personally. Taxes affect us all, either directly because of what we pay and indirectly because of what those taxes pay for, how they stimulate or inhibit our economy which then affects us in what is done for or available to us. So let’s look at just one common phrase and its relationship to the sound bites versus the objective, observable, historical facts. That phrase is “job creators.” In particular, I want to examine the history of how taxing the job creators impacts job creation.

The term is used to oppose increasing taxes on the “rich” regardless of how the speaker defines “rich.” Most often, it has been anyone earning over $250 thousand per year; more recently, over $1 million per year (the “Buffet Tax”). The premise is that taxing these people more will slow job growth. Hence, we need to tax these people less so that they can create jobs; not tax them more and make them not create jobs.

My analysis based on my corporate years, my personal business years, my academic background and what I will call “logic” is that such a position isn’t reasonable. The laws of economics include “marginal” or “incremental” income and profit; that is, the additional amount I receive per additional unit of input. As long as I make more money from each additional unit of input, I will increase that input. Input can be man-hours (“person-hours” is probably the political correct term now). That would be jobs. It doesn’t matter that I make a little less for each additional unit. It only matters that I make more for each additional unit than that unit costs to make.

Thus, I set out to examine the underlying facts. Here’s what I found. I began with four tables and charts. One showed the jobs created per year in office by president², the second showed the top marginal tax rates by year³, the third put the presidents on the years⁴ (so that I didn’t have to look up each president – this was enough work without that step) and the fourth showed jobs created under Obama for 2009 through 2011⁵. The last permitted me to extend the other charts, some of which ended with 2008. As we are hearing about the job creators now, this seemed an essential part of the analysis. This permitted me to show the data from WWII (i.e., beginning with 1946) up through the end of 2011.

So, without dragging you through all those tables and charts to assemble them mentally, I created a compilation of the relevant data on one chart. (For the record, I discarded anything that didn’t pertain directly to the goal of comparing Jobs Created vs. Marginal Tax Rates to make this comparison more readily visible. You can find all the original materials at the sources listed.)

Two facts are immediately obvious in the chart above.

The marginal tax rate has had a few small ups and downs across its 1946-2011 run but it has trended down from its 94% high at the beginning to 35% now.
The number of jobs created has shown no correlation to the tax rate. Some of the highest job creation has occurred under high taxes; some under low taxes (e.g., see Johnson vs. Clinton). Some of the lowest job creation occurred under high taxes; some under low taxes (e.g., see Eisenhower vs. Bush Jr.).

Conclusion: Job creation (since WWII ended through the beginning of 2012) is not correlated with marginal tax rates. This is demonstrated by examination of the historical data.

Our economy has many moving parts. This one (i.e., marginal tax rate) doesn’t show any correlation (positive or negative) to job creation. However, even if it had, that still would not prove causation. Looking for proof of causation would have been the next step.

Basically the rules are:

Correlation doesn’t prove causation. If two things that are correlated (i.e., move together), they can move together as the result of both being caused by a third thing (i.e., something other than the two that are correlated to each other).
However, the converse is true for no correlation. Lack of correlation means lack of causation.

So, correlation wouldn’t prove causation, but lack of correlation rules out causation. Hence, no correlation between tax rates and job creation means causation does not exist (i.e., one does not cause the other).

This analysis does not preclude potential future correlation (or causation) between these two variables. As other parts of our economy undergo change, a relationship between these two may yet develop. I cannot rule that out based on what has happened before. I can only rule out that it has happened so far. Things may change going forward … but I have only the past to examine.

Obviously, there are lots of parts of the economy still to be examined. Many economists exist and many textbooks have been written on it. Certainly, there are parts of our economy that do cause job creation. The difficulty in analyzing the economy is that is has so many variables. But this is as far as I go today as this is the premise I wanted to examine.

Bottom line:

Beware the sound bite. It may ignore or distort fact in a desire to achieve a certain result. Don’t let it color your thoughts and beliefs without verification.
And if something looks good on the surface, check under the hood. Cherry picking data that support a position while ignoring contradictory data can be deceptive yet quite persuasive. Remember Mark Twain’s three kinds of lies; lies, damn lies and statistics!

And, as those who read my articles regularly know, I speak of political thought on both sides of the aisle. Neither has a monopoly on distortion (some would even say “lying”). However, the further off center and into an extreme, the greater that distortion appears to get.

Finding quotations was never this easy. Staff. www.Thinkexist.com. As of April 21, 2012.
Which President created the most jobs in the U.S? www.europeancourrier.org. June 2, 2011.
THE TRUTH ABOUT TAXES: Here’s How High Today’s Rates Really Are. Henry Blodget. www.businessinsider.com. July 12, 2011.
Top U.S. Marginal Tax Rates Over Time. Paul Kedrosky. www.paul.kredosky.com. July 13, 2011.
How Many Jobs Were Lost/Created Since 1999? (Year by year updated with March 2012 data). Middle Molly. http://mollysmiddleamerica.blogspot.com. February 13, 2012

For the Week Ended April 20, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	+1.4%	+ 6.6%
S&P 500	+0.6%	+ 9.6%
NASDAQ	- 0.4%	+15.2%

The Russell 2000 (small caps) rose 1.0% this week, taking it to +8.5% YTD.

Source: Briefing.com. April 20, 2012

Overview

U.S. economic reports signal slowdown
U.S. blue-chip firms post mixed results
IMF raises global economic forecast
European exports rise
German economic expectations improve

Stocks rode a somewhat bumpy path to overall gains this week as a flood of corporate earnings reports provided a wide range of first-quarter results and projected profits. Data pointed to an easing in the pace of U.S. economic activity while reports from the eurozone indicated somewhat brighter prospects. Compared with those of recent weeks, economic reports and earnings results were less stark and more nuanced, with an overall sense of subdued economic growth and moderate corporate earnings results.

For the week, major Asian and European stock indices rose 1% to 2%, while U.S. equity benchmarks were on the lower end of that range. U.S. Treasury yield movement was less dramatic than in recent weeks, reflecting a decreased desire for safe harbor protection among investors.

U.S. Economy

Several reports this week indicated a slowdown or stalling of the recovery. The Department of Labor reported that the four-week moving average of initial jobless benefits claims rose by 5,500 to a seasonally adjusted 374,750, the highest level since late January. Existing-home sales fell 2.6% in March from a month earlier but rose 5.2% from a year earlier. Sales of existing homes had their strongest first quarter since 2007. Home construction fell 5.8% in March from February, far below expectations, but the number of new housing permits rose by 4.5% in March. Industrial output was flat in March.

Global Economy

The International Monetary Fund (IMF) raised its forecast for global economic growth to 3.5% for 2012, up from a projection of 3.3% in January. The IMF predicts growth will accelerate to 4.1% in 2013. It raised its forecast for U.S. economic growth to 2.1% this year and 2.4% next year. The IMF also foresees consumer price inflation of 1.9% this year and 1.7% in 2013 in advanced economies and an inflation rate of 6.2% this year and 5.6% next year in developing countries.

Europe

The eurozone swung to a trade surplus in February on the fourth consecutive monthly increase in exports, improving hopes of an economic turnaround for the troubled region. The European Union’s statistics agency reported the €2.8 billion trade surplus compared favorably with a €7.9 billion trade deficit in January and a €2.8 billion deficit in February 2011.

Economic expectations in Germany improved slightly in April, according to the Center for European Economic Research (ZEW). Only 15% of financial experts polled by ZEW said they expected Germany to enter a recession in the next two quarters compared with 30% at year-end 2011.

Asia

Japan registered a trade deficit in March after posting a surprise trade surplus in February for the first time in five months. Japan’s exports to China declined 5.9% while its exports to the United States rose 23.9%. Overall exports rose 5.9% from a year earlier while imports grew 10.5%.

India cut its benchmark interest rate by a larger-than-expected one-half percentage point, attempting to stimulate growth. However, because Indian inflation remains very high (6.89%), based on India’s benchmark wholesale price index, the central bank might not have much leeway to do more.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of April 20, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended April 13, 2012

rich.jamison — Mon, 23 Apr 2012 18:27:43 +0000

by Rich Jamison
I’d like to begin today with a short follow up to my comments last week regarding college costs. My main point was, “Be wary about co-signing for student loans.” I strongly feel you should not co-sign for all the reasons I listed. Not that you shouldn’t help you progeny but rather there are better ways to do it. You can, for example, pay tuition costs directly to a qualifying educational organization (e.g., a college). This does not incur federal gift tax even if it were say $40,000 – which is well over the current $13,000 gift exclusion amount. (Check with your accountant about state gift taxes as they vary.) But to avoid the federal gift tax you must pay to the institution directly. You cannot give the money to your grandchild with instructions to pay his/her tuition with it. Nor can you pay for books, room and board and the like; only tuition escapes the tax.

Most people who know about this provision assume that only the current year’s expenses qualify for the exclusion. The IRS has ruled that tuition expenses paid in advance also avoid gift taxes. So, you can prepay all future private school and college tuition for your grandchildren in one year and owe no gift or estate taxes on the payments. That takes the money out of your estate and will benefit your grandkids. Plus you are sure of how the money will be used. Prepayments also have the effect of locking in tuition costs and avoiding the uncertainty of tuition inflation. So, according to what has been published, you can give away large amounts of money and have control over how the money is used without the time, expense, and complications of setting up a trust and having a trustee manage the money for years. I am neither attorney nor accountant. Hence, this is not legal or accounting advice. But ask yours for all the particulars and any additional details and/or restrictions that may apply if you think this could be of benefit to you.

Returning to my student loan article, I have discovered that I was unfair in my introduction – to at least some of the colleges out there. My experience with colleges was 1) paying the bills and 2) teaching as an adjunct at a couple, which I quit doing about 15 years ago. From my experience, I had developed a sense that more effort was spent on finding someone to pay the bills than with containing the size of the bills themselves. The rate of cost increases since seemed consistent with my earlier impressions. Perhaps that was hasty.

I received a call from a friend (I’ll call him Dennis) of 25-30 years in response to my comments. We were colleagues at the same company way back at the beginning. We developed a sense of respect, trust and liking for each other – hence, we have kept in contact for all these years. More important, I have great confidence in things he tells me regarding areas about which he knows more than I. He is a trustee for a New England college so he has an inside track on what goes on there.

Dennis spent quite a bit of time to educate me about the whole process. He told me how his school (and undoubtedly many others) approaches the cost dilemma. I will share the executive summary with you for sake of brevity. The main point is that the school looks for ways to keep costs down. They face increasing costs and they face lower potential student enrollment (i.e., lower revenue). So they look to provide the most they can to the students at the best price they can offer. Considerations are as thorough as how many students should be in a class – a balance of personal attention vs. costs.

We also talked of what Dennis called “discounted” tuition – a term I had not heard before but is apparently widely used. In my terms, this was what a student who received a scholarship wound up paying from his/her funds. We discussed the school’s fundraising efforts, one source of scholarships. And he stressed to me that kids can begin preparing for college well before they start even thinking about college. One idea was that anyone with talent for a sport should be encouraged to improve their ability. There are athletic scholarships as well as academic ones. These can be a means to make school more affordable.

So, I stand corrected … at least as far as some colleges such as the one for which Dennis devotes his time. Some seem to be making a real effort in fighting against increased costs. I hope that this segment includes most of them. It would be great if that turned out to be all of them.

I extend my thanks to Dennis for his input. It’s comforting to know that you guys are keeping me on my toes at all times and that if I miss a mark somewhere along the way, you’ll let me know about that! Now let’s move on the market.

There will always be investors who want to wait until everything is all lined up in order to put money to work in the market. They want to see a Wall Street journal headline “All Roses” at the top of the front page. They want that $1,000 price target for Apple to be among yesterday’s market results. They want to see hundreds of Congressmen holding hands and singing Kumbaya, our economy racing like someone had put rocket fuel in the gas tank, and all G20 heads of state participating in one big group hug.

The problem is that, first, that isn’t going to happen and, second, if it did, it would more likely represent a top in the market rather than anything approximating a bottom. With the attention given the recent Masters Tournament, I will borrow a little from its publicity while still fresh in most minds. But, I’m not speaking about golf … just golf-like situations.

Some golfers have learned the futility of playing golf with no practice or training. Others would just as soon spend years on the range getting their game “right” before venturing onto the course of reality. In both cases opportunity and/or money is sacrificed. The absence of preparation won’t lead to championship play. And the combination of comprehensive training and practice only yields results when you get out and play.

There seldom days when every shot goes just how you planned it to go. Often, you are faced with a tough shot because the ball did not follow your plan. The next step is to figure out how to play that shot – there can be several ‘right’ ways – and then, step up and hit the ball. You again may or may not achieve what you planned but you won’t get anywhere just walking around the ball and waiting.

Similar conditions apply to investors. Training (education) and experience are invaluable. And an evaluation of the market environment at any given time (make that at most times) may not yield an “all roses” situation either. Rather, it will be something similar to a tough golf shot with a number of potential right answers. Again, there may well be several ways to play that shot – and many of those may work. Not hitting the ball is not one of those ways.

Now is not the time to stare at this market with your knees knocking, too scared to pull something, anything, out of your metaphorical golf bag. If you begin each morning with that feeling in your gut, the feeling that you are lost, unprepared and unconfident in your own decisions, it may just be time to consider taking the advice of your caddy a little more seriously. You will never have tomorrow’s Wall Street Journal, therefore you must find a method that gives you the confidence to actually swing the club once you’ve decided what shot you want to hit.

In golf, great players hit the occasional bad shots and lousy players will hit enough good shots to at least give them hope for the future. Those that ultimately win, however, are inevitably the serial purveyors of good training, tons of effort, and solid course management. How you go about developing such skills in this business is up to you. We have a process that allows you to make logical, disciplined investment decisions in a repeatable fashion. To stay with the Masters metaphor just a little longer, this process can’t make azaleas bloom until December, or Rae’s creek run dry for your next shot, and it surely won’t get you a Monday morning tee time at Augusta. However, it will keep you on the course, it will help you make sound decisions, and we think it we can help you feel that increased sense of confidence as you move ahead (or, if I may stretch it just one little bit further, head off into the back nine).

Sources:

Introduction to Estate and Gift Taxes. Department of the Treasury; Internal Revenue Service. Publication 950. October 2011.

How to Make Unlimited Tax-Free Gifts. Bob Carlson. retirementwatch.com. As of April 14, 2012.

For the Week Ended April 13, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	- 1.6%	+ 5.2%
S&P 500	- 2.0%	+ 9.0%
NASDAQ	- 2.2%	+15.6%

The Russell 2000 (small caps) dropped 2.7% this week, taking it to +7.5% YTD.

Source: Briefing.com. April 13, 2012

Overview

U.S. jobs report disappoints
U.S. budget deficit hits record high for March
Spanish debt again unsettles markets
Chinese growth slows down
Japanese machinery orders rebound

The S&P 500 saw its biggest weekly decline in 2012 as European sovereign debt fears, a slowdown in China and disappointing U.S. deficit and jobs reports discouraged investors. The poor jobs created number (120,000, well below recent numbers and expectations) was reported on the previous Friday when the markets were closed, but still gave this week a bad start.

This week’s losses came despite a two-day rally in the middle of the week after Fed Vice Chairman Janet Yellen’s comments that the Fed could maintain low rates through 2015 if necessary. That (and the inference that there might be more QE) led to more than a 2.0% climb in equities.

Worries over the health of Spain came to a head on Friday after it was reported net borrowing by Spanish banks from the European Central Bank (ECB) surged 50% in March from February’s numbers (from €152 billion to €228 billion) and took its 10-year yield back above 6.00%.

Economic data here in the U.S. also disappointed as claims data and Michigan Sentiment fell short of estimates. However, earnings season got started on a high note with Alcoa, Google, JP Morgan Chase, and Wells Fargo all reporting better than expected results.

U.S. Economy

The disappointing monthly jobs data released by the Department of Labor last Friday set a negative tone for this week, as markets responded on Monday. Also feeding a bearish sentiment were several reports that indicate a possible slowing of our economic recovery. The National Federation of Independent Business index of optimism among small businesses fell to 92.5 in March (from 94.3 in February). The Thomson Reuters/University of Michigan’s preliminary consumer sentiment index fell from 76.2 last month to 75.7. The Department of Commerce reported that wholesale inventories rose 0.9% in February. Further, the Treasury Department reported that the budget deficit hit an all-time high for March, at $198.2 billion.

However, it wasn’t all bad news on the economic front. The deficit for the first half of fiscal 2012, which began October 1, was 6.1% lower than a year ago. Our trade deficit shrank 12.4% in February, its sharpest decline since May 2009. Imports fell 2.7% while exports remained flat overall. (A key contributor was a substantial reduction in U.S. demand for foreign oil after oil prices increased. Imported crude oil volumes fell to their lowest level in 15 years (225.7 million barrels vs. 270.7 million barrels just a month earlier). And inflation eased to 0.3% in March. Core inflation (excludes food and energy) rose just 0.2%. (Both numbers essentially matched expectations.) Consumer prices rose 2.7% for the 12 months ended in March; core prices rose 2.3%. The 2.7% rate is the smallest increase in the past year. Producer prices climbed 2.8% over the past 12 months, with core prices 2.9% higher.

Global Economy

Europe

If there was a bright spot in Europe this week, it was again Britain. The British Retail Consortium reported that U.K. same-store retail sales rose 1.3% in March. Total sales, including sales at new stores, rose 3.6% overall compared with year-earlier figures. The number of permanent job placements increased for the third-straight month, according to another report. Together, the reports indicate that the UK economy likely avoided a recession after contracting in Q4 of 2011.

Meanwhile, Spain seems to be garnering more attention. The increased borrowing and higher 1-year yields discussed above again raised the specter of its being the next Greece.

Asia

China’s Q1 economic growth eased to 8.1%, its lowest quarterly rate of growth since the first quarter of 2009. China’s National Bureau of Statistics’ report highlighted a shift in the country’s growth engine out of infrastructure, real estate, and large projects and into consumption. Consumption contributed 76% to China’s Q1 GDP from only 51.6% last year.

Among indications of an economic slowdown, China posted a trade surplus largely because of weak demand for imports. March’s $5.35 billion trade surplus stands in sharp contrast to February’s $31.48 billion trade deficit. Vehicle sales also slumped in Q1, falling 3.4% from a year earlier. However, year-over-year sales increased 1% in March.

China’s consumer price index rose 3.6% in March from a year earlier, up from 3.2% in February and exceeding an expected 3.3%. The March figure indicates rising consumer inflation but is still within the government’s 4.0% annual inflation rate.

Japan reported a surprise 4.8% increase in core machinery orders in February, a rise far greater than expected. Both manufacturing and nonmanufacturing orders rose for the first time since last November. However, industrial production fell 1.2% in February. The Bank of Japan (BOJ) upgraded its quarterly economic assessment of two of the country’s nine regions, with the other seven unchanged. This was a major improvement over the previous report in which the BOJ downgraded seven regions.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of April 13, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended April 5, 2012

admin — Mon, 16 Apr 2012 20:02:32 +0000

by Rich Jamison

Permit me to stray a bit from the markets today to look instead at helping out families with college. To narrow that down, let’s look more specifically at the idea of cosigning for a student loan.

College costs have ballooned beyond belief. I got my bachelor’s from City College of New York. CCNY didn’t have tuition charges until several years after I finished. I paid for my books (seldom over $10 apiece) and a general fee of $24/semester. Other costs were fees for laboratory classes ($7/class for supplies, unless I broke something; I was very careful not to break anything). About halfway through my studies, the school raised the general fee to $50 and eliminated laboratory fees. I thanked the English, Business and Music majors for their support. Imagine getting by for a cost of about $200/year. That’s a degree for less than $1,000 including throwing 15 cents into the subway turnstile to get to or from the campus!

Times changed. Colleges discovered they can raise tuition, and do so with impunity. It’s as if they know they’ll get paid … no matter what. College tuition has been rising significantly faster than the inflation rate. What are those costs today? The average annual college bill – including room and board – at a private four-year university is $37,000. It’s $16,000 at a public one. This challenges (hurts) everyone up through upper in middle-class families. Even some rather wealthy ones have been heard complaining.

From what I learned about marketing during my corporate years, I think that college prices are high because we will pay them. We’ll pay them because, as a culture, we have come to believe that everyone should go to college. Each individual’s basic desires, motivations, native abilities and the size of the debt¹ a graduate can have when done versus the additional money he/she may earn over a lifetime are all points of contention whose merits would require pages of additional discussion to explore. Perhaps we will do that sometime.

We, as parents and grandparents, are willing – and often eager – to help our offspring. Often, that offspring is a grandchild. Our own ‘kids’ are already fighting a tough economic battle; still early in their careers, mortgage to pay, etc. This battle has only gotten worse since the financial crisis. We want to do everything we can. So shouldn’t we cosign for a student loan?

Student loans generally come down to this:

The family can’t afford to pay the tuition as it is incurred,
The student cannot get enough government loans to cover the shortfall,
The student can’t get a private loan without a cosigner, and/or
The student can get a better rate with a cosigner.

Because we want that “kid” to get a college education, our gut reaction is to step up and put our name on the dotted line. Everyone with children and grandchildren understands this because we all feel that same pull.

But what is the potential downside? Suppose Dick or Jane successfully completed his/her degree. He/she found a job – although, in today’s market, probably at substantially less money than it once might have been. Now life begins … with all of its other day-to-day challenges (and expenses) added. Though student loans used to be considered “good” debt, that assumption is proving wrong in today’s economy.

You undoubtedly know that, when you cosign for a loan, you are promising to pay for someone else’s loan if that person does not repay. You are placing your faith in that person to pay off their debt. We all believe our progeny will meet all their obligations. But what if that doesn’t happen as planned?

There are two areas of potential harm. First, it could ruin your relationship with your loved one. I don’t think I can say anything about this that you don’t already know – and know better than I. I believe it’s Dave Ramsey who said something about turkey at Thanksgiving not tasting the same when someone in your family owes you money.

The other area is your credit and your assets. Your credit can be ruined, and if you have pledged property, you may lose it. The Federal Trade Commission says 75% of all defaulting loans with cosigners are ultimately repaid by the cosigner, not the original borrower. When you cosign a loan, you are committing to paying back all of the money, interest, payments, and fees if the other person does not. You are assuming complete financial liability for this transaction. It is as though it is your loan that you are hoping someone else will repay. The bottom line is that you put your own financial well-being at risk when you cosign a loan.

Are you deferring savings from your retirement nest egg to pay for your kids’ college? That monthly tuition or housing payment you’re donating shouldn’t come at the expense of financial security in your golden years. Imagine your son or daughter in the future, having to take out a loan to pay for your expenses. Putting your child’s/children’s college expenses above saving for retirement can be a costly mistake. One of the best ways to ensure your child’s financial security is to make sure you take care of your retirement … so you don’t become their financial burden.

Admittedly, it’s very hard to tell someone that you are close to that you cannot or do not want to help them by cosigning for a loan. There are some people who simply will not be able to say no. We are tempted to think, “But they can’t afford college unless I cosign for their loan.”

Everyone must make his or her own decisions regarding if and whom they will help – and whether that help includes cosigning for a loan. The “can’t go to college” thought can evoke an emotional reflex that convinces many parents and grandparents to cosign a student loan regardless of the potential consequences.

There are crucial ideas and concerns you might want to consider before making a decision:

Lenders require a cosigner for a loan because most college students do not have a proven credit rating. Lack of credit history doesn’t necessarily mean the student will be a bad payer, but no history also means you don’t know he/she will be a good one. Lenders are more likely to approve a loan when they feel that a person with a stable financial history is willing to take responsibility for the loan.
If your kids need you to cosign a loan, you should consider that there is a pretty good chance that their loan will become YOUR loan. (This doesn’t mean that your child is a bad or irresponsible person. It just means that statistically, young adults without a guaranteed source of income, aka most college students, are a pretty lousy credit risk.)
Go over the costs associated with attending their chosen academic program and review the other sources of financial aid, such as scholarships, grants and other loans, as well as sources of cash payments from savings or from income.
If a student loan is absolutely necessary, try to get a federally guaranteed loan before borrowing from a private institution². Remember that only private student loans can require cosigners. Federal student loans do not. In addition, federal loans generally have better terms (e.g., lower interest rates, more flexible repayment options). Exhaust Federal Stafford Loans first. Make sure the student borrower has used the maximum they can borrow from the Federal Stafford Loans before turning to private student loans. The Stafford Loan is a fixed-rate, government-backed loan that doesn’t require a cosigner.
Review the loan amount. Does the amount that the student wishes to borrow through the private student loan seem like too much or too little? Adjust where appropriate, and remember that borrowing less, whenever possible, is always a good decision.
Look at alternatives to the conventional scenario, where the student moves away for four years to finish a degree.
Look for local community college classes. Consider your in-state public college (tuition will be much lower) and your college student can continue to live at home instead of paying for room and board.
Look for grants, jobs, work-study programs and other ways to pay for college. This is also a great opportunity to teach about money, and to graduate with the least amount of debt.
If that loan proves inescapable, shop around. There are many private student loan options out there.
All the while,remember that if the student does not repay the student loan, the creditor will come after you for the money.
Lenders are often quick to start calling and writing cosigners when they have not received the payments that are owed.
If the creditor has attempted to collect from the student and failed, the late fees and collection costs are passed on to you, in addition to the original debt amount.
They also report late or missed payments to your credit report as if you had borrowed the money yourself. This can be a costly ding to your credit scores and finances at a time when you should be preparing for retirement, or might be caring (financially) for an elderly parent.
You can be sued over unpaid loans.
Your paycheck (if you are working) could be garnished and your state and federal income tax returns can be withheld. Sallie Mae has some of the most powerful collection tools available, next to those of the IRS.
In some states, the lender has the right to come after you for repayment if the loan goes into default without even trying to collect from the student.
Lenders do not have to talk to you. Even though you’ve cosigned for the loan, you have almost none of the rights granted to the original borrower. In most cases, you cannot contact the lender to check on the status of the loan or its repayment. The lender is also not required to inform a cosigner when details about the loan or credit card change.
Liability for the loan will be included in your debt-to-income ratio, even if you never have to pay a nickel of the debt. That ratio is what creditors use to determine your fitness to borrow money – hence cosigning for a student loan reduces your ability to borrow money or get other types of credit.
Private student loans typically have repayment lengths of 20 years or more – making this a long-term relationship.
Student loans cannot be discharged by bankruptcy. If you get caught with one because the student didn’t repay it, you can’t duck for cover.

The bottom line: this is a much bigger decision than many people realize. I cannot advise you to do it or not to do it. I can implore you to think long and hard before you cosign a student loan, even for students near and dear to your heart.

¹ A generation of middle-class students is being crushed by student debt. Total student debt has reached the $1 trillion mark. To put that into perspective, that’s more than the total credit card debt of every American combined. Note that the federal deficit for the last fiscal year at $1.3 trillion was only 30% higher. The College Board reports over half of all full-time undergrads at public colleges and universities are now full-time borrowers. At private nonprofit schools, two thirds have loans; sizeable loans. For example, the average college senior who had a loan graduates with $25,250 of debt, a new record. Some high-tuition colleges double that, averaging over $55,000 per student. But averages are deceptive. I’ve met young people with school loan debts several times higher than my first mortgage. It’s as if the graduates came out of school carrying a mortgage. I recently learned of one young woman who wanted to become a teacher. She went straight through for both her bachelor’s and master’s degrees. She came out of her BS/MS programs owing about $190,000! It wasn’t too long ago that this size debt was only incurred by someone at the end of medical school.)

² A year ago, subsidies for private banks giving federally guaranteed student loans were terminated – making the federal government, not banks, the lender of choice for most students. Private bank loans for college are still available but since they no longer are backed by the U.S. government, they aren’t as good a deal anymore. Most are variable rate loans that require a cosigner and are difficult to qualify for. Look to federal student loans from the Department of Education first. Bank loans are a last resort.

Soures:

Why the Government is to Blame for High College Costs. Federal student loans are driving up college costs and adding to the deficit. Mary Kate Cary. U.S.News & World Report. November 23, 2011.
Cosigning a Loan Can Ruin Your Credit and Your Life. Hank Coleman. Fivecentnickel.com. March 15th, 2012.
Cosigning student loan makes you liable. Steve Bucci. Bankrate.com. October 14, 2010.
Think Long and Hard Before Cosigning for a Personal Loan. Francine L. Huff. Rebuild.org. April 14, 2009.
Should Parents Cosign a Student Loan: Is cosigning a slippery slope that does nothing but hinder both parties? Staff. Financialaidfinder.com. as of April 6, 2012.
Tips for cosigning private student loan. The smart way to choose student loans. Staff. Simpletuition.com. as of April 6, 2012.
The Dangers of Paying For Your Kid’s College. Claire Bradley. Forbes.com. August 3, 2010.

For the Week Ended April 5, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	- 0.6	+ 7.7
S&P 500	- 0.3	+ 11.8
NASDAQ	- 0.5	+ 18.3

The Russell 2000 (small caps) dropped 1.7% this week, taking it to +10.8% YTD.

Source: Morningstar.com. April 6, 2012

Overview

U.S. job growth continues but slowing indicated
U.S. auto sales strong
U.S. & Chinese manufacturing grow
Eurozone activity contracts
Spanish debt unsettles markets

Global stocks were sharply lower in Easter-shortened trading as fresh concerns arose about the health of eurozone economies. A disappointing auction of Spanish debt and the release of worrisome regional indicators, including gauges of manufacturing and retail sales, seemed to underline that the eurozone’s woes were far from over.

Qualms about the future of U.S. monetary policy remained a weight on the movement of markets throughout the week as investors speculated the Federal Reserve might be nearing the end of its quantitative easing measures. The price of gold, silver, and copper all fell sharply throughout the week. That drop came as traders responded to the Fed’s indication that it would not add further monetary stimulus and could raise interest rates before 2014 should the U.S. economic recovery warrant it..

U.S. Economy

The labor market gave mixed signals for March. The ADP reports showed a gain of 209,000 private sector jobs. The services industry added 164,000 positions. Reinforcing the picture of a recovering labor market, the Labor Department reported a decline of 6,000 in first-time unemployment claims for the week ended March 31. The total of 357,000 initial claims was the lowest since April 2008. Hence, economists anticipated another strong report from the Department of Labor Friday morning However, that jobs report showed the country’s employers added a disappointing 120,000 jobs in March, about half the gains posted in each of the preceding three months. The slowdown suggests that employers remain cautious about hiring as they digest the impact of rising gas prices and uncertainty about healthcare and pensions costs. The unemployment rate, which comes from a separate survey of households rather than employers, slipped to 8.2 percent from 8.3 percent.

Auto sales here at home continued to rise. New vehicle sales increased 13% in March from a year earlier on demand for small, fuel-efficient cars. General Motors, Ford, Toyota, Nissan and Hyundaiall registered robust increases. Chrysler (with a 34% jump over a year earlier) and Volkswagen (YTD U.S. sales of 41% ahead of last year) led the way. With the average car on the road now 10 years old, many consumers appear to be replacing or upgrading their vehicles.

We had continued expansion in manufacturing activity for March. The Institute for Supply Management’s(ISM) manufacturing purchasing managers’ index (PMI) rose to 53.4 from 52.4 in February, the thirty-second consecutive month of factory sector expansion.

Global Economy

North America ex U.S.

Canadian employment soared as Canada added 82,300 jobs in March. Full-time employment grew by 70,000, while part-time positions grew by more than 12,000. Its jobless rate fell to 7.2% from 7.4%. Economists had predicted job growth of 10,500. Canada has one-tenth the population of the United States.

Europe

Eurozone unemployment rose to 10.8% in March, according to Eurostat (the EU’s statistics agency). It also reported that European retail sales fell 0.1% in February. Markit Economics reported that the eurozone’s purchasing managers’ index for manufacturing fell to 47.7 in March, from 49.0 in February. German factory orders rose just 0.3% in February, but the country’s unemployment rate dropped to 6.7% and business confidence in Germany rose to an eight-month high in March. Spain’s unemployment rate reached 23.6% in February, more than twice the 10.8% average unemployment rate within the European Union.

The weak Spanish government bond auction on Wednesday, in which only €2.59 billion in bonds with maturities between 2015 and 2020 were sold, fell far below the target of €3.5 billion. This contributed to concerns regarding the eurozone’s new weak-link focal point. The 10-year bond yielded 5.66%, up from 5.45% a day earlier. Spain, which forecasts a 1.7% economic contraction in 2012, recently announced a budget with sharp spending cuts and tax increases that could plunge it into deeper recession. Earlier demand for Spanish bonds had come largely from the country’s banks, which had borrowed inexpensively from the European Central Bank and used that liquidity to purchase Spanish government debt.

However, there were upbeat reports from the United Kingdom earlier in the week, including those of the strongest service-sector expansion in two years and a rise in optimism among business owners. These were offset Thursday by a report from the Office for National Statistics that UK manufacturing activity fell by 1% in February. BBC News said economists expressed doubt regarding the ONS figures and maintained forecasts for first-quarter economic growth.

Asia

Chinese manufacturing activity rose, for the fourth-straight month, with the Chinese government’s official PMI reading rising to 53.1 from 51.0 in February and 50.5 in January.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of April 5, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Tax information contained herein is general in nature and for informational purposes only. It should not be relied upon as advice. Consult your tax professional or attorney regarding your unique situation.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended March 30, 2012

rich.jamison — Wed, 11 Apr 2012 19:16:12 +0000

by Rich Jamison

By now, you are almost certainly as bored with the Republican primaries as I. Sure, there were a few laughs (okay, more than a few) along the way, but the same “jokes” repeated over and over grew monotonous. And once Romney is chosen officially (I feel this is fairly certain), we’ll begin a second round of comedy. This time it will be Republican vs. Democrat instead of Republican vs. Republican. I am confident that there will be more inane things said then too.

Permit me to mull over something we’ve heard. I won’t spend time on comments by Santorum, Gingrich, Perry, Bachmann, Cain, Palin or anyone other than Romney. They provided an overabundance of embarrassing but laughable items. However, none of these people will still be on our radar for long unless there is a really odd vice presidential pick.

And so, we move on to Romney, also a rich source of material for the late-night comedians. We heard lots of statements that made us question if we heard them correctly the first time. One gaff that still haunts me, making me scratch my head for a while, was the line, “The trees are the right height.” And while this was a particularly peculiar thing to say, I don’t think it – or most of the other oft repeated lines – was worth all the replays that it received … and is still getting.

Let’s look instead at something that has come up in many of the comic statements, Romney is just one of us. I don’t care about the ‘couple of Cadillacs’ or loving sports with some of his good friends who are ‘team owners’ or other such trivia. I want to focus on just how ‘one of us’ he is.

First, you will remember that we noted (Weekly Highlight, Jan. 27^th) Mitt Romney is not one of the 99 Percenters. Moreover, he is not even in the lower 99% of the 1 Percenters; he is in the top 0.006 Percenters. But that never caused him to hold others back. In fact, methods used by Bain Capital (back when Romney led it) allowed Bain employees to participate in specially created, dual-class share structures of companies that Bain took over; a special arrangement that grew their wealth in IRAs and protect them from current taxes. It is important to bear in mind here that both ordinary and capital gains tax rates were higher then than today.

The WSJ recounts one employee, Philippe Wells, remembering an unusual comment by a Bain partner when Wells joined Bain in 1998. The partner said that his IRA had increased tenfold in five years. To put that in perspective for those who are less mathematically inclined, that would turn $100,000 into $1,000,000 in five years … of maybe for a Bain partner, turn $1 million into $10 million over five years.

How could this happen? First I should mention that many private-equity firms allowed employees to co-invest in its takeover deals. Now, investing alongside your company meant you risked losing your whole investment if the deal went bad. This sometimes happened. However, Bain’s success during the Romney era, employees shared in returns that averaged 50% to 80% annually.

Here’s where we come to the unusual Bain twists that made co-investing even more rewarding. Bain permitted employees to invest in tax-deferred retirement accounts (IRAs). They did this through a special share class Bain created, one that cost relatively little but yielded much larger gains than ‘normal’ shares for deals that worked. (For deals that didn’t work, all share classes lost money.) This was quite an unusual arrangement. Such tax-planning options were not widely available. You and I had almost certainly never even heard of such a plan previously; moreover, neither had most people within the private-equity industry.

Several tax lawyers who work with private-equity firms said it was rare for such firms to let employees co-invest in deals via tax-deferred accounts, and even rarer to let them do so using a special share class. It’s not something that’s available to ‘ordinary taxpayers.’ To be completely fair, although the dual-share structures Bain used aren’t common at private-equity firms, some others do use them. Still, 99 Percenters – or even the vast majority of 1 Percenters – don’t have access to something like this.

The tax-deferral opportunity stemmed from the way Bain often chose to structure the shares of companies after taking them over. Even if the companies had only one share class, Bain frequently gave them two classes, usually called Class L and Class A. Because Bain controlled the companies, it had the flexibility to assign values to the share classes.

Class L shares were something like what we know as preferred stock. They had a higher beginning value and were safer than the other class. Like preferred stock, L shares had priority if the company paid dividends, and holders of these shares were the first to receive proceeds from a sale or liquidation. The shares also accrued interest, often at 10% to 12%.

Class A shares, though potentially more profitable, were riskier. Bain assigned a much lower value to these shares but you could lose your investment sooner with A shares than with L shares if a deal went south. On the other hand, you could make a whole lot more money relative to the amount you invested in the deals that worked.

Here’s the skinny, as they say.

If Bain sold/liquidated an acquired company for less than was owed to class L shareholders, class A shares lost all of their value.
Once class L shareholders got their money, class A shareholders received the bulk of any and all additional gains – often as much as 90% of them. So the A shares could skyrocket in successful deals.

You will notice that you had to invest money to get a payout. Thus, Bain employees took some risk in order to receive anything … but what they got was significant. In fact, these co-investments were so promising that employees sometimes borrowed from relatives or friends to do so.

Sarma Melngailis, a former employee, said, “I was just co-investing every dime I could get my hands on.” She said she even borrowed on her credit card to fund co-investments. Overall, compared to other private-equity firms, Bain employees participated to an unusually high degree in Bain’s deals. In a few cases employees provided more than 25% of the capital.

I mentioned that other private-equity firms sometimes use dual share classes. When they do, the main purpose is usually to create a class of shares with low initial value (cost) but high growth potential in order to incent executives of an acquired company. The lure is both to keep key execs and to increase the company’s perceived value by having done so.

At Bain, some such shares may have been used for this purpose. However, the structure provided tax-planning and estate-planning opportunities for Bain people. Some senior executives put the high-upside shares into family trusts (where appreciation would occur outside their estates). Others donated greatly appreciated class A shares to charity; low cost, high tax deduction.

Bain often ascribed 90% of the equity value of an acquired company to the safer L shares and 10% of the value to the risky A shares (a 9:1 ratio). Some tax lawyers and private-equity experts say that was a low valuation for the A shares, particularly by today’s standards. Andrew Smith, president of a firm that performs valuations of private-company shares, said a typical dual-class structure these days might use a 3:1 or 4:1 ratio, ascribing 75% to 80% of a company’s equity value to the safer share class and the rest to the risky ones. Mr. Smith said that firms were less conservative a decade ago – sometimes using 6:1 or 8:1 ratios – but even back then, a 9:1 ratio would have been “pushing the envelope.” Bain has moved to much lower ratios in recent deals. Either way, the tax law ramifications are of no direct concern here.

If you co-invested, you couldn’t choose which share class to buy. All investors bought both, receiving a set proportion of L’s to A’s. But employees were free to allocate the different share classes among their accounts. A common strategy in the 1990s was to invest in the inexpensive, risky but potentially lucrative shares in a tax-deferred IRA, and the safer but lower-upside shares through a taxable account.

Here’s how that worked with one Bain deal, Sealy. Suppose you had invested $50,000 in this deal in 1997. The allocation meant 90% ($45,000) of your money went into the L shares and 10% ($5,000) into the low-priced A shares. You could put these A shares in your IRA. (Note that cheap shares permit putting more shares into your IRA while remaining within the contribution limits.) Ninety percent of your investment goes into the safer L shares in a taxable account.

Bain sold most of Sealy in 2004. Your $50,000 grew to approximately $270,000. In further detail, $99,300 is in your taxable account ($45,000 invested, $54,300 gain) and $171,000 is in your IRA ($5,000 invested, $166,000 gain). That is, three-quarters of the gain occurred in the inexpensive A shares which were neatly tucked away in your IRA out of the taxman’s reach. Their value rose 34-fold. Meanwhile, the L shares in your taxable account merely doubled (a respectable gain, but compare it to that of the other shares).

In another particularly successful deal, Bain increased the equity value of a company it had acquired by 36-fold in 20 months. But some Bain employees saw a 583-fold increase over the same period on IRA money they invested in the special share class of that company. Being in an IRA, the gain could then be rolled over, without incurring taxes, into new deals, making for years of compounding.

Not yet convinced of the advantages Romney (and other Bain people] had? Here’s one last example. One of Bain’s (Romney’s) biggest successes was with Wesley Jessen Visioncare. Bain purchased the money-losing Visioncare in 1995, mostly with debt, turned it profitable, and later took it public. The deal ultimately produced a more than 46-fold return for Bain’s outside investors.

Of course, there was no way to know from the start that Visioncare would be a stunning success. It could have gone bust. Even so, securities filings show Bain employees used the dual-class share structure to direct most of any potential gains into their tax-deferred retirement accounts. They put the majority of their riskier, higher-potential shares into IRAs and the bulk of their safer shares into taxable accounts.

In total, Bain employees purchased $23,581 of the risky Wesley Jessen shares in their IRAs. By the time Bain took Wesley Jessen public in an IPO 20 months later, those shares were worth $13.75 million. According to the Wall Street Journal’s analysis, the initial investment grew to 17 times what it would have been if there hadn’t been a dual-class share structure.

But, it gets better. Employees didn’t sell their Wesley Jessen shares at the IPO. By the time they did sell, the IRA money they invested in common shares had multiplied 1000-fold, to more than $23 million.

Knowing how this worked gives us a possible – even probable – explanation of how Mitt’s IRA reached the value it did. According to his financial disclosures, it’s between $20.7 million and $101.6 million. That’s an unusually large amount for such an account, a vehicle devised to help workers save for retirement with limits on contributions. Not exactly an ‘everyman’ situation, is it?

[It would be useful to know that Bain had a SEP-IRA plan in place during the Romney years. This plan was limited to employer contributions only. Its limit back then was $30,000 a year, much higher than traditional IRAs. Low-price A shares created the chance to build a substantial tax-deferred account despite the contribution limits. How many $30,000 contribution years do you think it would otherwise take to reach $20-101 million otherwise?]

If there is any ‘justice’ in all of this, it lies in the ways tax rates have changed over the past dozen years. Capital gains rates have dropped significantly, favoring taking your gains in taxable accounts now. IRAs are taxed at ordinary income rates when you withdraw the money. When the previous higher capital gain tax rate was in effect, it increased the attractiveness of deferring taxes and thus permitting gains to compound, unimpeded, year after year. As anyone draws out their deal gains from IRAs today, they will pay more in taxes than they would pay if the gains were now in taxable accounts. But given the appreciation rates, they are probably still way ahead.

Source: Bain Gave Staff Way to Swell IRAs by Investing in Deals. Mark Maremont. The Wall Street Journal. March 29, 2012. p. A1.

For the Week Ended March 30, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	+ 1.0	+ 8.1
S&P 500	+ 0.8	+ 12.0
NASDAQ	+ 0.8	+ 18.7

The Russell 2000 (small caps) broke even again this week (+0.0%) with the rounding fractions taking it to 12.1% YTD.

Source: Weekly Wrap. Briefing.com. March 30, 2012

Overview

U.S. consumer confidence still solid
Consumer spending increases (faster than income)
Despite uneven housing data
Eurozone in ‘shallow’ recession

The markets finished mixed this volatile week with some major indices rising and falling by more than 2%. Friday’s rebound came on positive reports on U.S. consumer spending and confidence. Overall, U.S. economic data were positive, including some signs of a bottoming housing market, fewer jobless claims, and an increase in durable goods orders. Added relief came on Friday when eurozone finance ministers agreed to increase the bailout fund to €700 billion in an effort to keep Europe’s financial turmoil under control. Concerns about Europe’s sovereign debt crisis kept yields on Portuguese, Italian, and Spanish government bonds elevated this week.

The week topped off a very strong first quarter for U.S. stock indices. The S&P 500 gained 0.8% this week, its eleventh weekly gain in the last 13 weeks. That streak drove the index to a 3.1% gain for March – its fourth straight monthly gain – and a 12.0% gain for the first quarter. That marks its best quarterly performance since 2009 and the best first quarter performance since 1998. For the quarter, the DJIA is up by over 8% and the NASDAQ Composite is up almost 19%. If there is any bad news in here, it is that much of these gains can be attributed to the performance of a single dominant stock, Apple, which rose almost 50% in the first quarter.

U.S. Economy

Our economy again received mostly good news this week – though much of it was already expected and shrugged off by the market.

First-time claims for unemployment benefits were reported at 359,000, slightly above the expected 350,000.
Confidence among US consumers remained elevated in March. The Thomson Reuters/University of Michigan consumer sentiment index rose to 76.2 in March from 75.3 last month (vs. an expected reading of 74.5). The Conference Board’s confidence index dipped slightly from 71.6 in February to 70.2 in March. The decline was about that which had been anticipated. At the same time, the Board’s present situation index rose to its highest level since September 2008.
Consumer spending rose a robust 0.8% in February (faster than an expected 0.6% increase), despite a more modest 0.2% increase in personal incomes (vs. 0.3% expected increase), according to the Commerce Department. Revised figures for January included a 0.4% increase in expenditures and a 0.4% rise in incomes. The personal savings rate fell to 3.7% in February from 4.3% in January.
Durable goods orders rose 2.2% in February, the fourth gain in the last five months, as demand increased for cars, computers, and capital equipment according to the Commerce Department. Economists forecasted a 2.8-3% gain. Poor prior month orders data were revised slightly higher (to a 3.6% decline).
Excluding transportation items, February durable goods orders were up 1.6% (vs. a widely expected 1.0% increase).
The Chicago PMI slipped to 62.2 in March from 64.0 in February (63.0 had been expected).
Annualized GDP grew 3.0% in the fourth quarter of 2011, according to the third and final revision of fourth-quarter GDP. Economists had estimated 3.0 – 3.2% growth.
Housing market data were mixed. Home prices continued to fall in January, but at a slower pace than previously. Prices of homes in 20 cities in the Standard & Poor’s /Case-Shiller Home Price Indices fell 3.8% in January from a year earlier. The report was viewed favorably because it indicated a possible bottoming of the weak housing market. The National Association of Home Builders/Wells Fargo sentiment index in March remained at its highest level since June 2007 as the outlook for home sales brightened for the sixth consecutive month. However, the number of Americans signing contracts to buy previously owned homes fell 0.5% in February after reaching a two-year high in January, according to the National Association of Realtors.

Some Interesting Notes On The Corporate Front

Best Buy (BBY), long dominant in electronics retailing, reported a $1.7 billion quarterly loss, generally attributed to online shopping. It is said that shoppers go into Best Buy to check out merchandise, scan barcodes of items they want into their smart phones and then buy those items online from vendors offering lower prices. In an effort to compete better, Best Buy announced that it would revamp its business model. The big-box retailer plans to close 50 stores, test smaller boxes (oops, I meant store formats), and lay off 400 employees to cut $800 million in costs and hopefully turn its business around.

Research in Motion (RIM), another falling marker leader, saw BlackBerry sales plummet. RIM reported a 25% drop in sales in the last quarter as the once-dominant BlackBerry Smartphone continues to lose market share – presumably primarily to Apple’s iPhone, but the Android phones aren’t helping RIM’s sales either. As to RIM’s newest model, RIM will write off $267 million worth of unsold BlackBerry 7 Smartphones.

Global Economy

Most of the news this week came from Europe. The most commonly talked about situation was that in Spain. The question was usually expressed as will Spain become the next Greece. In its struggle to avoid a worsening debt crisis, Spain introduced an austerity budget that seeks to cut its deficit by €27 billion, or $36 billion. The draft budget calls for a 17% cut in central government ministry spending, a freeze in civil servant wages, and a tax increase on large companies.

Economic activity in the eurozone economy has decreased for two quarters, marking a technical recession, according to the Eurocoin indicator, a measure of activity compiled by the Centre for Economic Policy Research and the Bank of Italy. The indicator also pointed to contraction in the eurozone economy in each month of the fourth quarter. The Organization for Economic Cooperation and Development said it expects the German, French, and Italian economies to contract by 0.4% in the first quarter.

The Eurocoin indicator notwithstanding, French consumer confidence rose sharply in March, according to France’s National Institute for Statistics and Economic Studies. German confidence eroded slightly, according to GfK, a German market research group. Both reports were surprises. While the German unemployment rate fell, consumers were concerned about record-high gasoline prices.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of March 30, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended March 23, 2012

admin — Fri, 30 Mar 2012 16:17:22 +0000

By Rich Jamison

Apple stock stopped trading on Friday morning because of a large sudden drop in its price which triggered a single-stock circuit breaker. Within minutes, its $600+ price went as low as $542.80 … and triggered the halt to trading.

(After the “Flash Crash” in May 2010, you’ll remember that various circuit breakers were put in place in the hope they would stop trading in case of a repeat of such an event. Single-stock circuit breakers are triggered when a stock swings more than 10% in a span of five minutes. This allows market participants time to regroup and to prevent further erroneous trades from undermining the market.)

How can this happen? If asked, most of us would say that there are only two U.S. stock exchanges; the NYSE and NASDAQ. But that is not quite right. There are only two U.S. exchanges where stocks are listed. However, there is a much wider, lesser known system of more than 50 venues where stocks are traded.

(For example, BATS Global Markets is one of numerous competitors for trading. It was formed in 2005 by trading firms and Wall Street banks to challenge the New York Stock Exchange and Nasdaq. It now has two U.S. stock exchanges and an options platform. In U.S. share trading, BATS ranks third behind NYSE Euronext and Nasdaq OMX Group Inc. We will learn more about it a little later.)

These 50 places all communicate with each other to work out what the best global bid and offer in any stock is at any given time. (This is known as NBBO, for National Best Bid/Offer.)

While this range of trading venues may be good for competition, it increases the number of places where a problem may occur. And because of NBBO, when any one hits a snag, they (and you and me too) all participate.

An interesting and ironic, almost gratifying, aspect to the Apple stock plunge is the trading venue, BATS Global Markets, where it seems (from what we know so far) the erroneous trading occurred. First, you need to know that it wasn’t just Apple. BATS issued an alert at 10:48 a.m. that there were “system issues” with the entire range of stocks with symbols from A to BF.

Second, here’s the ironic part. BATS launched its IPO on Friday. It was to be the first stock listed on the BATS exchange. Its symbol, BATS, lies in that A to BF range. So what happened to BATS stock on its IPO day? Well, it priced at $16. Then, it was like watching a plane crash shortly after takeoff during the maiden flight of a new airline. Here’s the 11:14 AM chart:

Source: www.zerohedge.com (http://www.nanex.net/aqck/3079-2.jpg)

To save you from eyestrain, the white dots are trades (176 of them). The price went from about the $16 mark to something between $0.01 and $0.04. That drop from $16 to pennies took a total of … wait for it … 900 milliseconds! As 1 millisecond is 1/1,000 of a second, this is 9/10^ths of a second, or faster than I can say 900 milliseconds!!

This is what happens when stocks are traded by algorithms rather than humans. The parabolic trajectory of the share price is elegant – if you’re going to crash from $16 to 4 cents within 900 milliseconds, you could not achieve a lower-volatility result. The scary thing here is the sheer speed involved, and the fact that no human intelligence was stopping to think whether these prices made any sense at all.

Two relevant points:

1.BATS cancelled its IPO (and any/all obvious erroneous trades in all stocks with symbols A to BF).

2.The speed is mind-boggling when we see events like this.

That speed is a subject that has arisen before; the 2010 Flash Crash being the biggest instigator of further investigation. Areas that came to light are high-frequency trading and “collocation” (setting trading computers next to exchange computers to reduce time between them).

What also become more publically known Friday (associated with the BATS IPO documents) is that the SEC is looking into these practices more seriously than previously believed, focusing on the computer-driven trading platforms of exchanges, less-transparent parts of the securities markets.The Wall Street Journal reported that securities regulators are examining whether some sophisticated, rapid-fire trading firms have used their close links to computerized stock exchanges to gain an unfair advantage over other investors.

High-speed trading firms make rapid-fire trades, often holding stocks for only fractions of seconds. Their high-power computer systems make them able to move faster than the less technologically equipped investors. The charge had been made that high-speed firms use direct feeds from exchanges that give them a leg up. Most investors – like you and me and millions of other people – must rely on feeds that consolidate prices throughout the market. High-frequency traders can access prices a split second faster via collocation (placing their trading computers in the same data center that houses the exchange’s computer servers).

The SEC is said to also be examining fees that exchanges pay out to attract high-speed trading orders. (Firms that send orders to exchanges that help complete a trade are paid a small rebate, typically about 0.3 cents per share.) Some high-frequency firms specialize in such trading, commonly known as rebate trading, which requires extremely fast connections to exchanges to achieve success and consistency. Other firms that trade aggressively (e.g., mutual & hedge funds) are charged a slightly higher fee by exchanges.

As part of the SEC probe is looking at communications between exchanges and high-frequency trading firms. Investigators are examining whether firms collude to limit competition or manipulate markets.

So, 900 milliseconds is an eternity to those equipped to deal with them. There is a possibility that some market participants may get a short (or at least what seems to us to be short) “heads up” on changes in a stock’s trading direction, e.g., increasing volume of sell or buy orders. Imagine you learn this only 0.1 second ahead of the “public” and your computer is programmed to act on such information. Go back to the BATS trading chart above and note that 0.1 second takes you from about $14 to $8 near the beginning of the curve. (And I won’t even mention that exchanges may be paying them to do this.)

Bottom line: we don’t know if all this is exactly so and/or just who is participating if it is. There are many circulating stories; some are no more than rumors I ‘m sure. There are no charges formally made of wrongdoing by anyone … yet. What we do know is events like Friday’s occur; events that have occurred several times since the 2010 Flash Crash to keep us wondering and, hopefully, investigating. If these scenarios can be proven legally, perhaps they can be limited, regulated or outright forbidden.

Sources:

BATS IPO Halted After Erroneous Trades. Lynn Cowan, Steven Russolillo and David Benoit.wsj.com. March 23, 2012.

SEC Probes Rapid Trading. Scott Patterson and Jean Eaglesham. wsj.com. March 23, 2012.

Chart of the day, flash-crash edition. Felix Salmon. reuters.com. March 23, 2012.

BATS Exchange Declares Self-Help Against… Itself; Trading Halted “Until Further Notice.” Tyler Durden. Zerohedge.com. March 23, 2012.

For The Week Ended March 23, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	-1.1%	+ 7.1%
S&P 500	-0.5%	+11.1%
NASDAQ	+0.4%	+17.8%

The Russell 2000 (small caps) broke even at 0.0%, remaining at 12.0% YTD.

Source: Weekly Wrap. Briefing.com. March 23, 2012.

Overview

· US economic data mostly indicate growth

· Weekly unemployment claims hit four-year low

· Eurozone, Chinese PMIs decline

· Weak yen, strong U.S. demand aid Japan’s trade surplus

Major global stock indices trended downward this week in response to weak manufacturing reports from China and the eurozone. U.S. economic reports, including leading economic indicators, rising consumer sentiment, and fewer jobless claims, were primarily positive, However, housing market data were mixed.

This was the first weekly decline for the S&P 500 in more than a month, and only the second in 12 weeks. The S&P 500 hit its highest level since mid-2008 earlier this week, but it seemed many people opted to take profits in response to renewed concerns about global economic conditions.

Lingering concerns about the eurozone debt crisis sent the yield on the 10-year Spanish government bond up 0.11 percentage points to 5.49%, its highest level since January. Spain is increasingly being seen as the next focal point in the eurozone debt crisis after its government said it wouldn’t be able to meet its deficit targets for 2012.

In the face of the apparent risk-averse mood, U.S. Treasury yields fell and Treasury Inflation-Protected Securities (TIPS) sold briskly Thursday, offering a negative yield for the second time ever. Investors are now effectively paying the US Treasury to take their money, underscoring rising expectations of inflation.

Sources:

Weekly Wrap. Briefing.com. March 23, 2012.

Management Week in Review. MFS Investment Management. March 23, 2012.

U.S. Economy

Our economy again received mostly good news this week. Eight of 10 leading indicators rose, led by a decrease in first-time unemployment claims.

· First-time claims for unemployment benefits fell to a multi-year low of 348,000, less than the 355,000 claims that had been expected.

· The Conference Board’s index of U.S. leading indicators rose in February by its greatest margin in 11 months. The forward-looking gauge increased 0.7% from January.

· A separate report on consumer sentiment, published by Bloomberg, captured the most upbeat mood among American consumers since January 2004, as 34% of households viewed the economy as heading in the right direction.

· Housing market data were mixed.

1. Although home construction dipped 1.1% in February from January, permits for new construction rose by 5.1% in February, reaching their highest levels in almost three and a half years.

2. Sales of previously owned homes dropped 0.9% in February from a two-year high in January.

3. New home sales fell 1.6% in February. However, the median price of a new home rose 8.3% from January.

4. Home builders’ market confidence in March stood at the highest level since 2007.

Just a note of interest: American International Group (AIG) repaid $1.5 billion to the U.S. Treasury on Thursday, closing out the government’s investment in a bailout vehicle that held AIG assets. This reduces the amount of outstanding federal funds committed to the AIG bailout to $45 billion from more than $182 billion at the height of the financial crisis of 2008 and 2009.

Global Economy

Global manufacturing activity continued to grow overall, but at a slower pace in March, according to JPMorgan Chase. Its survey of global manufacturing activity fell to 51.9 from 52.5 in February, indicating expansion at a reduced pace. The gauge peaked at 59.8 two years ago.

Europe:

A eurozone index showed eurozone manufacturing and services activity contracted more than expected in March, adding to expectations that the region has slipped into a recession. PMI data from Europe indicated the same when it fell short of expectations.

An index of UK manufacturers’ expectations rose sharply in March, and inflation pressures rose, according to the Confederation of British Industry. The gauge of expected output for the next three months jumped to 24, its 12-month peak, from 15 in February. The outlook among consumer goods manufacturers reached its highest level since the survey began in 1998. However, UK retailers sold fewer goods than expected in February. Retail sales fell 0.8% from January, but were 1.0% higher than a year earlier.

Asia:

Questions about the health of China were stirred when leaders in the metals industry suggested that the country’s steel production is leveling off. Worries were further stoked later in the week by news that China’s PMI reading fell to a four-month low and indicated that activity is tightening. PMI had a preliminary reading of 48.1 for March, down from 49.6 in February and the lowest level for the index since November. However, two central bank surveys found that confidence in China’s economy among bankers and company executives is rising; expecting market demand and export orders to increase and monetary policy to loosen next quarter. Economists from two financial firms increased their 2012 economic growth forecasts by three-tenths of a percentage point, to 8.2% and 8.6%, Bloomberg reported.

Japan posted a trade surplus in February after four consecutive months of deficits. The country’s monthly trade surplus was ¥32.9 billion ($394 million), a sharp swing from a record ¥1.477 trillion deficit in January. The surplus got a boost from strong exports to the U.S. and the weakened yen, which makes Japanese-made goods less expensive for consumers overseas. Exports fell 2.7% from a year earlier, surpassing expectations of a 6.5% decrease. Japan’s imports rose 9.2% from February 2011 on rising oil prices, a weaker yen, and surging imports of liquefied natural gas, which is replacing nuclear power in the wake of nuclear plant shutdowns after last year’s Fukushima reactor meltdown.

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of March 23, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights For the Week Ended March 16, 2012

admin — Mon, 19 Mar 2012 16:33:52 +0000

Richard Jamison

Two ideas competed for this week’s topic. St. Patrick’s Day was an obvious one. The other jumped out at me while speaking with someone (let’s call him Mitch) a couple days back. That was March Madness. Because there are more basketball enthusiasts than Irish in the audience (and, yes, I do know that everybody’s Irish on St. Patty’s Day) and, more significant, because I know more about March Madness than I do about St. Patrick, guess which topic won. Plus, there is a market moral in this too.

As of 12:15 PM last Thursday, the revered March Madness (MM from here forward) began. Even casual college basketball fans suddenly take great interest in the fate of the Western Kentucky Hilltoppers and Davidson Wildcats.

The NCAA tournament, as you are aware, begins with 64 teams – 16 in each of 4 regions. They play a single elimination format; that is, the winner of each game advances to the next round, the loser goes home (usually dejected). Thus 63 games will be played over about three weeks to determine the eventual champion (ignoring the 4 “play-in” games). Diagramed, it looks like this:

Source: Bracket chart from www.printyourbrackets.com

The colossal public interest in MM comes from two main sources. Personal college affiliations are important, but the all-American office pool is probably even more important. In office pools (never held for anything other than purely recreational purposes, of course), contenders complete the above grid – commonly called brackets – by filling in the teams they think will win each round and, hence, reach the eventual winner. That’s why all the brackets are left blank except those of the starting teams in the outermost columns. (The missing team names in the first round list will come from ‘play-in’ games whose winners weren’t known when the grid was set up.^*)

Office pools offer no reward for favorite teams who play well but lose against a major conference powerhouse. Similarly, there are no points awarded for style, no matter how elegantly a losing team may play. The only thing that counts is winning. To win an office pool, participants pick the winners of each of those 63 games. The more you get right, the higher you score.

To put perspective on this, there are approximately 9.2 quintillion possible combinations from which to choose. (I had to look up quintillion; it’s a 1 with 18 zeros following it). Fortunately, since about 1980, the NCAA has made choosing winners a little easier by including rankings, called seeds or seedings. The teams are numbered from 1 at the top to 16 at the bottom for each division. These seedings are readily available.

The seeding process of teams is a way to make sure that the strongest teams don’t end up playing each other too early in the tournament … which would a) eliminate some strong teams while b) permitting lesser teams to advance and c) be bad for TV ratings and d) the overall fan experience. You can tell from the bracket chart above that, in each division, the #1 seeded teams begin the tournament playing the 16^th seeded teams (the red circles). Similarly, #2 seeds play #15 seeds (the blue circles). And as you see from the way the brackets are laid out, the #1’s and #2’s cannot meet before the 4^th round.

Seeding also provides those who know little about college basketball a basis for choosing their winners in those office pools. Let’s be candid here – even among those who love college basketball, there can’t be many who had the time and interest to follow the seasons of 64 teams from all over the country. However, we know that picking a number 16 seed, the lowest ranked team in each of 4 regions, to beat a number 1 seed is not statistically a good bet in most pools (i.e. with no point spreads). In fact, there has never been a number 16 seed that beat a number 1 seed in the history of the 64-team tournament.

While this is the only seeding combination that failed to produce an “upset” in 27 years of tournament action, it is illustrative of a trend; higher seeds generally survive longer in the tournament. A team with a high ranking is, after all, the stronger team based upon qualitative and quantitative evaluation, and they often possess more talent and better coaching, than the lower-ranked team they are playing. While past performance has certainly not guaranteed future success for high-seeded teams, it certainly points the average NCAA bracket completer in the right direction.

Using data obtained from CBS Sports, Dorsey Wright compiled the history of which seeds advanced through the rounds from 1985 up through last year’s MM. As you can see in the chart below¹, higher ranked teams typically advanced well into the tournament, which led to exciting clashes of the most talented teams late in the tournament. This does make for good TV ratings as well as some pretty good basketball games.

Source: Dorsey Wright

Top-seeded teams don’t always reach the semi-final round, i.e., the celebrated Final Four. Last year not a single #1 seed made it to the Final Four, but historically these teams win about 80% of the games they play. A #16 seed never won a game and the bottom four seeds combined (i.e., #13-#16) won just over 10% of the games they played. Looking through 27 years of NCAA history we find:

As noted, the #1 seeded teams won the greatest percentage of their games (~ 80%).
The top 3 seeded teams combined won 827 while losing 300 games (~ 73% wins).
By contrast, the bottom 3 seeded teams have a combined win total of just 22 games (6.7%).
The top 5 seeded teams combined for a 68% win record, while the bottom 5 seeds won only 16%.
The #1 seeded teams won more games than the bottom 3 seeds have played. (364 to 346)

Nonetheless, there will be buzz about which of the low-seeded teams will defy the odds and win a couple of games in the tournament. There always is. But a few weeks from now, it will likely be one of the highly ranked (i.e., seeded) teams that wins the tournament. That also means that office pools will be won by people whose brackets have that highly ranked team. Last year was considered one of the more upset-laden tournaments in recent memory, yet it was ultimately won by a #3 seeded team. In 25 out of 27 years the National title has been won by a team with a #4 seed; or higher!

At this point it would be only ‘fair’ to admit that I am not an ardent college basketball fan. Perhaps that’s because only one of the schools I attended ever had a team of national celebrity – St. John’s. By that time in my life, I was too involved in my career and my studies to give basketball much attention. So why did I spend all this time on it here?

First, because there are many people who are huge college basketball fans and that number swells at this time of year. More important, there are parallels between picking winning teams and picking winning stocks that, on the surface, seem surprising. However, once you accept all human behavior stems from the same underlying sources, they become obvious. Here’s what I mean.

During the annual MM, a lower seeded team beats a higher seeded team at some point every year. In some years this happens with regularity. Last year a #11 seed made it to the Final Four. And for whatever reason there is often a #12 seed that upsets a #5 seed. Over the life of the NCAA tournament shown above, however, #5 seeds win more than half their games, while #12 seeds win about one-third of theirs. Yet many people will spend as much time evaluating which #12 seed will win their first game, as opposed to which top-seed will likely win the whole tournament, which is far more important in the long run (if you will permit me to call three weeks a “long run”).

This tendency is similar to a study I have cited many times regarding the derivation of risk in a given stock. The study conducted by Benjamin King² looked at the risk in an individual stock and what actually caused the price of the stock to move. What Mr. King found in the study was that 80% of the risk in an individual stock is associated with the overall market and its sector, while only 20% was company specific. Fundamental analysis is focused on that 20%. The other part of the study found that the average investor spends 80% of their time evaluating the company specific information, and just 20% of their time evaluating market and sector risk.

A surprising number of people spend an awful lot of time slicing and dicing the differences between the point guards for #15 seeds … the teams that historically have only won 4 games out of 108 played. Yes, you could be the one to predict that fifth win in history for a #15 seed in its game against a #2 seeded team. However, you are also predicting the elimination of a seed that wins 96% of its 1^st round games, and more than 70% of all its NCAA tournament games. The #2 seed has a history of making it much further into the tournament, which means by incorrectly picking a #15 seed over a #2 seed, it not only goes down as a loss for that game, but likely a loss of two, three, or more games in your bracket. So, while the potential of being able to claim “victory” in picking a #15 seed over a #2 seed might seem alluring, the fact is such picks have been correct just 3.70% of the time in NCAA Tournament history. Which side would you truly rather be on?

So how does this relate to the security markets? We have often stressed the necessity of using technical analysis to supplement fundamental analysis. Moreover, I’ve spoken about one of the major technical indicators, Relative Strength (RS), regularly. Yet clients often confide that they don’t really “get it” even though they say the explanation seems clear. That is, they understand it but they haven’t internalized it. I think that is because, in general, statistics are only marginally understood. That is, some aspects seem fine to most of us; others are a little less intuitive.

This is where the NCAA seeding process comes in. Most people grasp that some teams are higher ranked than others, even if they don’t understand the full inner workings or who rated them or how they did that. It might help to think of RS as analogous to the seeding system of the NCAA. Basically, it’s the same thing. Some securities (sectors, asset classes, etc.) are ranked higher than others. It’s that simple.

And over time, as with the NCAA results you saw for higher seeded teams, the higher ranked securities (sectors, asset classes, etc.) generally win over the lesser ranked ones.

In short, when we use a Relative Strength Matrix to compare a number of potential investments, we are simply “seeding” our “teams.” Also similar to what the NCAA experts do for the MM tourney, we too seed our candidates based upon their recent trends of success against their peers. The more RS buy signals generated by a team/security, the stronger the ranking or the “seeding” of that security. Similar to the NCAA tournament, history shows top seeds tend to perform better than do the lower seeds. There are upsets, of course, but the trend favors the higher seeds and so that is where we focus our investment “brackets.”

While the NCAA committee has their own proprietary ways of ranking teams for the NCAA basketball tournament, it is based upon head-to-head games earlier in the season and overall recent performance. The manner by which a Relative Strength Matrix is used to rank stocks, sectors, countries, and even asset classes is not particularly different. Our RS rankings are a way to identify the strongest of performance trends in the market, using head-to-head comparisons to build a database of information. The matrix process also affords us a lens through which to see negative performance trends begin to improve. We suggest, however, that top-ranked assets in a matrix are your high-seeds, and thus the more stable trends in the market place. While low-ranked assets, that are simply improving, would be the equivalent of a potential #12 seed upset pick. Though they offer a logical organized means for approaching the “upset” selection process, we would not build a portfolio based upon such #12 seeds due to the instability of these trends.

Right here, let me again remind you that past performance does not guarantee future success. We look to the past to see how things have worked and use that to project into the future. At times, this proves to be wise … but things can change. If so, we need to change with them. Hence, we use a rules-based rotational program to stay abreast with what the markets do. Our objective is to remain invested within only highly ranked sectors.

Can I give you a practical example of potential change occurring? Sure. We are seeing signals from the Banks Sector that have caught our attention. We’ve not seen a clear rotation into leadership status, but we’ve seen some indication of upsets already. In fact, our Banks Index recently generated an RS buy signal against our Drug Sector Index. We’ve also seen the largest of U.S. Financials moving toward higher technical attribute ratings over the past 5 months, with 8 of the 10 largest Financials increasing their ratings. There has been a flurry of dividend increases from some of the largest U.S. banking institutions recently as well. In general, this is an area we’re now watching closely for further moves and opportunities. It’s still not among the highest seeds. The focus of our investment bracket is still upon the more stable trends, those identified by higher “seedings” within an RS matrix ranking.

*These are games played among the lowest four at-large qualifying teams and the lowest four automatic bid (conference champion) teams. This does not mean that these are necessarily the lowest eight teams in the field. The four games are held to determine which of these teams will assume a place amongst the teams participating in the first round.

Sources:

Daily Equity & Market Report. Dorsey, Wright & Associates Staff. Dorseywright.com. March 15, 2012.
Market and Industry Factors in Stock Price Behavior. Benjamin F. King. Journal of Business 39, No. 1. January 1966, pp. 139-190.

For The Week Ended March 16, 2012

Summary Statistics

Index	For the Week	Y-T-D
DJIA	+2.4	+ 8.3
S&P 500	+2.4	+11.7
NASDAQ	+2.2	+17.3

The Russell 2000 (small caps) gained 1.6%, rising to +12.0% YTD.

Source: Weekly Wrap. Briefing.com. March 16, 2012.

Overview

DJIA hits 13,000
S&P 500 crosses 1,400
NASDAQ beat- 3,000 (an 11-year high)
U.S. initial jobless claims drop
Retail sales climb
Core inflation remains tame
Fifteen of Nineteen large U.S. banks pass stress test
EU, IMF sign off on Greek loan
China posts $31 billion trade deficit

Global financial markets rose this week as investors were encouraged by U.S. economic strength and a seeming resolution to the Greek debt crisis. The NASDAQ Composite Index rose above 3,000 to its highest level since December 2000, while the Dow Jones Industrial Average and Standard & Poor’s 500 Stock Index both passed key milestones, reaching 13,000 and 1,400, respectively. That stands as the S&P’s fifth straight weekly gain, and tenth in 11 tries. That streak has the S&P 500 sitting above 1400 for the first time since mid-2008. Along the way the stock market has managed to overcome precarious conditions in Europe, ongoing concerns about global growth prospects, and debate over the plausibility of additional monetary stimulus. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), also known as the Fear Barometer or Fear Gauge, continued to fall, nearing a five-year low. In little more than a week, it has dropped approximately 30%.

U.S. economic news included robust reports from retailers in February, fewer weekly jobless claims, and tame core inflation.

Major global stock indices rose 2% or more for the week.

Sources:

Weekly Wrap. Briefing.com. March 16, 2012.

Management Week in Review. MFS Investment Management. March 16, 2012.

U.S. Economy

Our economy again received mostly good news this week. The FOMC, creating little surprise, opted to keep the fed funds target rate at 0.00% to 0.25%. It also maintained an outlook that would likely to warrant exceptionally low levels for the fed funds rate at least through late 2014. Although the Fed has been accommodative in its policy efforts, there has been a growing belief among market pundits that further stimulus will likely be put on hold because since the economy continues to improve, albeit at a slow pace. Among the economic reports:

First-time claims for unemployment benefits fell by 14,000 to 351,000 in the week ended March 10^th, and continue to suggest improvement in the labor market. The four-week moving average of claims remained at 355,750.
Retail sales rose a robust 1.1% in February, the largest gain in five months and beating an expected 1.0%. They also beat the prior month’s upwardly revised 0.6%. Demand improved in 11 of 13 categories, including automobile dealers and clothing stores. Excluding autos, retail sales increased by 0.9%.
Core inflation remains tame despite higher energy costs. Core producer prices and consumer prices (as measured by the PPI and CPI, excluding volatile energy and food prices) rose 0.2% and 0.1%, respectively, in February. Both the PPI and CPI increased 0.4% overall, as gasoline prices rose 4.3% on a wholesale level and 6.0% for consumers. The general consensus had pegged the increase in overall producer prices at 0.5% and the increase in core producer prices at 0.2%. During the prior month overall producer prices were up only 0.1%, while core producer prices were up 0.4%. Annually, consumer prices rose 2.9% and just 2.2% without energy and food prices.
Industrial output was unchanged in February, as the third-straight rise in factory production offset a drop in mining activity. However, prior month numbers were revised upward to reflect a 0.4% increase and the Empire Manufacturing Survey for March improved to 20.2, its highest level in over a year. The Philadelphia Fed Survey for March improved to a multi-month high of 12.5, exactly as had been forecasted.
Consumer sentiment slipped slightly to 74.3 from 75.3 in February, according to the preliminary reading of the Thomson Reuters/University of Michigan consumer sentiment index. A reading of 75.8 had been broadly anticipated to follow the one-year high reached in January.
Import prices were up 0.4% in February. Excluding oil, import prices were down 0.1%. In the prior month overall import prices and prices less oil increased by 0.3% and 0.1%, respectively. Export prices increased by 0.4%, or 0.5% when excluding agricultural items. Respective increases of 0.2% and 0.5% were experienced in the prior month.
The U.S. current account deficit widened substantially in the fourth quarter of 2011 to $124.1 billion from $107.6 billion in the previous quarter. This was the largest quarterly current account deficit in three years. The deficit is expected to grow in the coming months as imports keep rising faster than exports on the relative strength of the U.S, economy.
Fifteen of 19 large banks passed the Federal Reserve Board’s stress test. Four of the 19 banks tested, Citigroup, Ally Financial, SunTrust, and MetLife, failed to show that they had enough capital to withstand a (hypothetical) severe recession – including 13% unemployment, a 60% stock market decline, and a 21% loss in home prices from today’s levels. The remaining 15 banks were pronounced in healthy standing and are now free to boost their dividends, buy back shares, and take other actions that will make their stock more attractive to investors. JPMorgan Chase and Wells Fargo are among the banks that announced dividend increases after being deemed capable of withstanding a severe crisis,

Global Economy

Europe:

The European Union (EU) and International Monetary Fund (IMF) approved the new Greek bailout, enabling the Greek government to make its debt payment by March 20^th and providing the eurozone with time to try to resolve its complex debt crisis. However, IMF officials expressed doubts about Greece’s ability to meet the rescue package’s conditions, including deep cuts in government spending and stricter tax collection, in a period of soaring unemployment and economic recession. Greek unemployment rose to 20.7% in the fourth quarter of 2011 from 17.7% in the third quarter and 14.2% a year earlier. Meanwhile, credit rating agency Fitch raised Greece’s credit rating four levels to B- from restricted default.

Eurozone real (wages after the impact of inflation) fell in the 17 member countries of the eurozone in the fourth quarter of 2011, according to Eurostat, the European statistical agency. While annual wages in the eurozone rose 2.5% in the fourth quarter, the annual inflation rate of 2.9% more than cancelled out those gains and could curtail consumer spending.

German economic expectations jumped to their highest level in almost two years in March, rising to 22.3 from 5.4 in February, in the monthly gauge published by the Centre for European Economic Research (ZEW). Experts had expected a reading of 10.0. The index has risen for four consecutive months, after declining for nine months.

Asia:

The Chinese trade deficit was much larger than expected. It grew to $31.5 billion in February; not only substantially more than expected, but the largest monthly deficit since 2000. This was a sharp turnaround from a $27.3 billion surplus in January. The February report is the latest in a series of weak economic reports on the world’s second-largest economy. Car sales, industrial production, and retail sales in China have all experienced weaker growth, and property sales continue to decline.

Sources: The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; www.NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; www.markit.com; the New York Times; www.standardandpoors.com; www.djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; www.dol.gov; www.fxstreet.com

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of March 16, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.

Weekly Highlights Supplement For the Week Ended March 16, 2012 with Tournament Results

rich.jamison — Sat, 17 Mar 2012 17:15:34 +0000

March Madness: Special Supplement April 7, 2012

In the Weekly Highlights for the Week Ended March 16, I drew an analogy between the seeding of teams in the NCCA tournament based on their prior performance and Relative Strength (RS) ranking of securities, sectors and/or asset classes based on their prior performance. To save you the time of rereading that article, the salient points were that:

Some teams/securities have outperformed others when judged by certain criteria,
They can be ranked in a best to worst order on these criteria, and
Expected to continue to perform as they have – with some perhaps surprising exceptions.

The tournament ended this week. So how did the seeding system hold up? Did it do what we thought it would do? How did the Seeding relate to the Winning?

Basically, yes. Overall, the higher seeded (ranked) teams did better than the lower seeded ones … with some notable exceptions.

Here is the summary. If you would like to track more details, I’ve included a chart showing the brackets with teams and seedings, the games and the winners below.

First, the unexpected:

I had noted that no 16^th-seeded team had ever won a game in the history of the tournament. That would require that team to beat a #1-seeded team. That record is still intact.
However, two 15^th-seeded teams (Lehigh and Norfolk State) beat two #2-seeded teams (Duke and Missouri) in the first round of play. Those were our ‘upsets’ this year.

And on the ‘what we thought would happen’ side:

Neither 15^th seed (Lehigh & Norfolk State) made it past the second round.
In total, the twelve teams making up the 14^th-, 15^th- and 16^th -ranked teams won a total of two games (the ones noted in the unexpected section above).
In the ‘Final Four’ were one #4-seeded, two #2-seeded and one #1-seeded teams.
That reduced to a #1 seed playing a #2 seed for the championship.
And March Madness was won (in early April) by #1-seeded Kentucky.

These results are analogous to those we see with RS ratings. There will be surprise upsets, but the overall trend is for the higher RS-rated to win out more than they lose. That’s why we so strongly feel fundamental analysis must be supplemented with technical analysis and why RS is one of the main indicators we use in our work.

Weekly Highlights For the Week Ended March 9, 2012

admin — Mon, 12 Mar 2012 18:40:25 +0000

Richard Jamison

No one disputes that Warren Buffett is a good investor. He’s made tons of money over many years and it’s been well-documented. From time to time, he holds court and tells us what he thinks. Even his public calls have been pretty good, like his faith in U.S. stocks when all around him were in the throes of desperation in late 2008¹. His rationale?

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

More recently he said bonds should come with a warning label, so take that for what it’s worth.

He is not without misses too; that is, not everything he buys goes up. And he can wind up in the headlines on what sometimes look like the wrong side of an argument². But when you add up all the pluses and minuses, you could do worse than trying to emulate Warren Buffett.

Given his long-term record of outperformance via Berkshire Hathaway (BH), one could argue that rational investors should follow his lead when the company discloses its holdings. That appears not to be the case. So why don’t we all just do what Warren Buffett does? Well, first of all, we would need to know what it is St. Warren actually does. That’s not an easy question to answer.

Fortunately, several professors studied that in great detail³ – thus permitting me to cite their findings instead of having to do all that boring, dry analysis. They looked at what Buffett did in the past by seeing what he bought and/or sold and when he made those trades. To get this information, they analyzed Berkshire Hathaway’s quarterly filings from 2006 all the way back to 1980. (That’s 2,140 quarter-stock observations to which they added 275 observations of items for which Berkshire Hathaway had received SEC approval for confidential treatments that surfaced in later reports. if you want to see the work, you can access their paper, a 39 page pdf file, here:

http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1641495_code87814.pdf?abstractid=1635061&mirid=1

If you prefer a summary version, keep reading.)

Using the ton of data they had on BH’s investments, they found a number of interesting generalities, including:

BH tends to invest in large firms, leaning toward those with low book-to-market ratios and large accounting accruals.
Tends to avoid firms with high asset growth and poor past returns.
The holdings are concentrated toward banking, business services, insurance and publishing.
The number of stocks held ranged from 5 to 95. (The average number held during the 1980s, 1990s and 2000s were 22, 12 and 33, respectively.)
The median holding period is one year.
Approximately 20% of stocks are held for more than two years.
Approximately 30% of stocks are held for less than six months.
Net stock sales by insiders (officers, directors, and major stockholders) of companies in which BH has a position tended to decrease when BH increased its positions. (This one disturbs me a bit as I see it could indicate – maybe even hints at – shared private information.)

I will come back to a couple of these points momentarily. First, let’s look at the contrast between BH’s choices and the market’s overall “wisdom” by seeing what the “public” felt about those choices. The authors do this by using analysts’ and fund managers’ views for the public opinion. As we have all noticed, they are not reluctant to makes these views known, so there is a record of them at the relevant times. Essentially, these views showed a disagreement with Warren Buffett:

Analyst recommendations are somewhat lower for BH’s holdings than for the S&P 500
Analysts tend to downgrade these recommendations following increases in BH’s holdings.
Funds, even those in the top fifth of past performance, appear to take the other side of BH’s trades (selling when BH is buying).

The conclusion is we are not emulating Warren Buffett. Moreover, it appears that most of the other “experts” often stand in opposition to what Buffett does.

Now I return to the points above that deal with holding periods. You have most likely heard me refer to the death of buy-and-hold. (In case you don’t recall my view, that is that buy-and-hold died – or should have died – as a strategy long ago.) From the points above, we observe a median holding period of a year, with approximately 20% of stocks held for more than two years. At the other end of the spectrum, approximately 30% of stocks are sold within six months.

Yep, Warren Buffett has 100% turnover. He blew out 30% of his portfolio selections within six months, and held about 20% of his picks for the longer run. That is active trading by any definition.

A mythology has grown up around Buffett – that he has a somewhat magical ability to select stocks and then holds on to them forever. The truth is far more pedestrian, and encouraging since it is something all of us can do. He might be holding on to what is working, but his portfolio holdings are pared relentlessly.

If I had to guess, I suspect Warren is simply doing what every good investor does. He’s using his best judgment to select stocks and then cutting the losers and letting the winners run. (I point this out as our Systematic Relative Strength^* process is a casting-out process that does exactly the same thing.) There’s no glory – or capital gain to be had – in holding an underperforming piece of garbage for the long run. Mr. Buffett’s stock selection may be above average, but his genius is more likely in his discipline.

Bottom line:

1. Look for good investment opportunities

2. Hang on to the winners, and

3. Get rid of the losers.

Don’t be conned by the myth of buy-and-hold. Even Warren Buffett isn’t doing it.

Sources:

Buy American. I Am. Warren Buffett. The New York Times. October 16, 2008.
Buffett’s NetJets countersued by U.S. for unpaid taxes. Government suit is over $366M in unpaid taxes, penalties. Staff. InvestmentNews. March 9, 2012.
Overconfidence, Under-Reaction, and Warren Buffett’s Investments. John S. Hughes, Jing Liu & Mingshan Zhang. Social Science Research Network (ssrn.com). July 5, 2010

*As you have undoubtedly discerned, Relative Strength (RS) has come up repeatedly in recent articles. It is a crucial tool for evaluating what is happening in the markets at any given time. One of the things RS points to regularly is buy-and-hold is not a suitable strategy for most investors. I will add again quickly that no method, technique or tool is always right. Our approach is, “Go with the tools that give us the ‘right’ answers the most frequently.” (We know we will sometimes be wrong. There is no one who isn’t.) Then look back to number 3 in the Bottom Line section above. It might make a little more sense with this in mind.

Summary Statistics

Index	For the Week	Y-T-D
DJIA	- 0.4%	+ 5.8%
S&P 500	+0.1%	+ 9.0%
NASDAQ	+0.4%	+14.7%

The Russell 2000 (small caps) gained 1.8%, rising to +10.3% YTD.

Source: Weekly Wrap. Briefing.com. March 9, 2012.

Overview

Greece to get its bailout
U.S. jobs report beats expectations
But more signs of global deceleration appear

In an eventful and volatile week, Greece received a high enough buy-in from creditors on its debt swap to make the deal happen.^* The U.S. economy continued to expand, with numerous positive indicators, most notably a third consecutive monthly gain of more than 200,000 jobs. Weakening Chinese economic data, released Friday, followed an announcement Monday that the Chinese government would lower its annual economic growth target to 7.5% from 8.0%.

The DJIA recorded its first double-digit daily drop of the year on Tuesday, followed by a bounce back beginning Wednesday. However, the S&P 500 still eked out another weekly advance – its ninth in 10 weeks – as key indices all ended in or near positive territory. Reassuring news on the Greek debt swap and U.S. economy overrode worries about both the news that eurozone GDP declined by 0.3% in the fourth quarter (unrevised from its preliminary reading) and a China slowdown.

Friday marked the three-year anniversary of the beginning of the current bull market (it began March 9, 2009). Three years ago, the SP 500, DJIA and NASDAQ closed just over 676, 6,547 and 1,268, respectively. On Friday, they closed at 1,370, 12,922, and 2,988, respectively, about doubling in three years. (You may want to take another look at Buffett’s October 2008 comments cited above.)

To my mind, the bigger concern is still other European countries. Remember two things that have happened; 1) we were intermittently told Greece would and Greece wouldn’t default, and 2) Greece is a small country with relatively small debt. Other larger countries could be worse and we still don’t know the absolute status of most of them. European leaders were worried only a short while ago about contagion effects of a Greek default to the entire Euro system. Now they say that possibility doesn’t exist. I look at this as we are currently being told there is no danger of them defaulting.

Sources:

Weekly Wrap. Briefing.com. March 9, 2012.

Management Week in Review. MFS Investment Management. March 9, 2012.

U.S. Economy

Our economy received mixed, but mostly good, news this week. The most influential domestic news of the week concerned the employment numbers.

Jobs:

The Department of Labor reported jobs recovery continued in February, with jobs outside of agriculture growing by 227,000. Offsetting a decline of 6,000 government jobs, the private sector added 233,000 jobs in February, according to the official government tally. Net growth of jobs in January was revised upward by 40,000 to 284,000 jobs. Overall, we have added close to 250,000 jobs per month over the past three months, double the pace of job creation in the previous half year. (Though investors are generally pleased that the jobs picture continues to improve, excitement was limited by the belief that such a trend could make it less necessary for further economic or monetary stimulus.)
The figures were in line with the ADP numbers released earlier in the week that indicated private payrolls climbed by 216,000 in February.
The latest weekly jobless claims count totaled 362,000, which is up 8,000 from the prior week and slightly more than the 355,000 claims that had been broadly expected. The headline unemployment rate remains at 8.3%.
Fourth quarter productivity (not really a job, but related) was revised upward to reflect an increase of 0.9% to narrowly exceed the increase of 0.8% that had been broadly forecasted. However, unit labor costs were also revised higher, but the 2.8% increase was considerably more than the 1.1% increase that had been widely anticipated.

Other Indicators:

Consumer credit climbed to $17.8 billion in February from a downwardly revised $16.3 billion in the prior month. Economists had forecasted a decline to $12.0 billion.
Consumer confidence hit its highest point in four years (as measured by the Bloomberg Consumer Comfort Index.
Consumer borrowing rose at a seasonally adjusted 8.6% annual rate in January, the fourth straight month of rapid growth, on strong growth in student loans, auto loans, and other non-revolving debt.
The Institute for Supply Management’s (ISM) index of nonmanufacturing activity increased to 57.3 in February, from 56.8 in January, its strongest report since February 2011. However, factory orders fell 1.0% in January, the first decline in that gauge in three months, on declining demand for steel, machinery, and other big-ticket items. That was still less severe than the 1.9% drop that had been widely expected.
Our trade gap widened to $52.57 billion in January, its highest level in more than three years, on a surging trade deficit with China.

Global Economy

World-wide

Several global areas showed some further signs of global economic slowdown.

India reported that inflation slowed to 6.5% in January, after remaining above 9% through much of 2011. Rising crude oil prices and slowing growth in India are raising the specter of stagflation.
Japan’s GDP shrank by 0.7% in annualized terms from October through December, a smaller-than-expected contraction, and much smaller than an initial 2.3% estimate last month.
Australia’s unemployment rate rose to a seasonally adjusted 5.2% in February from 5.1% in January. The country’s economy grew by just 0.4% in the fourth quarter.
Brazil reported that its economy grew by 2.7% in 2011, less than half the pace that its government had predicted a year ago.

Europe:

Greece dominated the headlines again this week. It ultimately received an 83% participation rate, or voluntary buy-in, from bondholders on its proposed sovereign debt swap. It also invoked collective action clauses to impose the deal on most of the remaining bondholders. That brought the total buy-in rate to 96%. The decision to force some bondholders to comply with the deal means that Greece met conditions to trigger credit default swaps. Under the deal, bondholders will receive new 30-year Greek bonds worth 53.5% less than the nominal value of their bonds, equating to a 75% loss. Finance ministers from eurozone nations are to meet Friday afternoon to review the debt swap – the world’s largest sovereign debt restructuring. They are expected to sign off on the €130 billion bailout package.

Asia:

China’s inflation rate slowed to 3.2% in February, according to the country’s National Bureau of Statistics, while industrial output and retail sales grew at a slower pace than expected. The Chinese government announced that it is embracing a slower pace of growth. By lowering its annual economic growth target to 7.5% from 8.0%, China sent a warning worldwide that could greatly affect exporters of commodities and other materials that have been in high demand as China has rapidly built its infrastructure. In a quest to achieve more balanced and sustainable development, China plans to focus more on promoting consumer demand and less on exports and infrastructure investments. Trade this week actually started on a weak note amid concerns that global economic growth would be adversely impacted by China’s 2012 growth forecast of 7.5%, which stands as its lowest target since 2004.

Sources: The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; BBC News; The Associated Press; Crain’s New York Business; MFS research; NYSE; NASDAQ; Dorsey-Wright Associates; www.NYMEX.com; CNBC’s Power Lunch & Squawk Box programs; www.markit.com; the New York Times; www.standardandpoors.com; www.djindexes.com; 247wallstreet.com; MarketWatch.com; Morningstar.com; thomsonreuters.com; the Financial Times.com; Briefing.com; BusinessWeek.com; www.dol.gov; www.fxstreet.com

The data above were taken from sources deemed reliable. However no guarantee can be made as to their completeness and accuracy.

Interpretations of the data, views and/or opinions expressed are those of the Jamison Financial Group based on market and economic conditions as of March 9, 2012 and are subject to change. They do not necessarily reflect the opinions of any other individual, group or organization.

All indices are unmanaged and are not illustrative of any particular investment. A direct investment cannot be made in any index.

The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.

The NASDAQ Composite is a market-weighted index of all the over-the-counter common stocks traded on the NASDAQ system.

The S&P 500®, a market-capitalization-weighted index of common stocks.

Past performance is no guarantee of future results.