Authorities announced the details of their $26 billion^* mortgage settlement with big banks last Thursday. And if nine other major mortgage servicers join the pact, as is currently under discussion with the government, the total could rise to between $30 and $40 billion. The amount is already a record settlement – larger than the tobacco settlement. It’s the largest federal-state settlement in U.S. history. It has created hope among millions of American homeowners; hope that this time they will finally get relief.

 This settlement is the result of investigations that began three years ago regarding illegal bank foreclosure practices. Among the charges that had been leveled at the banks was that they not only illegally foreclosed on many homes (e.g. robo-signing^** and dual tracking^***), but that they had intentionally destroyed pertinent documents. Discussion between state Attorneys General across the country and the banks evolved into trying to find ways to help underwater borrowers as well. In the end, 49 states participate in the settlement. (Oklahoma is the only state not signing on.)

 The settlement promises wide, but not deep, relief to U.S. homeowners. Millions of mortgages (those owned by government agencies Fannie Mae and Freddie Mac) are not covered under the deal, thus excluding about half the nation’s mortgages.  Most of the settlement (~$20 billion) looks like it will go to one million American homeowners. They will have their mortgage debts reduced or their loans refinanced at a lower interest rate.

 It also includes $1.5 billion for about 750,000 people whose homes were foreclosed between 2008 and 2011, each getting between $1,500 and $2,000.

 Homeowners in two states – Florida and California – will reap over half of the $26 billion. This is because of the disproportionate number of loans that are delinquent or exceed the value of the underlying property there. California’s large share of the money occurs even though there have been few complaints among state homeowners about the kind of improper robo-signing practices that launched the talks. California got the single biggest chunk (~45%) based not only on the above loans but also, allegedly, because of Bank of America’s desire to escape the legacy of its Countrywide problems.

Oklahoma reached a separate agreement worth $18.6 million with the banks and didn’t sign the federal settlement, according to Scott Pruitt, the state’s Attorney General. He said that this would give Oklahoma more money than it would have gotten as a share of the $26 billion deal. But all of that money will be awarded essentially as compensatory damages for Oklahomans who were the victims of unfair and unlawful conduct of mortgage servicing companies, he said. Oklahomans can still receive assistance with loan-principal reductions or refinancing from the nationwide settlement. Makes you wonder about the “fairness” of the planned distribution of the big settlement, no?

Although the settlement seems to have lost the original intent of the investigations, the federal government said the agreement does not release banks from a variety of suspected misdeeds. Regulators and prosecutors could still pursue allegations of fraud in the process by which those loans were made, known as origination, and the packaging of those mortgages into securities sold to investors by the big banks.

“We’re going to keep at it until we hold those who broke the law fully accountable,” said Obama. I can only say, we’ll see.

Economists do not expect a big boost for the economy from the $26 billion, in part because the banks have three years to distribute the aid. (However, there are incentives for banks to distribute the money in the next 12 months.) Some experts questioned whether the accord would do anything to stabilize the housing market and its glut of millions of foreclosed homes.

The settlement has also begun a firestorm from critics of the government’s action. Defenders, like Shaun Donovan (Secretary of Housing and Urban Development), say it will spur more loan modifications through existing government programs as well as principal reductions – when loan debt is written down for borrowers who owe more than their home is worth – as well as additional mortgage relief provided by banks.

But government officials cast the settlement as more than just an attempt to aid consumers and stabilize the housing market. They say it is an effort to finally hold banks accountable for their misdeeds, more than three years after the mortgage collapse brought on a full-scale financial crisis. Eric Holder, the United States attorney general said the deal is about, “righting the wrongs that led to the housing market collapse. With this settlement, we recover precious taxpayer resources, fix a broken system and lay a groundwork for a better future.” What are the criticisms that are being launched against the settlement? They tend to fall into one of two categories: 

1. The bill is unfair in that it rewards those who didn’t pay their mortgages (and hence, penalizes those who did or even encourages others to stop paying), and
2. It lets the banks off the hook for too few dollars and for their illegal activities 

Let’s look at the first argument: 

The agreement would compensate both underwater homeowners whose debt exceeds the value of their properties and victims of alleged foreclosure fraud. Payments will go to homeowners who didn’t pay their mortgages and are now threatened with foreclosure. Homeowners who kept up on their payments get nothing. Defenders of this say that the agreement is justice for those duped into buying overvalued homes. Opponents say this rewards bad behavior.

Dick Bove, a banking analyst, exemplifies the opponents and their views. Bove called the agreement “the mortgage deal from hell.” He said it will help those who bought homes with little money down and who either fell behind on payments or stopped paying their mortgages altogether. Those who brought down their principal with 20 percent down payments and who kept up on their obligations would not benefit, and ultimately could suffer if the mortgage modifications and principal write-downs drag down neighborhood property values. Bove says, “The government has selected a small minority of homeowners to get this benefit (1 million of 75 million or 1.3 percent of the total). Homeowners who made large down payments on their homes or made the terrible mistake to pay down the principal on their mortgages do not qualify. Homeowners who made minimal or no down payments will get the windfall benefit of a lower principal repayment or a cash payment.”

“Those people lucky or smart enough to stop making payments on their homes may get their loan balances reduced. Other beneficiaries of the agreement may be homeowners who have seen the value of their houses drop below the size of their mortgages. They get a freebie that other homeowners who have paid their mortgages down will not get.”

A number of critics are raising questions about so-called moral hazard, the danger that more relief encourages homeowners to default in the hopes of getting aid.

But as a practical matter to the banks, Bove said the banks likely won’t suffer any more material losses as a result of the settlement as they already have set aside cash or written down mortgages in anticipation of it. He said that the precedent is disturbing. 

“There is no sanctity of contracts in the United States. Only fools meet their financial commitments. The non-payers are the truly enlightened.” 

The second argument is that this is a modest settlement even thought the number itself, the $26 billion, is an eye-popping number. Millions of people who have lost their homes and this settlement will only affect a relatively small number of them. 

Some state Attorneys General closely involved with the settlement acknowledged that it provided only a small amount of restitution to individuals who lost their homes in foreclosures, even though they said their investigations uncovered rampant evidence of robo-signing and enormous problems with the servicing aspects of the loans.

 As one critic said, 

“Two thousand bucks for having your home illegally foreclosed on is an insult.”

If we accept that the dollar amount is too small for their transgressions, what are the transgressions we are forgiving? There is still some lack of clarity around this.

Administration officials cast the settlement as an effort to finally hold banks accountable for their misdeeds, more than three years after the mortgage meltdown brought on a full-scale financial crisis.

Holder said that,

 ”The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers.”

“The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits. State Attorneys General also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.”

More than a year ago, evidence began emerging about robo-signing, in which foreclosure documents were signed without being read or with phony names and titles.
“The robo-signing was the hook for the investigation, that was the most outrageous thing that got the whole thing started. But the robo-signing does not amount to the worst things that servicers have done. What caused the ball to pick up steam was all of the other abuses,” said Kurt Eggert (professor, Chapman University’s law school). He adds, “The servicers really needed California in this deal.”
By signing on, California waived a litany of claims it could have brought against the banks, including unfair or deceptive business practices and general consumer protection statutes that applied to wrongdoing in the loan modification and foreclosure process, according to a person familiar with the talks not authorized to speak publicly. California retained some claims that other states gave up, including fair lending cases.

California’s negotiators were able to leverage claims against Bank of America to secure a much larger commitment than any other state, one with some specific conditions that only California will get. Bank of America, which has a huge portfolio of Countrywide loans from its 2008 acquisition of the company, was especially insistent on getting California on board. For Bank of America, the deal “made no economic sense” if California wasn’t included, and most of that bank’s commitment is aimed at Countrywide borrowers, according to a person involved with the negotiations. So California used that leverage to its own benefit.

For instance, it got a significant amount of principal reduction for borrowers. Under the terms of the deal with California, banks can write principal down to the current value of the loan, or so the monthly mortgage payments make up only 31% of a borrower’s income. And if the banks don’t fulfill the $12-billion guarantee, they will have to make cash payments of up to $800 million directly to California. Unlike the deal for other states, that provision is enforceable in a California court instead of federal court in Washington.

The 49-state deal is said to release Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally from civil government claims over faulty foreclosures and the mishandling of requests for loan modifications. It also covers claims the banks failed to offer alternatives before foreclosing on borrowers with federally insured mortgages, and filed improper documentation in federal bankruptcy court. So have banks just been given a free pass for foreclosure fraud?

Holder may have thought he was leaving the door open to prosecuting servicing companies. But most of the country’s large banks own part or all of their own servicers. Would that immunity therefore include the servicers? Might it be possible to grant bankers immunity from their bank crimes, but not for their servicing crimes?

Either way, authorities can still pursue the pre-2008 crimes (alleged, of course) that drove the bubble, deceived homeowners, and crashed the economy. These (alleged) crimes include: lending fraud; investor fraud in the selling of mortgage-backed securities; securities fraud in making false statements in annual reports, shareholder meetings, and investor calls; suborning fraud in the hiring of dishonest appraisers to inflate the value of a home – and there’s more where that came from.

But time’s running out. The statute of limitations is looming on some of these crimes. New York Attorney General Eric Schneiderman is one of those most vocal about the wrongs banks committed and a lead investigator into the mortgage collapse that wobbled the U.S. economy. Schneiderman’s already sued three banks over MERS, which has been both a corporate shell game and the digital gaming table for the Wall Street mortgage casino. He has already said that the settlement won’t end the probes.

But he and his team need resources that they’re not likely to get, especially with an angry citizenry demanding that they get them. Attorneys General may also be tempted to waste that resource money, or target it for their own purposes rather than where they’ll do the most good.

Summing Up

The Positives:

• The banks are paying something for their (alleged) misdeeds.
• They will be “cleaning up” their foreclosure processes.
• Some foreclosures which would otherwise have taken place will probably be avoided.

The Negatives: 

• The settlement primarily helps only about 1% of all homeowners who have mortgages.
• It is heavily weighted toward helping those who have not met their obligations without regard to whether it was their fault (i.e., they just walked away) or the industry’s fault (i.e., they were given a mortgage for which they should not have qualified).
• The amount given to others who were illegally foreclosed is small compensation for the loss of their home.

 The Wait and Sees: 

• Will anyone be punished for their actions (either unlawful or even lawful but “ethically challenged”)?

Questions and Thoughts on the Settlement:

The settlement is complex. I’ve tried to explain it above in simple terms rather than write the book it would take to include all the details. Here is my summary of what is leading the proponents and opponents to voice their opinions. 

1. Does it help some people who deserve it?
2. Does it help others it shouldn’t (reward people who knew better but took loans they knew they couldn’t afford anyway)?
3. Does it overlook many who acted more responsibly but still suffered significant loss because of the industry’s actions (e.g., perhaps working a second job to avoid defaulting instead of walking away)?
4. Does it contain some provisions that could improve the economic outcome, even if only slightly (preventing some foreclosures or making the process more fair)?
5. Does it let the banks off the hook for their part in causing the financial meltdown and at a minimal cost to them?
6. Does it trade away (provide immunity for misdeeds) one of the best tools we had to force bankers to make real concessions?
7. Are the dollar amounts given to people insultingly low?
8. Does it reflect that a top nonpartisan (under Bush and Obama) government priority is preservation of big banks’ capital structure, even if at the cost of a lack of support for homeowners?
9. Does it retain (even if it doesn’t promote) an opportunity for aggressive prosecutors to go further toward prosecuting wrongdoing? 

My opinion to each and every one of the above is, “Yes.” 

How arguments (anger, outrage and moral indignation) ensue from the settlement’s terms is easy to understand. The questions above can lead to both sides of the coin. If the terms of the settlement are carried out, some deserving people will benefit; some undeserving people will also benefit. Suppose two people paid identical prices, made the same down payments and bought essentially identical homes right next door to each other. One paid his/her mortgage and the other didn’t. Both have dropped by 20% in value. The one who didn’t pay qualifies for a mortgage modification. The one who paid eats the loss. 

Should there have been a price for those involved in creating the financial meltdown which the mortgage business created? Much of what was done was legal. Other aspects appear to have been otherwise. It appears the authorities had bankers dead-to-rights on forgery and perjury, which is what “robo-signing” really is, and they traded it away for a relative pittance. To my knowledge, this is the first such crisis in which nobody went to jail for their part. Nobody was indicted. Worse to my mind is that, after handing over taxpayer money for a bailout, we turned to the “leaders” of the institutions involved, asked them to lead us out of the mess they created … and then handed them record bonuses a year later. 

So it appears that where you come down on the current settlement hinges on your concept of fairness. Do big companies determine the outcome such that it is favorable (or, least unfavorable) to them or do we (“ordinary” citizens) determine it based on fair play)? Who actually decides what is fair?  Is the settlement fair from both points of view? Is it fair from either point of view? 

You have heard me speak of what I call “corporatism” on many occasions. I won’t belabor that point here. And while I don’t yet know how this settlement will play out, I feel that we “little guys” were again at the bottom of the list of concerns that were addressed. We don’t have the ability individually to match corporate or government power or dollars. Collectively, we would have more than enough of both to turn things around. I welcome your ideas on how we can rally all our voices, our resources and our power. 

*Bank of America is to provide $11.8 billion, Wells Fargo $5.4 billion, JPMorgan Chase $5.3 billion, Citigroup $2.2 billion and Ally $0.3 billion. Bank of America would contribute an additional $1 billion for Federal Housing Administration loans. These five lenders serviced 56 percent of all loans last year. 

**Robo-signing involves mortgage servicing companies affixing computer-generated signatures to foreclosure documents that require personal knowledge and verification of the information. Investigators charge that banks used robo-signers — employees who processed foreclosures rapidly, often under fraudulent circumstances — to clear the huge backlog of cases.

***Dual-tracking is a process in which homeowners are told they are on track to modify their home loan to avoid foreclosure while at the same time the bank had them on a separate track to foreclose.

Sources: 

“Mortgage Deal from Hell’ Hurts Responsible Borrowers: Bove. Jeff Cox, Senior Writer. CNBC.com. February 9, 2012.

Mortgage settlement won’t end probes: NY attorney general. Michael Virtanen, Associated Press. Csmonitor.com. February 11, 2012. 

Mortgage Plan Gives Billions to Homeowners, but with Exceptions. Nelson D. Schwartz and Julie Creswell. New York Times: Business Day. February 9, 2012

Mortgage Plan Gives Homeowners Bulk of the Benefits. Nelson D. Swartz and Shaila Dewan. CNBC.com February 9, 2012

California’s size lands state big share of foreclosure settlement. Bank of America’s desire to escape the legacy of its Countrywide problems also helped secure a combined $12 billion in principle write-downs for the state. Alejandro Lazo. Los Angeles Times: Real Estate. February 11, 2012

Mortgage settlement: How the negotiations unfolded. Dawn Kopecki, David McLaughlin and Lorraine Woellert, The Washington Post with Bloomberg Business; Where Washington and Business Intersect. February 10, 2012. 

US banks agree to $25 billion in homeowner help. Aruna Viswanatha. Reuters.com. February 10, 2012.  

Pruitt defends decision to opt out of multistate bank settlement. Omer Gillham & Barbara Hoberock. Tulsaworld.com. February 11, 2012. 

For The Week Ended February 10, 2012

Summary Statistics 

The Russell 2000 (small caps) lost 2.1%, dropping it a +9.8% YTD.  

   Source: Weekly Wrap Briefing.com February 10, 2012 

Overview 

• U.S. jobless claims drop
• U.S. trade gap widens on domestic demand
• Consumer Confidence reports mixed
• Greek bailout pending austerity measure ratification
• Central banks move to increase liquidity
• Chinese growth slows, inflation rises, imports fall sharply 

The markets lost ground this week. We keep CNBC and Bloomberg playing in the background constantly, always watching for urgent, breaking news that might affect the markets. This past week, we heard the most about the Giants’ ticker tape parade, Rick Santorum’s wins (more correctly, Romney’s defeats), Clint Eastwood’s Super Bowl Commercial, Greece, the Bank Settlement (above) and an occasional economic report. Of these, Greece seemed to be far and away the most influential on the markets. 

That was both good news and bad news … intermittently. It was, “Greece has a deal,” “Greece doesn’t have a deal,” “Greece has a deal,” “Greece’s deal needs to be approved by [fill in whatever fit as of that report],” “Greece’s deal is approved,” “Greece’s deal doesn’t fulfill the requirements to get more money,” “Greece modifies deal to qualify,” “Greece’s citizens will shut down country with strikes,” and so on. Sometimes these developments occurred from day-to-day; other times they happened from hour-to-hour. There were times I felt I was listening to a comedy script that had been jointly written by Abbott and Costello, Saturday Night Live and Monty Python. After all, if it wasn’t true, it would be laughable. 

Concerns about Greece getting more bailout money spurred some relatively aggressive selling Friday that resulted in the market’s worst session since December. Prior to Friday stocks didn’t move very dramatically. Friday’s losses dropped the market into the red for the week. That snapped a streak of five straight weekly gains. Depending on the gist of the most recent development, the Euro and the Dollar see-sawed. 

On the bright side, earnings reports, initial weekly jobless claims and the European Central Bank’s (ECB) more accommodative guidelines were all favorable. However, they influenced the markets minimally. On the negative side, the trade deficit increased and consumer sentiment slipped … but they too had minimal observable market influence. There were, however, some positive consumer sentiment aspects. The trade deficit can be viewed as a positive also if you read it as a sign of increased demand for goods by U.S. consumers; a sign of our further economic recovery. 

   Sources:

Weekly Wrap. Briefing.com. February 10, 2012.

Management Week in Review. MFS Investment Management. February 10, 2012. 

U.S. Economy 

Initial jobless claims fell by 15,000 to 358,000 for the week ended February 4. The four-week average fell to 366,250, its lowest level since April 26, 2008. Employers here have added 603,000 workers to their payrolls in the past three months. 

Our trade gap widened to a six-month high in December. A strengthening economy led imports to rise 1.3% (to $227.6 billion). Exports increased just 0.7% (to $178.8 billion). But this means a growing trade deficit, up by 3.7% (to $48.8 billion) over November’s number. 

Consumer sentiment indices conflicted with each other a bit. The Thomson Reuters/University of Michigan Consumer Sentiment Index fell to 72.5 in early February, from 75.0 in January. However, optimism over job prospects by survey respondents hit a record high. Meanwhile, the Bloomberg Consumer Comfort Index rose to -41.7 for the week ended February 5, a one-year high, from -44.8 we reported to you last week. (It’s not the first time indices have disagreed with each other. Remember that Bloomberg was up last week while the Conference Board’s number was down. Then look at the European numbers below.) 
Global Economy

Europe:

First, one last word about Greece. In addition to what I said earlier, note that their weak economy appears to have worsened under the pressure of government austerity measures. Greece’s unemployment rate climbed to 20.9% in November, compared with 18.2% a month earlier and 13.9% a year earlier. 

The ECB announced that it is offering banks another round of low-interest three-year loans at the end of February. It also made the collateral requirements a little looser. The Bank of England (BOE) said it will buy another £50 billion ($79.1 billion) of UK government bonds. Recent data indicate the United Kingdom may avoid a recession after a fourth-quarter contraction. 

Eurozone economic confidence climbed to 84.8 (from Q4’s 83.7) so far in the first quarter of 2012 according to the German Ifo Institute’s Economic Climate Indicator. A gauge of current conditions fell to 109.1 from 128.7, but a gauge that measures expectations rose to 70.5 from 57.4. 

German manufacturing activity rose 1.7%, more than expected in December as a result of a strong rebound in orders from outside the eurozone. German industrial production dropped by 2.9% in December, falling far short of a forecast 0.2% monthly gain. Its trade surplus declined in December from November. Although imports fell by 3.9%, its exports were 4.3% lower, more than offsetting the reduced level of imports. 

France’s annual trade deficit reached a record in 2011. France’s share of global trade declined from 7.8% in 2003 to 6.2% in the fourth quarter of 2011. (The French Treasury said Germany’s share grew to 16.2% from 14.7% over this period.) Meanwhile, the UK trade deficit hit an eight-year low as a drop in imports highlighted continued weakness in the country’s domestic economy. Exports rose on record foreign oil sales and a sharp increase in exports to Korea from the Korea-European Union free trade agreement. 

Asia: 

China’s economy grew 8.9% in the fourth quarter over a year earlier. Given what’s happening in Europe and here, that appears outstandingly good. But it’s the slowest pace for the Chinese economy in two years. China’s trade surplus widened as its imports dropped sharply (by 15.3% in January over the prior year). (However, there are some who say measures of domestic consumption might have been distorted by the timing and impact of the Chinese New Year.) 

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 February 10, 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 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.

The most “noise” this week came from the primary elections, not the markets. The biggest single noise event was Mitt Romney’s release of his tax returns. That proved he is definitely part of the “1 Percenters.”

It turns out that he is not only in the 1 Percenters; he’s way ahead of most of the other 1 Percenters. He’s in the top 0.006 Percenters. He made a little over $43 million over the last two years … about $57,000 per day. On that, he paid just over $6 million to Uncle Sam. As many have calculated, he paid an effective tax rate of a shade under 14%.

I don’t want to launch an attack against Mitt Romney. Heavens knows, he’s already getting more than enough of those from Gingrich and Santorum. Besides, he’s not to blame for the rate he’s paying (well, he may have had something to do with it, but we’ll return to that later), and he certainly is not the only one enjoying special tax advantages. His tax returns merely brought the situation into the spotlight.

So rather than rant about Romney or how most of us would like to pay our taxes at that rate, or about ‘inconsistencies’ that are emerging between his tax forms and other Romney disclosures (e.g., ethics forms, offshore accounts), let’s focus instead on how he is legally able to pay this rate. (I said that like it’s easily described. That’s true on the surface, but there’s much more below the surface.)

What do other very wealthy individuals think of the situation illustrated by Romney’s tax returns? Not surprisingly, many are silent and others defend them as the way it should be. But there are some who seem to look beyond their individual interests and let fly with an opinion I support. Going way above Romney’s rank, I’d like to quote Warren Buffet when he was asked about Romney’s return. In a nutshell, his view was it not Romney’s failing; it was Congress’s – because they established the tax rates. In an interview on Bloomberg Television, he said:

“It’s the wrong policy to have. He’s not going to pay more than the law requires, and I don’t fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that’s about half what the average person in my office pays.”

“He makes his money the same way I make my money. He makes money by moving around big bucks, not by straining his back or going to work and cleaning toilets or whatever it may be. He makes it shoving around money.”

I think we all knew this already. The situation pops into the spotlight every time a new revelation of someone’s ‘windfall’ hits the news. But are we always aware of how it came to be, how widespread the effects are or what the consequences are for us?

The answer seems to me to be “no” because this occurs routinely, regularly and consistently. We tend to notice it only when it hits the headlines as it did with Romney’s taxes. But lots of the ‘privileged’ reap benefits on a daily basis

More important, when someone or something (oops … “Corporations are people too”) doesn’t pay at the same tax rates as the 99 Percenters do, what happens? Examples – we’re seeing teachers, firemen and policemen being laid off all around the country. We’re hearing cries for cutting all kinds of programs. Granted, some of these programs should be modified and there are areas within many of them that should be cut. Others, however, should be strengthened. Part of the problem we face now is the lack of proper education to yield workers with the skills needed to gain employment. Should we cut education further? Not in my mind!

There is no doubt that we need to address our economic woes. My personal opinion is that we need both tax increases and spending cuts in order to create a solution. And I think these can be more equally distributed than they are now. Our biggest expense is military … preparing for the kinds of wars that will probably never be fought again. We haven’t heard many calls to cut this spending, have we?

However, putting aside my opinion on how to reduce our country’s deficit, the question here is how much less of a deficit would we face if everyone paid at their “fair” share (and by “fair” I mean at the same rates)? I would venture to say the hole we’re in wouldn’t be nearly as deep.

So how is it that Congress makes laws that provide “favored” treatment to some entities (meaning people and corporations), generally those that already have a lot of money? That’s an easy question to answer in one word. Lobbyists.

People who have money can afford to hire other people (lobbyists) to lean on Congress to create or keep favored tax rates for them. The issues lobbied for are usually very specific. For example, proposals during the last few years (co-sponsored by Charles Grassley, Republican, Ranking Member on the Finance Committee) that would increase taxes on private equity (the type of income Romney has), were lobbied against extensively. Who paid for those lobbyists? Private equity firms (including Bain Capital, which is the point I made earlier about Romney having something to do with the rates) mounted a very large effort to defeat that measure. They succeeded.

This is much wider spread than we usually acknowledge. A study by Public Campaign investigated some of the depth of what we might call “influence peddling.” They wondered why members of Congress suggest cuts to Medicare and Social Security but won’t require millionaires to pay taxes as we do, or why people are struggling to find jobs and put food on the table while the country’s largest corporations get tax breaks and sweetheart deals, then use that extra cash to pay bloated bonuses to CEOs or ship jobs overseas. Here’s the brief summary of what they found.

From 2008 through 2010, they indentified 30 of the Fortune 500 who spent more in lobbying dollars than they paid in federal income taxes. In fact, 29 of these 30 actually got money from the government (you can read that as “you and me”). Only 1 of the 30 paid any federal taxes at all – FedEx paid $37 million over the three year period of the study. That was on profits of $4.247 billion (profits, not revenues!). If you do the math, those numbers give you an effective tax rate of 0.87%. During this time, FedEx spent just over $50 million on lobbying.

But they were the least ‘unreasonable’ of the 30. The other 29 paid no federal tax.

The worst was GE, who not only paid nothing on profits of over $10 billion; it received almost $5 billion from us. During that time is spent about $85 million on lobbying.

Names on that list of companies who spent more lobbying against taxes than in taxes includes many you will recognize. Verizon, Wells Fargo, Boeing, Con Ed, DuPont, Corning and Mattel are among them. Note that this traverses pretty much all industries. Combined profits for the three years for the seven I listed above were over $100 billion. All seven got money from us. They spent over $100 million (combined) in lobbying.

Overall, despite making combined profits totaling $164 billion in that three-year period, the 30 companies combined received tax rebates totaling nearly $11 billion. Altogether, these companies spent nearly half a billion dollars ($476 million) over three years to lobby Congress—that’s about $400,000 each day, including weekends.

And I emphasize again, when they don’t pay, we have to pick up the shortfall.

So, what can we expect? That’s another sad story. A recent Bloomberg article points out that Congress may do even less this year than last. Despite record low approval ratings, nobody seems willing to risk doing anything in front of the coming election. We’re all well aware of how little they did last year. I don’t mean how little they did that was useful; I mean how little they did, period. They have certainly earned those record low ratings they’ve got. It’s hard to believe it might get worse, but we’d better prepare for that.

While we have little clout individually, if we can get other ordinary citizens involved – not the fringe groups, as they are always involved – but us “average guys” who are usually quiet before we go to vote, maybe we can make a difference. One thing that often prompts a Congressman or Senator into action (or at least helps them lean a different direction than they began with) is enough noise from people who vote in their districts. Perhaps it’s time for Occupy Wall Street (i.e., the 99 Percenters) to encompass more of that 99 Percent and instigate them to get it vocal where it counts.

I frequently include a line in these messages to say feel free to share this note with anyone you know who you think would/could benefit from it. I’m changing that today to say I urge you to share this with all those you feel would/could benefit from it. After all, there’s nothing wrong with a politician who pays taxes at less than half of what most of us pay … but it would be great if he thought that was wrong!

Sources: 

Romney tax returns show he’s no average multimillionaire.  Kevin McCoy. USA Today. January 25, 2012.

Buffett Blames Congress for Romney’s 15% Rate. Andrew Frye and Andrea Ludtke. Bloomberg.com. January 23, 2012.

Grassley: Private equity tax bill on hold. Adam Pasick. Reuters.com DealZone. February 6, 2008

“For Hire” Lobbyists of the 99%: How Corporations Pay More for Lobbyists Than in Taxes. Public Campaign. December 2011

Senate May Do Even Less This Year. Laura Litvan. Bloomberg.com January 23, 2012

For The Week Ended January 27, 2012

 Summary Statistics 

The Russell 2000 (small caps) rose 1.8%, making it +7.8% YTD.

    Source: Weekly Wrap Briefing.com January 27, 2012

Overview 

• U.S. Economic Indicators Mixed … Again
• And Fed To Keep Rates Low Through 2014
• IMF Cuts Global Growth Forecast
• International Economic Reports Mixed

 It was a fairly calm week for the financial markets with mildly positive U.S. and European economic reports, positively-leaning corporate earnings news, and no dire headline out of Europe. However, with Greek bailout talks under way again and with a potential resolution expected early next week, we could see renewed volatility.

As a result of eurozone nervousness, the Japanese yen rose because it was seen as a safe-haven currency. The euro also gained versus the U.S. dollar, which has been weighed down by the U.S. Federal Reserve Board’s renewed commitment to keep interest rates low well into 2014.

   Sources:

Weekly Wrap. Briefing.com. January 27, 2012.

Management Week In Review. MFS Investment Management. January 27, 2012.

U.S. Economy

 On the Plus Side

• The Q4 gross domestic product (GDP) report released Friday showed a pickup in activity. That’s a plus. But it fell shy of expectations. (That’s not so much of a plus.) the U.S. Department of Commerce’s preliminary report on quarterly GDP showed the economy grew at an annual rate of 2.8% in the Q4. Economists had expected 3.0% growth. Our economy grew 1.7% for 2011 overall. 
•  The Conference Board reported leading economic indicators increased in December (again, a plus), but less than expected (again, not so much). Their newly composed Leading Economic Index rose 0.4% after gaining 0.2% in November. Economists expected a 0.8% increase in December. Seven of the ten leading indicators were higher, particularly the interest rate spread and jobless claims. 
•  The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 75 from 69.9 in late December (a plus). This beat the average estimate of 74.0 in a Bloomberg News survey (what?! It beat expectations? Yup!). 
• Durable goods orders rose by 3% in December, and showed a broad rise. (Durable goods are those designed to last at least three years.). Orders for nondefense capital goods excluding aircraft, a key gauge of capital spending by businesses, increased by 2.9%, after falling the previous two months. Orders for cars, commercial airplanes, machinery, communications equipment, and primary metals were all higher. Orders for electrical equipment and fabricated metals declined.

On the Negative Side

• Sales of new U.S. homes fell unexpectedly in December. The 2.2% decline brought the 2011 full-year tally to 302,000, a drop of 6.2% from 2010, and made 2011 the worst year for the housing industry since records began in 1963. 
• Initial jobless claims rose by 21,000 to a seasonally adjusted 377,000 in the week ended January 21, after falling sharply the week before. The four-week average fell by 2,500 to 377,500 (that part is still a plus).

And Somewhere In Between

• The Federal Reserve made clear its intention to maintain low short-term interest rates (basically, a positive for the economy) until at least late 2014, indicating its concern for the U.S. economy’s strength (a negative in that we still need to be concerned about it). The Fed’s overall forecast indicated ongoing concern over the weak jobs market and housing sector. 

Global Economy

• The International Monetary Fund (IMF) cut its forecast for global growth, warning that the situation could become even worse if Europe does not take strong action to resolve its debt crisis. The global economy will grow 3.3% in 2012, the IMF said, down from 3.8% in 2011 and down from its forecast of 4% growth made in September. 
• However, the eurozone’s private sector grew unexpectedly in January, offering new hope that a potential downturn in the economic region may not be that severe. Markit’s Flash Eurozone Purchasing Managers’ Composite Index (PMI) rose 2.1 points to 50.4 in January, its highest level in five months, and tentatively indicating growth (above 50). Robust growth in Germany, which makes up about 30% of the eurozone’s economy, outweighed weakness in southern European areas. 
• Eurozone consumer confidence picked up slightly in January, as the European Commission reported the first rise in eurozone consumer confidence in seven months. Its preliminary consumer confidence reading rose from -21.3 in December to -20.6 in January. Economists had expected a decline. 
• German business confidence rose more than expected in January, according to the Ifo Institute’s Business Climate Index, which increased to a five-month high of 108.3, from 107.3 in December. The positive report, along with manufacturing and service industry expansion, indicates that the German economy likely avoided a fourth-quarter contraction. 
• Japan reported its first trade deficit in three decades, importing more goods than it exported in 2011 – for first time since 1980. Japan’s exports have been curtailed by a slowdown in global economic growth. Rising energy imports and the strong yen have also contributed to the shifting trade balance.

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 January 27, 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 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.

Most of us are aware, at least on some level, of the strains that pension systems in this country face in both the public and private sectors.  The overall economic climate in the last few years has greatly affected the ability of pension funds in general to pay out what they originally promised, for many varying reasons.

Now, we tend to pick on Congress and the overall function of the government in general when it comes to fiscal responsibility.  Granted, it’s an easy target.  This isn’t always a conscious decision, but sometimes one sees a piece of news that simply makes your eyes pop and we have to look into it further.

In this case, we learned recently that almost 15,000 federal retirees, including former members of Congress, are receiving 6-figure pensions from a system that is already bled dry, facing a $674.2 billion shortfall. 

Somehow though, the money keeps coming through to fund the system. 

Roughly 1 in every 125 retired federal civilian workers receives more than $100,000 in benefits on a yearly basis.  Who gets them?  The ranks include physicians, postal workers, and (interestingly enough), current Presidential candidate Newt Gingrich.  Overall, retired physicians and politicians receive the largest benefit packages.

Interestingly enough, if you worked at the Securities and Exchange Commission, you stand the best chance of getting a 6-figure pension, with 9.3% of the agency’s retirees receiving at least $100,000 per year.

Again, the intent in scrutinizing this news is not to pick on employees in the public sector.  The intent is to examine why, when the rest of the country has been tightening its belt, these pensions have not received some sort of logical adjustment as well.

Consider the following: nearly half of all private sector workers have NO retirement plan other than Social Security, according to research by the Employee Benefit Research Institute.  About 16% of retirement plans that are in place are similar to the federal system, which guarantees benefits based on workers’ earnings.  Of course, there are also 401(k) plans which rely on the individual to take charge of how their funds are controlled.

The key point here is that private sector pensions have no influx of money (read: tax dollars) to continue fueling the system, so they go belly-up, leaving loyal workers with nothing.  The federal system keeps getting funded, right or wrong. 

While the federal pension system has been a target for cost-cutting in recent times, it’s obvious that resistance will continue to be high, particularly from those already receiving these copious benefits.

At present, the U.S. Treasury (meaning taxpayer dollars), pays about $4.9 billion every month for nearly 1.8 million retirees.  This works out to about $31,663 annually per beneficiary.  Federal employees contribute $1 out of every $14 for retirement.

While federal employees continue to receive these benefits even though the coffers ran dry long ago, state and local government employees (including teachers, who have been the hardest hit in many ways), have seen benefits cut and pay raises slashed or eliminated.  Don’t forget that Congress itself gets a ‘cost of living’ pay raise every year, ‘come rain or come shine’.

In fact, because of those same cost-of-living adjustments, at least 48,500 federal retirees are now making more from their pensions than they did when they were working.

The federal retirement system was changed in 1986 to bring workers who were hired after 1984 into the Social Security system and make other changes; including offering a thrift savings plan that resembled a 401(k).  The earliest a federal worker can retire is at 55, with 30 years of service.

It’s easy to see, with the shape that the private sector is in, why federal jobs with seemingly untouchable pensions are attractive, and most people would gladly trade their existing retirement plans for one of these.  At the risk of sounding like a ‘broken record’, we’re not picking on federal employees.

What we ARE picking on is the obvious oversight on the part of the government to make the logical adjustments and cuts to a system to reflect the economic climate at hand.  The rest of us in the private sector are funding a retirement system (through tax dollars) from which we see no benefit.  While everyone deserves a solid retirement system, we’d like to use our own money to fund our own retirement plans, not someone else’s.

Source: Congress’s 6-Figure Benefits Add To $674 Billion Pension Gap. Charles Babcock and Frank Bass. Bloomberg.com. January 19, 2012.

For The Week Ended January 21, 2012

                   Summary Statistics

The Russell 2000 (small caps) was up 2.7%, taking it to a positive 5.9% for the YTD.

Source: Briefing.com Weekly Wrap January 21, 2012

Overview

• Jobless Claims Hit 4-Year Low – May Boost 2012 Spending
• Bank CEOs Taking Lower Bonuses For 2011 Performance
• Consumer & Producer Inflation Tame in Q3 2011
• Greek Debt-Swap Deal Making Progress
• Significant 2012 Chinese Slowdown Forecasted By Roubini

Markets were mostly positive this week, with mixed reports overall regarding corporate earnings and the condition of the job market.  The trading week was also shortened by the Martin Luther King holiday.

Early in the week investors received news that China’s 4^th quarter GDP climbed 8.9% over the prior year.  While that was a slowdown from December’s 9.1% rate, it was better than some had anticipated.

Mid-week news saw a surprise earnings report from Goldman Sachs, posting an earnings gain in the last quarter of 2011 that beat expectations.  There were also rumors on the international front that the International Monetary Fund was considering expanding its lending capacity, reportedly in the range of $600 billion to $1 trillion to help finance a perceived financing shortfall.  On the same day the World Bank lowered its growth forecast for 2012 to 2.5%, and to 3.1% for 2013.

The week ended with the S&P 500 Index pushing into solid positive territory, posting the best closing level since summer.  The index finished in positive territory for 4 straight sessions.  Financials made a late push on Friday to post a 0.7% gain and give the market as a whole a lift.

Sources:

Weekly Wrap Briefing.com – January 21, 2012.

Management Week In ReviewMFS Investment – January 21, 2012.

U.S. Economy 

Jobless Claims Hit A 4-Year Low – May Boost 2012 Spending.  Claims for jobless benefits dropped to a 4-year low last week, dropping by 50,000 to 352,000 in the week ended Jan 14. This was the fewest number of claims seen since April 2008.

Jobless claims have trended down over the past month, a sign that the job market may be extending its improvement.  Payrolls also grew by 200,000 in December.

If the two trends (lower jobless claims/increasing payrolls) continue in lockstep as hoped, it could help give a significant boost in overall consumer spending for the year to aid the economic recovery.

Source: Four-Year Low In U.S. Jobless Claims May Bolster Spending In 2012.Bloomberg.com. January 19, 2012.

Bank CEO’s Taking Lower Bonuses For 2011 Earnings.  Recently released numbers regarding bonuses and overall pay for Wall Street CEOs show that banks and investment firms are tightening the reins in the wake of mostly disappointing performance and share-price declines.

JPMorgan Chase recently announced that CEO Jamie Dimon received a 2011 stock bonus valued at $17 million.  This is the same amount he received in 2010, despite a record profit posted by the bank for 2011.  Also, Morgan Stanley CEO James Gorman saw his 2011 stock pay fall by half to $5.1 million.  The firm’s income from continuing operations fell 7% from a year earlier.

Big banks are under pressure to scale back their benefits after performance of financials took a hit at the end of 2011 on the heels of European uncertainty.  As a result, some firms are shifting bonus packages more to stock vs. cash.  Some firms are flat-out cutting overall year-end pay in general.  At Goldman Sachs, some bankers and traders were told they would receive no bonuses, while some partners’ annual pay was halved.

Overall, it seems that on some level big banks are finally realizing the skewed system of pay and bonuses has to be regulated at some point, and are finally making moves to deal with the reality of the situation at hand.

Source: Bonuses Pinched For Bank CEO’s.WSJ.com. January 21, 2012. 

Consumer & Producer Inflation Tame In 2011.  Recently released readings on U.S. producer and consumer prices showed little change in December 2011 when compared to the previous month.  The producer price index fell 0.1% in December on the heels of lower food and energy costs.  Over the entire year of 2011, producer prices rose 4.8%.

The consumer price index did not change at all in December, and posted a 3.0% increase for the year.

Smaller increases in overall price indices will encourage consumers to spend more, as their money will go further.

Source: Week In Review – January 20 2012. MFS.com. January 20, 2012.

Global Economy

Greece Making Progress In Negotiations With Private Creditors. On Friday, Greece and its private creditors indicated they had made progress in their talks to help construct a debt-swap deal that is desperately needed to help the country avoid a messy default.

Back in October of 2011, European officials and some of the nation’s private bondholders had agreed to implement a 50% cut in the face value of Greek debt by exchanging outstanding bonds for new securities.  The goal was to reduce Greek debt to 120% of GDP by 2020.  The current negotiations are to help construct a financing package for more pressing debt needs, namely a 14.5 billion Euro bond payment that is due on March 20.

The negotiating parties are reportedly near an initial agreement where old bonds would be swapped for new 30-year securities with beginning 3.1% coupon, and would then go up to 3.9%, and finally as high as 4.75%.

Source: Greek Debt-Swap Deal ‘Coming Into Place’, IIF’s Dallara Says.Bloomberg.com. January 20, 2012.

Roubini Forecasts ‘Significant’ 2012 Chinese Slowdown. Noted economist Nouriel Roubini, who correctly predicted the 2008 domestic financial crisis, is now saying that he foresees significant drops in China’s economic performance for 2012.  Roubini cites a downturn in the housing market there, as well as slowing export growth.

China’s GDP increased 9.2% last year, matching the country’s slowest pace since 2002.  Last month the central banks cut the amount of reserves individual banks must keep for the first time in 3 years.  The government also allowed its five biggest banks to boost first-quarter lending and may further relax capital requirements.

Roubini indicates that further stimulus in monetary and fiscal credit may be needed to avoid a slowdown which could very well send the nation’s GDP below 8%.

Source: Roubini Sees ‘Significant’ 2012 Slowdown In Chinese Economy.Businessweek.com. January 21, 2012.

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 January 21, 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

America has long been known as the ‘land of opportunity.’ It’s been a place where anyone can achieve their dream(s) if they apply themselves and work hard.  Benjamin Franklin, Henry Ford, and even that ‘other’ Jefferson (i.e., George Jefferson) did it too. ‘Movin’ on up’, as the song says.

Now research is turning this particular notion upside down. Americans are actually enjoying less upward mobility these days than our closest neighbors in Canada, as well as those in Western Europe.

This phenomenon has been widely discussed in academic circles. It is now moving more center-stage in popular culture, a product of mass unemployment and street protests like Occupy Wall Street.

Of note is discussions of ‘class warfare’ and issues of mobility have always been heavily discussed by those of a liberal bent. Now the issue is becoming a point of discussion for those on the other side of the aisle too.  It truly is an issue that transcends political leanings because it affects us all.

What are some of the key reasons for the lag in mobility? Some cite skyrocketing costs of education, keeping advanced knowledge out of reach for many. Others point out children who grow up in the depths of poverty stand little to no chance of advancing their standing and prosperity. They state most children tend to follow their parents with regard to their education level and career choices. Those children who move through life with lower aspirations stand less of a chance to advance.

While some maintain that the United States is a ‘classless’ society, a recent study by the Economic Mobility Project of the Pew Charitable Trusts would argue against this. It showed that about 62% of Americans (male and female) who are raised in the top 1/5^th of incomes stay in the top 2/5^ths. However, 65% born in the bottom 1/5^th stay in the bottom 2/5^ths. By focusing on family background as a key influence on mobility, the studies related to this phenomenon are challenging conventions regarding American identity. They also speak to the debate about inequality.

Liberal-leaning individuals will usually say that the income gaps are too high in the U.S. Conservatives say that the system is fine and fair, and that mobility is especially high; everyone can climb the ladder if they try hard enough. The evidence suggests that neither argument is totally correct. Compared to its own history or to many of its peer nations, America now seems both less equal and less mobile.

Another interesting set of statistics to consider concerns the middle class.  About 36% of Americans raised in the middle 1/5^th tend to move upward as adults, with 23% staying on the same level, and 41% moving down. The ‘stickiness’ occurs because affluent families pass on their advantages, while poor families stay trapped.

Let’s take a quick look at Canada for comparison.

Family background (according to University of Ottawa economist Miles Corak) plays a much bigger role in the U.S. than other countries when it comes to mobility. For example, Corak discovered that only 16% of Canadian men raised in the bottom 1/10^th of incomes stayed there as adults, versus 22% of Americans. Additionally, 26% of American men raised in the top 1/10^th stayed there, compared to just 18% of Canadians. (And while the absolute differences in the numbers are small, they represent about 40% differences.) Additionally, Corak reviewed more than 50 studies of nine countries with regard to mobility. His findings listed Canada, Norway, Finland and Denmark as the most mobile. The United States and Britain were tied for being the least mobile. Sweden, Germany, and France occupied the middle ground.

So where does this leave us? America may still be a wonderful land of opportunity. Indeed many folks still immigrate here in hopes of creating a better life for themselves. But somewhere the system has broken down. Politicians^* on both sides of the aisle (all of whom we should take with a large grain of salt) are beginning to make the ‘stagnation of upward mobility’ issue much more visible. This just may be the kick that issue needs to get enough people on board a move to address (i.e., fix) it that some meaningful action begins. So far, Occupy Wall Street is the most visible example of this frustration taking an organized form. Who knows what may be next?

Has it become time to look elsewhere to find the ‘American Dream?’ I hope not. I’ve got two children only a few years into their careers. And as all parents do, I want them to have more than I. Instead of just hoping the American Dream survives, perhaps it’s time to see what we can do to assure it!

Source: Want The American Dream? Move To Canada. Jason DeParle. MSNBC.com. January 5, 2012.

^* I’ve been rather verbal, and I trust unambiguous, about my thoughts regarding politicians. What seems “new” is that the vast majority of Americans have joined in that opinion. For example, a day or two ago, a friend (who sits on the other side of the aisle from me on many issues and thus we often respectfully disagree) sent an email I think illustrates this rather well. So, while this is a bit of a digression – and with my thanks to him – here it is.

A driver was stuck in a traffic jam on the DC beltway. Nothing was moving. Suddenly, a man knocks on the window. The driver rolls down the window and asks, “What’s going on?”

“Terrorists have kidnapped Congress, and they’re asking for a $100 million dollar ransom. Otherwise, they are going to douse them all in gasoline and set them on fire. We are going from car to car, collecting donations.”

“How much is everyone giving, on average?” the driver asks.

The man replies, “Roughly a gallon.”

For The Week Ended January 14, 2012

                   Summary Statistics

 The Russell 2000 (small caps) was up 1.9%, taking it to a negative 2.5% for the YTD.

Source: Briefing.com Weekly Wrap January 14, 2012

Overview

• JPMorgan Chase Posts Big Earnings Drop – Raises Questions Regarding Bank Health Overall In U.S.
• U.S. Trade Gap Widened Late In 2011
• U.S Consumers Reportedly Went On Credit Binge In November
• German Economy Contracts In 4^th Quarter of 2011
• France, 8 Others Downgraded By S&P On Friday

 The prevailing tone of the week on Wall Street was one of uncertainty, with mixed reactions to various economic reports and news items, many concerning economic performance late in 2011.  Two of the most significant domestic news items released this week concerned an unexpected increase in jobless claims and disappointing earnings reports from one of the biggest banks, JPMorgan Chase.  Countering the negative news however were reports from the Federal Reserve that, in late 2011, the nation saw a widespread jump in economic activity including consumer credit and consumer sentiment.

Weekly jobless claims jumped 24,000 to 399,000 for the prior week, and the 4-week average (which some regard as a better measure of unemployment levels), rose by 7,750 to 381,750.

Trading for the early part of the week was mostly lackluster, with earnings season getting off to a slow start after Alcoa announced earnings for Q4 that were solid, but less than investors had expected.  Additionally, Fitch Ratings Agency affirmed that they had no plans to downgrade either France or Germany’s credit ratings in the near future, which helped to counter concerns initially about the health of the eurozone.

At the end of the week investors were dealt a blow upon learning that Standard & Poor’s planned to downgrade France from their coveted AAA rating, counter to Fitch Ratings Agency’s decision mentioned earlier.  It was also revealed that several other eurozone countries were on tap for downgrades as well.

The Euro was hammered in the wake of all of this unsettling news, falling to a 16-month low versus the dollar.

Sources:

Weekly Wrap Briefing.com – January 14, 2012.

Management Week In ReviewMFS Investment – January 14, 2012.

U.S. Economy

JPMorgan Posts Earnings Drop – Raises Questions About Bank Health In U.S.  JPMorgan posted a 23% drop in earnings for the 4^th Quarter of 2011 this past week, reflecting what is feared to be a sharp slowdown on Wall Street.

This report is causing many to speculate that earnings reports for other large financial institutions may follow suit, casting a renewed light on the bleak landscape for the investment banking and trading business that these large banks depend on.

Bank stocks had seen a healthy run-up in the first 2 weeks of the new year, but analysts have begun to reduce earnings expectations for other large banks like Morgan Stanley and Goldman Sachs.

The 4^th Quarter profit decline is the bank’s second consecutive year-on-year drop in quarterly profits, the first time that has happened since the height of the financial crisis back in 2008.

Source: JPMorgan Profit Drop Threatens Bank-Stock Rally. WSJ.com. January 14, 2012.

U.S. Trade Gap Widened Late In 2011.  Unsettling news regarding the state of U.S import/export trade was released this past week, with the gap growing by 10.4% in November, to $47.75 billion.  This was the first time in 5 months that the trade gap has widened, according to the U.S. Commerce Department.

The reported gap was much wider than expected, and was affected by rising oil prices, causing the cost of imports to rise.  The Eurozone debt crisis caused exports to fall in kind as well.

Source: Week In Review – January 13^th 2012. MFS.com. January 13, 2012.

U.S Consumers Went On Credit Binge In Late 2011.  Consumers had a field day using credit in late 2011, according to a report released this past week.  Consumer credit advanced the most in 10 years back in November, showing that households have become more willing to take on debt, and banks seem more willing to lend.

Credit increased by $20.4 Billion, the biggest jump since November 2001, to $2.48 Trillion in total credit debt.

While an increase in borrowing signals improvement with regard to unemployment and individual financial standing, it also signals that the job market has yet to improve enough where workers’ incomes provide enough cash flow to help consumers finance purchases outright vs. depending on credit.

Source: U.S. Consumer Credit Increases By Most In Ten Years On Household Optimism. Bloomberg.com. January 9, 2012.

Global Economy

German Economy Contracts In Q4 2011. Germany, one of the largest and strongest economies in the troubled eurozone, saw its economy contract in the 4^th Quarter of 2011, signaling a possible recession.

The ongoing debt crisis finally took a chunk out of Germany, causing it to post a 0.25% contraction in the 4^th quarter from the 3^rd.  German officials also stated that growth slowed to 3% in 2011.

German economists are also predicting that the economy will contract again in the current quarter.  2 consecutive quarterly contractions typically are regarded as the ‘official’ start to a recession.

Source: German Stocks Drop As Economy Contracts; Metro, Douglas Decline. Businessweek.com. January 11, 2012.

France, 8 Others Downgraded By S&P On Friday. The eurozone was dealt a strong blow on Friday and S&P made decisive moves to downgrade several nations’ credit ratings, including France’s coveted AAA rating.  Along with France, Austria received a cut from its own AAA rating.

Other nations received further downgrades, including Spain, Italy, Malta, Slovakia, Slovenia and Portugal.  Germany’s AAA rating remained untouched.

France’s downgrade will undoubtedly undermine the work taken by the ECB, EFSF, etc. to begin shoring up the debt crisis there and provide bailout funding.  The bailout fund’s own AAA rating depends on the ratings of its constituents, and these downgrades will further affect the ability of the fund to effectively function.

Though not as visible recently, Greece is at a breaking point of its own.  Talks broke down recently in Athens between the nation and a group of creditors who were negotiating to help restructure the nation’s debt.  If no deal is reached, Greece will need billions of euros to finance an upcoming bond repayment in March.  Otherwise, the result will be a messy default.

Source: S&P Cuts Triple-A Ratings Of France, Austria; Downgrades Seven Others.WSJ.com. January 14, 2012.

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 January 14, 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

It’s the start of another New Year and time for (Vice Chairman, Blackstone Advisory Partners) Byron Wien’s 10 Surprises for 2012 List. This is the 27^th year he’s created a list of surprises for the coming year. While I can’t tell you just how he’s done over all 26 prior lists^*, I can say that he has called a surprising number of things correctly, alerting us to potential pitfalls that others missed. So we publish his annual list in the hope that it gets people thinking about some of the things on it. Keep in mind this is for informational purposes only. It should not be construed as investment advice as past performance is never a guarantee of what future results will be.

 A prediction has to meet two criteria to earn a spot on the list.

1.  It has to be one which the average informed person would assign no more than a one in three probability of occurring. (People occasionally ask, “So what? If it isn’t probable, who cares?” My answer to that is we need to know what might happen if we are to prepare for it.)

2.  Byron needs to believe it is “probable” –defined as an outcome Byron gives a greater than 50% chance of occurring as opposed to the average investor’s 33% or lower odds. The idea is simple; a) we have to be alert for “unlikely” things that could hurt our portfolios if they came to pass and, more important, b) be prepared to adjust quickly if we were betting against these events. Without further ado, here are the ten things Byron predicts will surprise us in 2012.

* In scoring how he did with last year’s list, Business Insider gave him five points out of a possible ten. Based on the criteria above, you would expect no more than one out of three.

The 10 Surprises for 2012

1. As shale gains greater acceptance and feasibility, the price of oil will begin to drop and the U.S. will become less dependent on Middle Eastern oil. Supplies in Poland and the Ukraine show promise, and production increases in Libya. Therefore,oil will decline to $85 per barrel.
2. Earnings will continue to grow at American corporations, with leaders taking advantage of lower commodity prices and greater technological integration decreasing labor costs. Therefore,the S&P 500 will head above 1400.
3. Fears of a double-dip recession and prolonged slow growth subside, and the U.S. economy finally takes off. Consumers drive the economy and exports fare very well. Real GDP growth will exceed 3% and unemployment will fall below 8%.
4. An improving economy helps President Obama change the rhetoric in Washington and paint himself in a better light. Mitt Romney wins the Republican nomination, but is viewed as lackluster. Democrats win the House, but Republicans reclaim the senate. 
5. Europe finally develops a long-lasting plan. After years of austerity cuts and difficulty, the IMF, ECB, EFSF, and EU (whew… lots of acronyms!) work together to stop disbandment of the EU and keep the euro as the main currency. Greece restructures, Spain and Ireland shore themselves up, and Italy voluntarily restructures.
6. The computer becomes the new weapon of choice as hackers in Asia and Eastern Europe find new ways to hack into data centers of major financial powers. Their efforts cause short-term closings of some banks. The G-20 meets to solve the problem.
7. Concerned over rapid money supply growth in the developed world and seeking safety from troubled currencies, investors go long on currencies of governments they believe are managing their economies sensibly. Scandinavian currencies, the Australian and Singapore dollars and the Korean won will benefit.
8. After years of malaise and partisan politics, Congress finally makes the progress the Supercommittee failed to do, cutting $1.2 trillion over ten years.  Defense and Medicare are scaled back, subsidies for agriculture are cut, and tax deductions are modified. Obama promises to let part of the Bush tax cuts remain if re-elected. 
9. The Arab Spring finally matures. Bashar al-Assad’s rule over Syria ends when the Arab Spring gains further momentum. The ripple effect weakens Hamas, Hezbollah, and Iran.
10. Even as emerging market economies slow somewhat from their prime years, indexes in Brazil, China and India still gain more than 15%.

As I mentioned earlier, these are just predictions and are very much subject to being right or being wrong, but they give us ‘food for thought’ as we begin 2012.

Sources:
Press Releases- Byron Wein Announces The Ten Surprises For 2012. Byron Wein. www.blackstone.com. January 4, 2012.

Blackstone’s Byron Wien Predicted 10 Surprises For 2011, Here’s How He Did. Eric Platt. Businessinsider.com. December 30, 2011.

 For The Week Ended January 6, 2012

                   Summary Statistics

 The Russell 2000 (small caps) was up by 1.2%, and (obviously) 1.2% YTD.

Source: News.morningstar.com/index/indexReturn.html. January 7, 2012

Overview

• U.S. Jobs Looking Better
• U.S. Retail and Auto Sales Improving
• Manufacturing Up Slightly
• Eurozone Debt Default Worries Reappear

Stocks moved higher for the week thanks to a rally to start off a new year of trading. Late week market action may not have been all that exciting, but a strong gain on Tuesday helped the stock market book gains for the week. Investors bid the market sharply higher on Tuesday, following news that the U.S. manufacturing sector had expanded at a faster pace than expected in December. News that European manufacturing was contracting at a slower pace than anticipated was also encouraging.

For some prognosticators, that makes for a promising start to 2012, which many believe will still be driven by global financial and economic conditions, especially those in Europe. The Presidential election is also in the mix, as are corporate earnings which begin during the January 9th week.

As if the markets had read those lines above, stocks gave back a portion of their gains to end the week, however. December payrolls report initially provided a lift to Friday’s premarket sentiment. The Labor Department report on Friday featured a headline unemployment rate of 8.5% (down 8.6% in the prior month and less than the anticipated 8.7%) and its lowest level in nearly three years. Moreover, nonfarm payrolls climbed by 200,000, exceeding an expected 150,000 increase. Private payrolls increased by 212,000 (vs. an expected increase of 170,000). It had already been announced that weekly initial jobless claims declined by 15,000 week-over-week to 372,000

Although labor news appeared to confirm recent signs of strength in the U.S. economy, investors appeared to focus instead on continued troubles in Europe. The euro fell to its lowest level against the dollar since the fall of 2010. Fresh reports of economic decline made a eurozone recession appear more and more likely. Worries about a potential disruption to oil supplies from rising tensions between Iran and the U.S. may have also limited gains for the week.
   Sources:
Weekly Wrap. Briefing.com. January 6, 2011.

Management Week In Review. MFS Investment. January 6, 2011.

U.S. Economy

There were several positive reports that dealt with our economy. Manufacturing activity picked up in December, according to the Institute for Supply Management’s manufacturing purchasing managers index. The index rose to 53.9 (from 52.7 in November).

U.S. auto sales finished 2011 in high gear. Both domestic and imported automobiles sold in high volumes in December and for the year. Overall, U.S. consumers purchased 10% more cars and trucks in 2011 than in 2010.

Retailers were more of a mixed bag when they reported their December sales results. Some had a disappointing month (Kohl’s, JCPenney, and Target); others (Macy’s, Sak’s, and Nordstrom)  had strong results. On average, overall results were slightly ahead of expectations. The 22 retailers tracked by Thomson Reuters registered a 3.4% increase in sales, just slightly ahead of an expected 3.3% increase.

Source:
Management Week In Review. MFS Investment. January 6, 2011.

Global Economy

Eurozone debt concerns increased again as the European Central Bank (ECB) intervened to prop up bond markets on Friday by buying Italian and Spanish government bonds. They appear to have been spurred into action after the yield on Italy’s 10-year government bond hit 7.12%, a 5.24 point premium over comparable German bond yields. Spanish government bond yields rose throughout the week on concerns over the country’s finances. Both countries will seek to raise several billion euros in bond sales next week.

At the same time, the overall confidence among eurozone consumers and businesses fell to its lowest level in more than a year. The European Commission’s Economic Sentiment Indicator fell for a tenth consecutive month, to 93.3 from November’s 93.8.
Source:
European Bank Shares Hit by Renewed Euro-Zone Worries. Noemie Bisserbe and Christopher Bjork. Online.WSJ.com. January 5, 2012.
 

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 January 6, 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

You may already know that members of Congress (unlike some other branches of government) receive a raise every year, supposedly for ‘cost of living’ increases and such.  Congressional members also receive a generous package of benefits that we’d all like to be able to get our hands on.  Then there’s the issue of ‘special interests’ and their kickbacks, etc. We’ll get into all of that a little later.

Recently there’s been a lot of talk about the widening gap between what our elected representatives make versus what the rest of us take home. That’s something we wanted to dig into in a little bit more detail.

In fact, the economic hardships most all Americans have faced in the last 6 years (before and after the 2008 financial meltdown), seem to have bypassed most of our Congressional representatives.  Recent analysis by the New York Times shows that members of congress have all grown substantially richer in the past 6 years while the rest of the country has grown poorer overall.

Now, it goes without saying that Congress has never really been a place for ‘paupers’, per-se.  The legislative body has historically been made up primarily by the wealthier among us; plantation owners in pre-Civil War times, industrialists in the early 1900s, ex-Wall Street folks and Internet tycoons in modern times. The concern isn’t the history of well-to-do folks occupying those seats. The concern is that today the divide is so wide, and the contrast is so stark, between our elected officials and the rest of us.  And it keeps growing.

Why is the gap widening so much and why aren’t the ‘regular folk’ indeed represented fairly?  One obvious factor is how expensive campaign financing is.  This by itself severely limits the chance of someone of ‘lesser means’ making it into an elected office. If you can’t afford to make a dent, most less-affluent individuals with hopes of mounting a campaign give up before they start.

Additionally, as alluded to earlier, loose ethics controls, alleged ‘insider’ stock pick information, profitable land deals, favorable tax laws, inheritances, and even marriages to already wealthy spouses are thrown in the mix as possible causes of this expanding affluence on Capitol Hill.

An interesting observation: while Congress gets richer compared with average Americans, they’re actually getting richer compared with other REALLY RICH ‘regular’ Americans as well. Between 2004 and 2010, the median net worth of Congress members jumped 15%. The net worth of the richest 10% of Americans remained largely unchanged.  For all Americans, median net worth dropped by 8%.

With this lofty status now ‘the norm’ in Congress, the really rarefied air sits at a level around $100 million, a peak level reached by at least 10 members of Congress.  (Federal law requires lawmakers to disclose their assets only in broad dollar ranges, so getting exact figures for specific lawmakers proves nearly impossible.)

This sort of excessive affluence can certainly create problems when it comes to governing fairly, giving rise to concerns over just who the passage of certain laws truly benefits.

To give one quick example, Darrell Issa, a California Republican, has come under fire because of the ‘overlap’ in his Congressional work and his outside connections/interests.  With connections to Merrill Lynch and Goldman Sachs, as well as having land holdings in his own San Diego district, Mr. Issa raised eyebrows when he obtained earmarks for $800,000 in Federal funds for a road-widening project near commercial property he owns.

While there are countless other instances like this happening every day (a lot of which go unnoticed or even unpublished), the real kicker is how Congress refuses to tighten its belt along with the rest of us. House Democratic Leader Nancy Pelosi recently voiced her support for a Congressional pay freeze and to forego the standard ‘cost of living’ raise (at their current base pay of $174,000).  Pelosi was met with fierce opposition from some members of Congress who are dealing with debt issues of their own.

We might well ask why, when Congressional members make poor decisions and put themselves into debt, the American people should be held accountable and raise their pay? It once again illustrates the conflict between their Congressional duties and their own interests. Congress should be cutting expenses – or at least holding them steady – to address the US debt issue. If someone (carelessly or even stupidly) ran up his/her own debt, should he/she get a raise at our expense because he/she needs it? After all, when was the last time you heard of someone you know getting a raise because he/she needed it?

One thing to keep in mind is, on top of the $174,000 base pay, Congressional members receive a lot of extra financial perks that are unavailable to regular Americans. They get extra pay for ‘senior posts’, as well as extremely generous medical and pension benefits, in addition to ‘extras’ given to them, financed by their campaigns or even more taxpayer dollars.

Finally, we take a brief look at one other hotly discussed topic related to Congress as of late, that of alleged ‘insider trading’ with regard to their investments.  While it is well known that members of Congress are not bound by the same insider trading laws that regular investors are, the issue was seemingly ‘swept under the rug’ for a good period of time.

It has however come to light in the last couple of months that some members of Congress were privy to high-level briefings in the heat of the 2008 crisis, briefings which have been supposedly linked to subsequent purchases of stocks. Of course, these individuals insist they never traded on any sort of ‘inside’ information, and some Congressional leaders indicated their investments were in blind trusts managed by professional advisors.  Regardless, the increased attention caused some 90 members of Congress to call for a renewed ban/focus on insider trading.

While not all members of Congress have seen stellar performances on their investments, a recent study showed that House members saw the stocks they owned outperform the market by 6% a year.  Research from a few years back showed that Senators fared even better, with their portfolios performing around 12% above average.  It seems fair that perhaps a few eyebrows would go up looking at this data.

All of this may seem pretty nit-picky with regard to someone else’s take-home pay and investments. However, if it were someone in the private sector we were discussing, it may not garner that much attention.  But you know what? This isn’t in the private sector! WE are paying for all of this!  These are our elected individuals, and they just can’t quite seem to grasp that while they’ve been growing richer, most of the rest of us haven’t.

While we’ve been struggling to pay our taxes and make ends meet, they keep piling in the cash.  While school systems struggle to stay afloat and teach our children, teachers haven’t received pay raises in more than 3 years.  Benefits get slashed, infrastructure suffers, and the general morale and condition of the American people weakens.

But Congress gets richer.

Our hope is that, perhaps with the fresh perspective of a new year, the tides may turn and some real belt-tightening may take place in Congress, and our elected officials will once again remember who put them there in the first place.

Source: NYT- Members Of Congress Grew Richer In Past 6 Years. Eric Lichtblau. MSNBC.com. December 27, 2011.

For The Week Ended December 31, 2011

                   Summary Statistics

 The Russell 2000 (small caps) was down 0.9%, taking it to a negative 5.5% for the YTD.

Source: Briefing.com Weekly Wrap December 31, 2011

Overview

• U.S. Dollar Stays Strong In 2011
• U.S. Treasuries Return Most Since 2008
• Weekly Jobless Claims Rise; 4-Week Average Drops
• ECB Balance Sheet Increases To Record Level
• Japanese Industrial Production Falls

In spite of the fact that the last few of sessions to close out 2011 were relatively ‘lukewarm’, several bits of data were released this week which helped 2011 end on a relatively strong note overall.

Trading was light and volatility was minimal over the holiday-shortened week, and several encouraging reports regarding the job and housing markets, as well as improved sentiment for the overall economic outlook helped to keep things relatively calm.

U.S. consumers are reportedly more confident as we head into the New Year, and holiday sales were quite robust.  Current estimates point to a 3.8% rise in November and December vs. the same period in 2010.

Europe continues to weigh on investors’ minds, even though news out of Europe seemed to have relatively little sway on the market this week.  Overnight borrowing from the European Central Bank spiked on Thursday of this past week, to its highest level since February.  Eurozone banks were racing to keep cash flowing to meet year-end capital requirements.

Additionally, private lending in the eurozone was tightening, as bankers are becoming less inclined to lend due to risk.  Finally, Italian 10-year yields remained at an uncomfortably high level, but stopped short of ‘crisis level’ yields as of late.  Additionally, a recent auction of 10-year Italian bonds was met with a lukewarm response.

Taking a final brief look back at U.S. markets for 2011, it is refreshing to see that overall, domestic markets outperformed global markets in general.

The Dow Jones Industrial Average fared the best during 2011 (up 5%), while the Russell 2000 index posted the biggest drop, falling 6%.  The S&P 500 ended up in positive territory for the year as well.

Not surprisingly, European markets performed much worse. Greece fell 61% and was the biggest loser in Europe, battered by continued concerns over its debt. Italy and Spain were hammered as well, with the two countries falling 27% and 15%, respectively.

Emerging markets, as well as markets in Asia, South America, and India posted double-digit drops for the year.  Japan in particular struggled to recover its momentum after the devastating earthquake earlier this year.

We hope your 2012 starts out on a high note…  Happy New Year!

Sources:
Weekly Wrap Briefing.com – December 31, 2011.
Management Week In ReviewMFS Investment – December 31, 2011.

U.S. Economy

U.S. Dollar Stays Strong In 2011.  Athough the final session of trading on Friday saw the dollar fall a slight amount, overall the currency outperformed all major foreign currencies, except for the Japanese Yen.

The dollar index, which measures the value of the greenback vs. 6 other major worldwide currencies, advanced 1.6% this year, compared with 1.5% in 2010.

The euro was without question the most battered currency worldwide this year, and it slipped to a new 15-month low late in the week on Friday, falling to $1.2996.  The currency has depreciated 3.4% against the dollar, the second year of declines for the euro.

Source: Dollar Pares 2011 Gains In Final Session.Marketwatch.com. December 30, 2011.

U.S. Treasuries Return Most Since 2008.  Posting a robust rise since the ‘dark days’ of the 2008 financial crisis, Treasuries posted their biggest annual return in 2011, despite major headwinds which included the S&P downgrade in August of this year.

As other countries’ debt sent investors fleeing from their bonds throughout the course of the year, U.S. Treasuries saw a 9.6% return (according to Bank Of America Merrill Lynch’s indexes), beating out both stocks and commodities.

10-year yields ended the year within ¼ percentage point of a record low, with data showing the economy is making moves toward further strengthening.  The continued persistence of the Federal Reserve to hold interest rates low through 2013 also supported Treasuries.

The 10-year note ended with a 1.88% yield at the close of trading on Friday.

Source: Treasuries Return Most Since 2008. Bloomberg.com. December 31, 2011.

Weekly Jobless Claims Rise While 4-Week Average Drops.  After steadily declining for the prior 3 weeks, weekly jobless claims rose last week by 15,000 to around 381,000 total.  In spite of the increase in claims, applications still remained at a level consistent with moderate hiring.

The 4-week average, which is considered a more accurate index/picture of the job market, actually dropped for the 4^th straight week to 375,000, the lowest level since June 2008.

Overall, the recent string of data regarding the job market points to a turnaround in hiring, though jobs will need to be added more quickly to begin making a sizeable dent in the unemployment rate and overall condition of the job market.

Source: Unemployment Claims Rise After Steady Declines. BusinessWeek.com. December 29, 2011.

Global Economy

ECB Balance Sheet Rises To Record Level. In the wake of record additional loans to euro-area banks last week, the ECB’s balance sheet soared to a record 2.73 trillion euros.  The bank’s increased lending was in response to concerns over liquidity in the ongoing credit crisis.

Euro-area banks received 879 billion additional euros in the week ending Dec. 23, and increased by another 239 billion euros this past week.

Interestingly, while the banks are soaking up these capital injections, they are parking the money right back at the ECB, versus increasing lending as people had hoped.

Earlier this month the ECB cut its key interest rate to 1%, in addition to making the aforementioned cheap loans available to euro-region banks.  The bank has refused to step up government bond purchases, choosing to offer the cheap loans as an alternate strategy.

Source: ECB Balance Sheet Increases To Record $3.55 Trillion After Loans To Banks.Bloomberg.com. December 28, 2011.

Japanese Industrial Production Falls Late In 2011. Japan’s unstable year continued into the final days of 2011, with the nation’s industrial production falling to 2.6% in November.

Production was negatively impacted by the recent floods in Thailand, which is a major production center for Japanese manufacturers, as well as by the continued strong Yen and slowing economies elsewhere in the world.

Automobile, information, and communications-equipment were the hardest-hit areas in the slowdown.

In spite of the downturn, there is a forecast for a 4.8% rise in December’s numbers, and a possible 3.4% increase in January of 2012.  Japan’s unemployment rate has held steady at 4.5% in recent months as well.

Source: Japanese Industrial Output Falls.WSJ.com. December 28, 2011.

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 December 31, 2011 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

Well, it’s a big weekend. With that in mind, and the fact that I can get more than a little silly late on Fridays (even without a three-day weekend dangling in front of me), let’s get Christmassy this week. Permit me to begin with:

‘Twas two nights before Christmas, when all through the market,
Not a symbol was stirring, not Netflix, not Target.
The P & F charts were laid out with great care
In hopes that more buy signals soon would be there.

You ‘guys’ were nestled all snug in your beds,
While visions of profits still danced in your heads.
But me in my V-neck and Sheila, her Santa Hat,
Were settling down for one more market chat.

The upticks and downticks we checked just once more
Ere dousing the lights and locking the door.
And what to our wondering eyes should appear,
Is that a Dow turnaround? Reason to cheer!

A quiet rally we hope will grow oh so fast,
And in 2012, mean much money amassed.
More rapid than eagles, you all will join in
As the RS charts find more places to win.

“Now Currencies! Now Retailers! Utilities and Staples!

 Dividend Yielders and Low Volume Betas!”

“From top sectors to tax loss bounces; play ball!
 Now rally, now rally, may the market rally for all!”

From here our story is not worth predicting,
For some markets will fall while others are lifting
Though traveling by slow sleigh or super fast jet
The knack to adapt means goals still can get met.

Commodities to Builders to Transports to Oils.
The constant is change in this business of spoils.
In the words of Emerson “make yourself necessary”
Manage risk at each turn and success it will carry.

We close the book now on this unstable of years
With hopeful outlook as we start to shift gears
From the team at JFG as 2012 comes into sight,
“Merry Christmas to all, and to all a good night!”

Now I have three quick notes on the above:

First, it is not to be construed as any kind of investment advice, prediction or recommendation. It is to be taken as the best I could do to adapt Twas the Night Before Christmas to a format that ‘fit’ here.

Second, I have a sudden admiration for Clement Clarke Moore. His home was in Elmhurst, perhaps a 15 minute walk from where I grew up in Queens, NY. Needless to say, grade school teachers made him a local “legend” (although we only heard his name around this time of year). None of us kids cared very much. However, after trying to create the meter and rhyme in the above, I have great respect for his talent. On some lines above, I just said, “close enough” and went on.

And to all, the Jamison Financial Group (or JFG, in case you were wondering what that was in the last stanza above) wishes you best of this season regardless of the particular holiday you celebrate. I just didn’t know enough poems to cover them all. (Nor, I suspect, would you have cared to read another one if I did.)

Now on to real business, still keeping with a holiday season theme…

As our thoughts and focuses turn this weekend to the holidays and spending time with our families, friends and other loved ones, we thought it was important to take a look at one aspect of this holiday season that will be very different for many families this year, namely those who have loved ones serving in the Armed Forces. 

Happily, this is the first Christmas in almost a decade where servicemen and women will not have the specter of the Iraq War hanging over them as they celebrate with their families.  While troops have been arriving home to their loved ones at bases all across the country, a majority of the troops deployed in Iraq were based out of Fort Bragg, NC.  We take a closer look at the reunions that have taken place there recently.

The base, located near the coast, has been the staging ground for at least a dozen flights full of troops coming home from Iraq.  So important is the base that on Dec. 14 it served as the site of a special ‘welcome home’ announcement and ceremony from President Obama.  Being welcomed home by the Commander In Chief is certainly an honor these troops relished.

Most all of the troops expected to arrive back home at Fort Bragg are here already, with a final flight slated to arrive on Christmas Eve, bringing home the last of the troops due at the base.

Troops have received a ‘hero’s welcome’ with every flight home, with military bands playing and formal ceremonies taking place, welcoming them with grace and appreciation.  For the families, the reactions can be as complex as they are emotional.  Some children have only ever known holidays during wartime, with their father, mother, brothers and/or sisters away for years at a time, sometimes not able to come home for the holidays at all.

Jessica Hines, the daughter of Staff Sgt. Jonathan Hines, is one of those children who have never known a holiday season outside of wartime.  She waited for her father at Ft. Bragg on Thursday of this past week, crying softly for much of the 4-hour wait at the air terminal.  When her father finally arrived and they hugged for the first time (her father still wearing his pack and rifle), she said ‘this is better than Disney World.’

Such joy is undeniable, but for the troops who took part in the operation, the joy is muted by the toll of the complicated, polarizing conflict in Iraq.

 While troops are quick to point out that the conflict ended much more smoothly than it could have, and that the war ended on ‘our terms’, the costs of the war were enormous.  The war efforts are estimated to have cost the U.S. more than $800 Billion, and 4,400 American lives.  Fort Bragg lost at least 202 soldiers, the most recent being Specialist David Hickman, killed by a roadside bomb on Nov. 14.

Most of the soldiers who have arrived home expect to remain stateside for at least a year before being redeployed elsewhere.  Some are leaving the Army to rejoin civilian life.  Those who plan to be redeployed can’t help but keep Afghanistan in the back of their minds … a place they may very well end up at some point depending on how long that conflict lasts.

With regard to ‘what’s next’, Pfc. Jared Cherry of Rocky Mount mentioned he wasn’t thinking much past Christmas dinner at this point. “I’m going to be eating, partying, seeing my mom, my girl and my family,” he said.  One thinks that a lot of troops are having the same sort of thoughts as the holidays gear up.

The courage and resilience shown by our troops over the course of the conflict in Iraq is undeniably inspiring, but what is even more inspiring is the reaction to their arrival home, and the concentration on the simple things that highlight what the holidays are truly about.

For years the only gift any of these families wanted was to have their loved ones home for good for the holidays, giving them the chance to enjoy the simple act of spending time with one another.   Material objects come and go, but memories are forever.  Finally, these families can begin making memories during the holidays that don’t have to involve their loved ones going back to war immediately after the celebrating is done.

We have especially good feelings about the soldiers coming home because, as so many other people, we also have family involved. There are Chris and Leah, Sheila’s nephew and his wife, both noncoms in the 101^st Airborne. They are still young people. Hence their story, save for having to find extended babysitting, is a common one for army personnel.

They were already in the army (and had two very young children) when the 2^nd Gulf War began. Chris was deployed immediately; they gave Leah only a few months to find someone to care for the kids as she was scheduled to ship out then. Except for having to hand over the tots to relatives – who they, thankfully, couldn’t take to a war zone – and the fact that they were in that 101^st that seems to get to start every war, their story is “normal” (as far as anything war related is normal).

Then there is Billy, Sheila’s cousin, with whom she is very close. She and Billy were raised more like brother and sister than like cousins. Billy was in the Mississippi National Guard – the organization that requires two weeks annually and one weekend per month that belongs to the states (essentially, state militia). Not the army. Not the Reserve. The National Guard. The organization that is (or had been) mostly used to quell civil unrest (riots) and in times of natural disasters like Katrina.

Billy is a Command Sergeant Major. He was sent to Iraq at the beginning of the 2^nd Gulf War for a year. Upon his return home you would think they were through with him, wouldn’t you? A man in his 50s in the National Guard! Well, last January, he was redeployed, this time to Afghanistan for a year. He is due home shortly … and, coming up on age 60 in a couple years, will retire from the Guard with 30 years of service under his belt when he gets back. If you think Sheila is relieved, just imagine what his family – from parents through wife and children to grandchildren – will feel.

As I said earlier, we all have an interest in seeing our soldiers come home. There are already too many who won’t return … ever. We all know of someone, or of someone who knows of someone else, who has family involved. Let’s take an extra measure of holiday cheer in their homecoming … and hope to see those still serving overseas close behind them!  Our thanks go to them all.

Source:
U.S Troops Fly Home To Joy, Relief. WSJ.com. Valerie Bauerlein. December 22, 2011.

For The Week Ended December 24, 2011

                   Summary Statistics

The Russell 2000 (small caps) was up 3.6%, taking it to a negative 4.6% for the YTD.

Source: Briefing.com Weekly Wrap December 24, 2011

Overview

• U.S Income And Spending Edge Up Slightly
• U.S. Unemployment Rates And Jobless Claims Fall
• S&P Back In Positive Territory For 2011
• Bank Of America Forced To Repay Countrywide Customers
• Italian Bond Yields Rise Back Above 7%

Keeping with the positive spirit fostered by the holidays this week, the markets enjoyed a mostly ‘up’ period of trading for most every session.  Helping to boost investor sentiment over the past week was a stream of primarily positive news concerning the labor and housing markets here at home, as well as a reduction in the number of Americans filing for jobless benefits.

On Friday, the markets received another welcome bit of news with Congress finally coming together on a deal to extend the payroll tax holiday by another two months.  Under pressure from members of his own political party, Speaker of the House John Boehner finally agreed to compromise on the measure, with the stipulation that the issue be brought up again in the New Year, moving forward to find a long-term solution to the problem.

In Europe, investors weighed the news regarding the European Central Bank’s offering of nearly 500 Billion euros worth of low-interest loans to banks in the region.  Banks scooped up the funds with ravenous energy, which will help finance their maturing debt obligations in months to come.  While investors initially saw the news as positive, their sentiments turned sour after many began to wonder just why so much funding was needed (and scooped up so quickly), leading many to question if the banks are in fact in worse trouble than they had been led to believe.

While the official ‘Santa Claus Rally’ period doesn’t start until today, stocks delivered early this year with an over 3.5% gain for the week, helping to trim some of the losses from last week.

Markets worldwide will be closed on Monday, December 26 in observance of the Christmas holiday.  Trading will resume on Tuesday, December 27.

Sources:
Weekly Wrap Briefing.com – December 24, 2011.
Management Week In ReviewMFS Investment – December 24, 2011.

U.S. Economy

U.S. Income and Spending Edge Up Slightly.  Recent indicators show that U.S. consumer spending inched up ever so slightly in November, accompanying small gains in overall income.

A report published on Friday from the Commerce Department reflected a 0.1% gain in both consumer spending and consumer income.  The smaller than expected spending increase is in conflict with other data previously released which suggested holiday sales have been robust.

Numbers concerning income, specifically real disposable income (adjusted for taxes and and inflation), showed a flat move in November, after increasing 0.3% in October.

Source: Income, Spending Post Modest Rise. WSJ.com. December 23, 2011.

U.S. Unemployment Rates And Jobless Claims Fall.  A report from the Labor Department released on Tuesday showed that unemployment rates and applications for jobless benefits in almost every state fell in November, and 45 states had jobless rates lower than at the same time last year.  These unemployment figures are in concert with the national unemployment trend, which has dropped in the last month or two and sits at around 8.6% currently.

The number of applications for unemployment benefits for the week ended Dec. 17 were the lowest since April of 2008, a drop which was largely unexpected. 

Some of the improvement in the national unemployment rate was due to 315,000 people leaving the workforce, according to a previous Labor Department report.  However, a recent poll of U.S. households showed that the country has created over 1.28 million jobs in the last 4 months.

Source: Jobless Rates Drop In Almost All States In November. Reuters.com. December 20, 2011.

S&P Back In Positive Territory For 2011.  An overall rally in the past week of trading has helped to pull the S&P 500 out of negative territory for the year, setting it up to finish the year out well after a volatile 2011. 

The index climbed 3.7% for the week, including a 3% surge on Dec. 20.  This was the biggest one-day rally of the month.  The index has gained 0.6% for the year after the recent rally.  On Dec. 19 (one day before the big rally), the index had slumped 1.2% over concern about the European debt crisis.

Strategists are forecasting that the S&P could potentially end the year out about 1% higher than its current level if the positive sentiment carries into next week.

Source: U.S. Stocks Rally On Economic Data, Erasing S&P 500’s 2011 Loss. BusinessWeek.com. December 24, 2011.

Bank Of America Forced To Repay Countrywide Customers.  Bank of America, who now owns mortgage lender Countrywide, has agreed to pay a record $335 million to compensate customers of the troubled lender who were charged more for home loans based on race and national origin.

It was assessed that Countrywide charged higher fees and interest rates to more than 200,000 black and Hispanic borrowers, and was also accused of steering minorities into higher-cost subprime mortgages from 2004-2007, even when they were eligible for prime loans.

Countrywide was once the nation’s largest mortgage lender, with 17% of the market and $408 billion in loans originated in 2007.  Regulators later found out that its growth was spurred by lax lending standards, with many loans full of errors or omissions regarding the borrowers and their properties.

Source: BofA Agrees To $335M Fair-Lending Deal. Bloomberg.com. December 21, 2011.

Global Economy

Italian Bond Yields Rise Back Above 7%. Concerns over Italy’s debt problems crept back into the mix on Friday as bond yields for its debt rose back above 7%, to 7.04%.  Yields had previously fallen back to near 6% in early December.

After spiking in November as well, worries over Italy’s debt had waned after EU leaders came together early this month in support of a comprehensive solution to address the eurozone’s debt crisis.  This final uptick in yields came one day after the Italian Senate approved a 30 billion euro austerity package, backed by newly appointed Prime Minister Mario Monti.

On a related note, Spanish bond yields also inched higher to 5.37% from 5.07%, but stayed well below the 6.7% rate hit in early November.  Italy and Spain are two of the most-watched countries as of late in terms of their bond yields.

Source: Italian Yields Drift Back Above 7%.CNN Money.com. December 23, 2011.

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 December 24, 2011 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

The practice of ‘fracking’ (or, hydrofracking) is becoming a hotly debated topic among environmentalists and also economists.  The energy industry praises it for allowing new stores of natural gas to be recovered in areas which may not have been seen as potential harvesting grounds for energy resources before.  Shale is one such potential area.  Environmentalists deride it because it unnaturally disrupts the stability of the land and also potentially pollutes groundwater.

You may be wondering what ‘fracking’ actually is.  The term is short for hydraulic fracturing. Fracking helps release natural gas stores by forcing pressurized, chemically treated water and sand underground.  The pressure carries the water beyond the wellbore into the surrounding rock, forcing the rock apart along its natural fractures. The larger channels created along those fractures then permits the material (e.g., oil, gas, wastewater, well water) to travel to or from the wellbore. Whatever is held in that rock can move more freely along those bigger channels.  The injected sand lodges in the channels, keeping the fractures spread apart once the fracking is stopped.

As you can appreciate, the process is violent and risky. It potentially has long-lasting consequences, depending on how you interpret stories and associated data.

Recently, Karen Fox, a woman who lives in Youngstown, Ohio was startled by a sound which she first thought was her daughter falling down the stairs At the same time, windows were shaking and the whole house was vibrating.  However it wasn’t the sound of anyone falling … it was an earthquake.  Fracking operations had been taking place in Youngstown for a while, and the earthquakes had been steadily increasing in intensity, reportedly in the wake of the operations.

Karen said with regard to the quakes that “back in March, when these first started, nobody was thinking anything of it – it’s Mother Nature – (but now) more people are getting more concerned.”

While earthquakes on the east coast or even in the Midwest aren’t unheard of, none had ever been reported in Youngstown – until D&L Energy began injecting wastewater from a 9,300 foot disposal well in December of 2010.

From March 2011 through November 25^th, 2011, there were 9 reported earthquakes in an area of about 4.5 square miles west of the mineshaft.  That’s a lot of seismic activity in a short amount of time in an area that had seen little to none before the drilling began.

Outside of Ohio, a report from the Environmental Protection Agency published on December 8, linked fracking to contaminated groundwater in Wyoming.

So, fracking has been linked to groundwater pollution and earthquakes – pretty scary stuff.

The companies in charge of the fracking operations naturally deny that their practices are causing the earthquakes, demanding more studies and more data are necessary in order to prove that they are causing it.  That sounds like the same set of tactics that has been used in the past regarding the demand for ‘proof’ that climate change (nee, global warming) is real, eh? Or, you might remember how cigarettes were touted as being safe – perhaps even good for you – 50 years ago.

The chief executive of the aforementioned D&L Energy maintains, “if these things (the wells and equipment) weren’t safe, we would not put them in.”  One wonders if he is speaking of the equipment itself or the effects from the drilling.  Perhaps it’s a convenient sidestep?

Despite the effects that may be associated with fracking, the practice is not likely to go away anytime soon.  New York, Pennsylvania, Maryland, West Virginia, Ohio, and parts of Kentucky and Tennessee sit atop the Marcellus and Utica shale formations, areas rich in natural gas.

The problem is that the gas is sometimes 12,000 feet below the earth’s surface (and it has been reported as deep as 20,000 feet). At that depth, naturally occurring rock fractures are under very high pressure from the weight above and around them. There may not be sufficient porosity or permeability to allow gas (or oil) to flow through the rock into the well bore … at least at rates that justify the cost. Thus, creating wider (conductive) fractures becomes essential to extracting gas from shale.  Are the risks are worth the reward, particularly if the side-effects are earthquakes with the potential to bring down people’s houses or at the very least, damage buildings and infrastructure?

A I alluded to before, there’s a lot to gain financially for companies in the area with an interest in fracking.  Energy companies like Chesapeake Energy Corp and Halliburton benefit from the practice, and steel producers like U.S. Steel also benefit from production of metal tubes, etc. used in the process.

Turning back to Ohio, officials there fear that the state may become one of the largest potential dumping grounds for wastewater from fracking.  During the first 3 quarters of 2011, nearly 53% of the 368.3 million gallons of wastewater injected into Ohio’s wells came from out of state.  Amazing!

The need for safe exploration and harnessing of domestic energy sources is a cause that we can all get behind.  We all know there is work to be done.  The question is whether potentially unstable (and unsustainable) practices like fracking are the answer.

The short-term benefits of a practice like fracking seem to be overshadowed by the real damage being done to the earth.  Are we willing to risk setting ourselves up for more polluted groundwater and the potential for stronger earthquakes as the practice becomes more widespread?  One well may yield little disruption, but if many wells are operating in a concentrated area, who is to say the earthquakes and pollution might not worsen exponentially?  It’s food for thought.

Source:
Fracking Has Formerly Stable Ohio City Aquiver Over Earthquakes. Bloomberg.com. Mark Niquette. December 14, 2011.

For The Week Ended December 17, 2011

                   Summary Statistics

The Russell 2000 (small caps) was down 3.1%, taking it to a negative 7.9% for the YTD.

Source: Briefing.com Weekly Wrap December 17, 2011

Overview

• SEC Files Lawsuits Against Former Heads of Fannie Mae & Freddie Mac
• Consumer Prices Stagnate In U.S. As Gas Price Drops
• U.S. House Approves Budget Measure To Avoid Shutdown
• Moody’s Cuts Belgian Credit Rating: Fitch Warns France
• Euro Drops To Lowest Level In Nearly A Year

Stocks saw another down week overall, with concerns over Europe remaining firmly planted in investors’ minds.  Also at play was a lukewarm reaction to the Federal Reserve’s lack of action to help bolster U.S. markets in the wake of its latest announcement.  No new ‘tools’ or rate changes were announced, though there is speculation that another round of mortgage-related securities purchases may be the next ‘bullet’ the Fed may decide to use if further aid is warranted.

The first three sessions of the week saw stocks post an average loss of about 1%.  Early in the week, Europe’s continued lack of decisive action regarding its debt crisis kept stocks lower, and also affected the Euro in a very negative fashion.  The troubled currency hit its lowest level in 11 months on Wednesday before recovering a bit near the end of the week.

Stocks finished the week out with a mixed session, moving higher early in the day on Friday, but tempering gains into the afternoon.  Stocks finished down slightly under 3% for the week.

Data concerning retail sales this week showed an 0.2% overall gain in total sales and sales less autos.  Total sales had been expected to rise by 0.6%, while sales less autos had been expected to rise by 0.5%.

Finally, data concerning jobless claims showed encouraging progress this week, with initial weekly jobless claims dropping to a 43-month low of 366,000.  With the current unemployment rate sitting slightly below 9% at this point, this hopefully points to a renewed turnaround in the job market.

Sources:
Weekly Wrap Briefing.com – December 17, 2011.
Management Week In ReviewMFS Investment – December 17, 2011.

U.S. Economy

SEC Files Lawsuits Against Former Fannie/Freddie Chiefs.  The SEC filed lawsuits this past week against a total of six former executives at Fannie Mae and Freddie Mac, the embattled mortgage firms taken over at the start of the 2008 financial crisis.  The SEC charged the executives with intentionally misleading investors with regard to the risk involved in the firms’ involvement in subprime mortgage debt.  The 2 former CEOs of the agencies were they key figures in the lawsuits.

The civil lawsuits rank among the highest-profile cases filed thus far in the wake of the 2008 crisis.  They are also the first cases brought against the former heads of Fannie and Freddie, period.  The fallout from the government takeover of the two firms has cost taxpayers an estimated $151 billion to date.

Source: SEC Sues Former Fannie, Freddie Executives. WSJ.com. December 17, 2011.

Consumer Prices Stagnate As Gas Prices Drop.  Data concerning the cost of living in November of 2011 showed that costs stagnated overall as gasoline prices and food expenses fell somewhat.  This data supports the latest assertions by the Federal Reserve that inflation will remain in check for the near future.

The Fed relies typically on the Commerce Department’s measure that excludes food and fuel and is tied to consumer spending to help gauge inflation.  This marker rose 0.1 percent in October after no change the prior month. It was up 1.7% in the year ended in October. This figure came in at the lower end of the Fed’s long-run projection of 1.7% to 2%.

The same report showed energy costs in November decreased 1.6% from a month earlier, reflecting a 2.4% drop in gasoline prices.

Source: Consumer Prices In U.S. Stagnate As Gas Drops. Bloomberg.com. December 16, 2011.

U.S. House Approves Budget Measure To Avoid Shutdown.  The U.S. House of Representatives voted on Friday 296-121 in favor of a $1 Trillion spending bill to keep funding government operations after leaders finally reached a proposed agreement to keep the current payroll tax cut from expiring.  The Senate is expected to take up the measure next, with all indications pointing to its passage of the measure in the near future as well.

Most lawmakers are praising the plan as a rare bipartisan compromise in a year when spending measures have largely succeeded or failed right along party lines.

Not all is rosy with regard to this bill’s passage however.  Some House members complained Republicans gave them only two days to review the 1,200-page bill.  There were also complaints about how more than 1,000 pages of additional documents were held back until the end of the week, leaving little time to review them before passage.

“Not one of us has read every page in this bill,” according to Representative Steny Hoyer. Jeff Flake, an Arizona Republican, said, “We’ll be discovering for months to come what’s actually in it.”

Source: Congress Poised To Keep U.S. Govt Operating. Bloomberg.com. December 17, 2011.

Global Economy

Moody’s Cuts Belgian Credit Rating, Fitch Warns France. Moody’s downgraded Belgium’s credit rating by 2 notches on Friday, following in Fitch’s earlier move to lower the long-term outlook on France’s coveted AAA credit rating.

Moody’s cited risks to Belgium’s access to funding, economic growth, and the country’s current balance sheet.  The downgrade concludes a review set in motion back in October.

On December 5^th, S&P put France and most other countries in the eurozone on review for possible downgrades, pending the results of the EU summit at the end of last week.

Fitch Ratings made the next move on France, lowering it from a ‘stable’ outlook to a ‘negative’ outlook yesterday, indicating there is a 50% chance that the nation could lose its AAA rating within the next 2 years.

Source: Moody’s Cuts Belgium’s Rating; Fitch Warns On France’s. WSJ.com. December 16, 2011.

Euro Drops To Lowest Level In Nearly A Year. The Euro posted its lowest level in 11 months this past week, dropping below the key $1.30 exchange rate on Wednesday.  This was on the heels of renewed pessimism over recently discussed budget accords at the EU summit.

EU leaders had agreed to come together under a new ‘fiscal union’, with all 17 eurozone members signing on and pledging to participate.  A key part of the deal called for eurozone members to contribute another 200 billion Euros to the International Monetary Fund, a measure with some government leaders have still voiced concern over.

As has been said before, the lack of any decisive and firm action will continue to wreak havoc with investor sentiment and the stability of the euro in general.

Source: Euro Falls As Dollar Gains Ground. CNN Money.com. December 15, 2011.

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 December 17, 2011 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 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.
Diversification does not assure an investor a profit nor does it protect against market loss

 Past performance is no guarantee of future results.

 Happy Holidays 2011

As we roll into 2012, it seems appropriate to “hit the highlights” of the old year (although “lowlights” might be a more appropriate term for 2011).

THE GOOD

• Slow But Sure Economic Growth- Economic growth increased in the third quarter at its fastest pace in a year. Both consumers and businesses stepped up spending, creating momentum that hopefully will continue and accelerate.Source:  seekingalpha.com/article/303142-u-s-gdp-growth-stronger-in-q3-as-economy-enters-expansion. October 28, 2011

• Muammar Gaddafi – The Longtime Libyan dictator was killed by rebel forces, ending a multi-decade regime. There is now hope for change in Libya.
• Osama Bin Laden- We finally got him. Bin Laden’s death brought a huge sense of psychological closure.
• Ratko Mladic – The former Bosnian Serb general charged with the largest mass killing of civilians in Europe since World War II, was arrested in Serbia after a 16-year manhunt.

THE BAD

Sluggish Job Growth – In the first week of November, domestic unemployment ticked down to 9.0%. However the pace at which jobs were being added is still not enough to give the economy and job market the kicks they need.

Source:  www.usatoday.com/money/economy/story/2011-11-10/weekly-jobless/51149034/1. November 10, 2011

• Home Prices Still Choppy – The S&P/Case-Shiller index showed median home prices a) fell by 4.1% in Q1 of 2011, then b) increased by 3.6% in Q2 and then c) fell 4.7% in Q3. Looks like the housing market still has a long way to go.Sources: money.cnn.com/2011/05/31/real_estate/march_home_prices/index.htm. May 31, 2011
  www.standardandpoors.com/indices/sp-case-shiller-home-price-indices. August 30, 2011
• 1 in 15 Americans in Poverty – Recently published statistics are staggering, showing just how deeply the recession has cut. They show that 1 in 15 people in the U.S. now live in poverty. The demographics have shifted to include many former middle and upper-middle class.Source:  www.msnbc.msn.com/id/45145370/ns/us_news-life/t/poorest-poor-now-americans/. November 3, 2011
• US Debt Rating Downgrade – On August 6, Standard & Poor’s ratings agency downgraded U.S. debt from AAA to AA+. The downgrade came amid political squabbling about legislation to raise the debt ceiling. Although a deal had been reached on this prior to the downgrade, the agency said it simply didn’t go far enough in reducing the deficit and future spending to justify leaving the rating at AAA.Source:  www.bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html. August 6, 2011
• Europe, Greece, Italy… Oh My! – The one story that just won’t seem to go away is Europe.  The eurozone’s inability to definitively come to grips with (not to mention, solve) their debt troubles have kept investors on edge. Fears are that the next step may be the wrong one, creating a eurozone meltdown and sending “Lehman-like” shockwaves throughout the world’s economies.Source:  www.cnn.com/2010/BUSINESS/02/10/greek.debt.qanda/index.html. March 26, 2010
• Penn State Sex Scandal that Stuns America – Another icon, Joe Paterno, the most winning coach of all time, falls from grace.Jerry Sandusky, defensive coach at Penn State (under Paterno) has been exposed as a child molester. Worse yet, as the story unfolded, it appears that others on the staff, including Paterno, knew of Sandusky’s transgressions … and helped to cover them up. One graduate assistant, Mike McQuery, even walked in on Sandusky in the act with a young boy. Instead of intervening – or going for help – he reported it to Paterno the next day. Paterno reported it to Penn State’s athletic director, Tim Curley. Later that month, senior vice president for finance and business, Gary Schultz, is informed. Nobody calls the police.

  One of Sandusky’s earlier “transgressions” (showering with a boy in 1998) seems to have been dropped in that no charges were ever filed. The DA involved, Ray Gricar, disappeared in 2005. Although his car was found parked in a lot and his computer and hard drive discovered in the Susquehanna River, what happened to him has never been established.

  Source:  www.nydailynews.com/sports/college/penn-state-scandal-timeline-sex-abuse-scandal-rocked-happy-valley-article-1.976843.  November 13, 2011

• Corzine and MF Global’s Collapse – Jon Corzine, one of Wall Street’s best-known (and slightly infamous) figureheads, stepped down as MF Global’s Chairman and CEO. His bets on European (i.e., Belgium, Ireland, Italy, Portugal and Spain) sovereign debt drove the futures brokerage into bankruptcy – the 7^th largest in U.S. history.Source:  http://www.reuters.com/article/2011/11/05/us-mfglobal-corzine-idUSTRE7A331A20111105. October 31, 2011
• The Death of Steve Jobs – The news that Steve Jobs passed away after a long battle with varying health problems knocked the wind out of Americans of every age.Source:   Online.wsj.com/article/SB10001424052702304447804576410753210811910.html. October 5, 2011
• Space Shuttle Program Comes To An End – The Space Shuttle Atlantis made its final landing, bringing NASA’s Shuttle program (135 flights in 30 years) to and end. Among innovations resulting from the program are:
• pumps for artificial hearts (modeled after the shuttle’s fuel pumps)
• cancer treatment techniques
• technology for prosthetics
• balance evaluation systems used to treat patients with neurological disorders
• thermal protection materials used in auto racing
• ‘liquid metal’
• video stabilization software advancements 

  gcn.com/articles/2011/07/08/space-shuttle-technology-on-earth.aspx. July 8, 2011
       

  Sources:  abcnews.go.com/Technology/space-shuttle-atlantis-landing-ends-nasa-shuttle-program/story?id=14117477. July 21, 2011

Dangerous & Surprising Weather Events/Trends- 

• Historic Tornado Outbreak – April 14^th to April 16^th saw one of the largest recorded tornado outbreaks in our history ravage the Midwest and South.  From Oklahoma to North Carolina, Cities and towns across 15 states were assaulted by 289 tornadoes over 3 days.Source:  http://www.accuweather.com/blogs/news/story/48503/historic-tornado-outbreak-3-da-1.asp. April 19, 2011
• Tropical Storms Lee and Irene – Tropical Storm Irene ravaged areas in the Northeast. Massive flooding submerged parts of the I-95 corridor and left people stranded in their cars. Vermont saw arguably the worst effects as Irene stalled and dumped a horrendous amount of rain. It caused the worst flooding since 1927, washing away roads, homes, bridges and the state’s emergency operations center.Tropical Storm Lee came hot on the heels of Irene. The rains and flooding caused by the remnants of Lee dumped enough rain on the Northeast to fill Dallas Cowboys Stadium more than 50,000 times and led to the evacuation of more than 100,000.Sources:  abcnews.go.com/US/northeast-flooding-14-dead-45-trillion-gallons-rain/story?id=14479419. September 9, 2011

  abcnews.go.com/US/hurricanes/hurricane-irene-flooding-cuts-off-towns-vermont-york/story?id=14402696. Aug. 29, 2011

• Virginia’s Surprise Earthquake – The most powerful earthquake to strike the East Coast in 67 years struck just to the northwest of Richmond, VA. It was felt all the way up and down the East Coast. Parts of the White House, Capitol and Pentagon were evacuated and frightened office workers spilled into the streets in New York.Source: www.cbsnews.com/stories/2011/08/23/national/main20096120.shtml. August 23, 2011
• Japan’s Earthquake – The 8.9-magnitude earthquake which struck Japan in March of 2011 dealt a devastating blow to the country’s people and its economy.  

  Source:  http://online.wsj.com/article/SB10001424053111904194604576581961887970624.html. September 20, 2011

• Surprise Northeast Snowstorm – A rare and deadly October snowstorm hit right at Halloween, giving an unexpected blast of winter before we’d even gotten through the first holiday of the fall. The storm was much more intense than expected, closing schools and leaving 2.2 million houses without power.Sources:  www.reuters.com/article/2011/10/31/uk-weather-northeast-idUSLNE79U02Y20111031. October 31, 2011

  www.usatoday.com/weather/storms/winter/story/2011-11-07/northeast-snowstorm-connecticut-power-outages/51109408/1. Nov 7, 2011

THE HOPEFUL 

• Opinions on Global Warming coming together – Richard Muller, a prominent champion of the “no such thing as global warming” movement, was so skeptical about global warming that he decided to investigate it vigorously. His conclusions? He had been wrong. Global warming is real. And the studies that said so previously were well run and quite good.Source: www.nytimes.com/2011/11/04/opinion/dr-mullers-findings-on-global-warming.html. November 4, 2011

THE JURY’S STILL OUT 

• An End To The Iraq War – the Iraq war is one of the longest, most divisive in U.S. history. President Obama said on October 21^st that it will be over at year’s end. This carries out a treaty George W. Bush had ratified.
• Occupy Wall Street Movement – The middle class is still reeling from the 2008 financial crisis and a sluggish job market. Persistent news of big Wall Street bonuses and perks brought to light just how inflated and unjustified Wall Street’s compensation system is in general.  Why did some of the very same people responsible for the collapse in 2008 still get big bonuses in the wake of the crisis?  Why are big banks still posting record profits while everyone else struggles?
• Laurence Fink, CEO of BlackRock (the world’s largest asset manager), said he understands the concerns of the protesters.  He said:
  “These are not lazy people sitting around looking for something to do.  We have people losing hope and they’re going into the street, whether it’s justified or not.”
  
• Bill Gross, founder of Pacific Investment Management Co. (PIMCO) stands behind the movement as well, commenting with: “Class warfare by the 99%? Of course, they’re fighting back after 30 years of being shot at.”
  
• Finally, Joseph Dear with CalPERS understands the protestors’ frustrations as well: “The financial system gets bailed out, executives’ salaries stay high and the incomes of people who work for a living, paycheck to paycheck, continue to decline.”

Sources:  http://www.cnn.com/2011/10/05/opinion/rushkoff-occupy-wall-street/index.html. October 5, 2011

http://www.thenation.com/article/163719/occupy-wall-street-faq. September 29, 2011

http://www.bloomberg.com/news/2011-10-04/wall-street-protests-have-tea-party-potential-professor-says.html. October 4, 2011

Our New Year’s wish for you is that this is your best year yet – and that each successive one, of which there will be many, gets even better.

Have a happy, healthy, peaceful, prosperous New Year,

-Sheila, Rich, Irv and Bryan 

The need for investment diversification is a familiar cornerstone concept for most investors with visions of long-term growth. Sometimes though, the familiar choices don’t line up well with what the stock market is doing (or has done recently).

Bonds, particularly over the past decade, have traditionally been a wise way to add diversity and some measure of stability to one’s portfolio. But, as Bob Dylan so famously sang, ‘the times they are a changing.’  Bond yields are at historic low levels. So it’s time to take a look at them to see if they are indeed as wise a buy as they used to be.

Unfortunately, we are now in an era where bonds are underperforming based on investors’ expectations. It doesn’t look like that will change any time soon.

The reasons why recent bond yields have dwindled are many and complex. The bottom line is that, with governments keeping bond yields artificially low, they are sneakily ‘restructuring’ their debt, ushering in a sort of ‘invisible taxation’ by reducing the possible return investors may see on their bonds.

The first point that must be investigated is why governments keep lowering interest rates on their debt in the first place. As we already know from the lengthy and deep Eurozone/European debt crisis, many of the developed economies of the world are buried by their overwhelming debt. Governments (including our own) can’t rein in spending, so they have tried to compensate by keeping interest rates on government debt artificially low, lessening the burdens of the debt, trying to make it disappear by means of inflation. Unfortunately, investors get the short end of this stick, seeing little to no return, or even losing money on bond purchases.

A quick investigation of 10-Year Treasury bond yields produces some interesting food for thought. Currently, a 10-year bond yield stands at around 2%, which is below the current 3.5% headline (consumer) inflation rate. Even if inflation over the next decade averages 2%, which is what the Federal Reserve thinks will happen, investors holding 2% bonds will see that they have earned a zero real rate of return. Consequently, if inflation happens to accelerate, the rate of return will be negative. They will lose money on their investments.

This isn’t the first time this has happened. After World War II, the U.S. debt-to-GDP ratio reached 122% in 1946. This was even higher than today’s ratio of about 100%. The government responded back then by keeping interest rates at the low wartime levels for several years, not allowing them to rise again until the 1950s.

In the late 1940’s, 10-Year Treasurys yielded 2.5%. Bond investors subsequently were dealt a huge blow when interest rates rose in the 1950’s. When the artificially low interest rates were allowed to rise, investors incurred capital losses overall. First, they received only nominal rates of return (2.5%) that were barely positive over the period. Next, real returns (after inflation) were significantly negative.

Unfortunately, it seems we are treading down the same path again.

While ‘past performance does not dictate future results’ (there’s that pesky little phrase again), it seems fairly certain that, unless some remarkable changes take place in the near future, bonds are going to be ‘watered down’ for some time to come.

Source:  The Bond Buyer’s Dilemma. WSJ.com. Burton G. Malkiel. December 7, 2011. 

For The Week Ended December 10, 2011

                   Summary Statistics

 The Russell 2000 (small caps) was up 1.4%, taking it to a negative 4.9% for the YTD.

Source: Briefing.com Weekly Wrap December 10, 2011

Overview 

• U.S. Trade Deficit Narrows
• Consumer Confidence Rises To Best Level Since June
• Jon Corzine Testifies in Washington
• E.U. Leaders Come Together Over Eurozone Crisis, But It’s Far From Over
• S&P Puts 15 Nations On Negative Credit Watch

If you were hard-pressed to find a good number of solid news items and statistics related to strictly domestic economic/market performance this week, you weren’t alone.  This is because, once again, Europe was at the forefront of our domestic economic news, and in investors’ minds as well.

Late in the week, Eurozone officials agreed to tighter fiscal controls and also to make funds available to the International Monetary Fund for use in the rapid deployment of the European Financial Stability Facility. This is in contrast to a previously discussed strategy of trying to establish changes to the eurozone treaty itself.

Given the dissent, dysfunction, and inaction that has plagued the eurozone in recent months, the summit was generally regarded as a step in the right direction.

Britain was the only nation which outright opposed the measures completely, with several other EU nations expressing support for the new plan.

For the week overall, domestic markets were less volatile than in recent weeks.  On Monday, stocks posted a solid gain after news that borrowing costs for Italian and Spanish debt had declined, indicating somewhat renewed confidence in those countries’ financial standing.  It was also learned that the ECB intends to inject one trillion euros for use in additional bond buying.  Tuesday’s trading was mainly flat, with little news published that held significant sway with investors.

Thursday and Friday saw the most significant activity in terms of trading for the week, once again influenced heavily by European news. Thursday’s session posted the biggest drop in two weeks, on the heels of news regarding the ECB rate cut and the bank’s less than stellar outlook for the future on the European economy.  Friday’s bounce helped to recover the losses seen on Thursday, however.

Sources:

Weekly Wrap Briefing.com – December 10, 2011.
Management Week In ReviewMFS Investment – December 10, 2011.

U.S. Economy

U.S. Trade Deficit Narrows.  News was released this week indicating that the U.S. trade deficit narrowed in October to its lowest level in 10 months, with the trade gap totaling $43.5 billion.

While the news is encouraging, it was also reported that both imports and exports declined into the 4^th quarter, showing a slight softening in domestic and overseas demand overall.

Source: Consumer Sentiment Up; Trade Gap Narrows. Reuters.com. December 9, 2011.

Consumer Confidence Rises.  As of mid-December, in the heart of the holiday shopping season, consumer sentiment has risen to its highest point since mid-June.  The Reuters/University of Michigan Consumer Sentiment Index      stood at 67.7, up from 64.1 in November.  The newest numbers released for December point to an index reading of 77.9, approaching sentiment levels not seen since the beginning of the summer.

Source: Consumer Sentiment Improves To Best Level Since June. WSJ.com. December 9, 2011.

Jon Corzine Testifies In Washington.  After being subpoenaed by the House Agricultural Committee (which oversees the regulatory body that monitored MF Global), Jon Corzine testified this past week about the collapse of his former brokerage firm.

Corzine maintained throughout his testimony that he never intended to direct or have segregated funds moved in a way inconsistent with regulations, and that he simply does not know where the missing $1.2 billion in client money is.

Corzine maintained throughout the proceedings that he was stunned to learn that the funds were missing and that the mood around MF Global was one of “chaos” as they scrambled to figure out what happened, shortly before the firm declared bankruptcy on October 31.  He has not been charged with any criminal wrongdoing at present.

Overall, Mr. Corzine’s language at his testimony was carefully measured, indicating an attempt at warding off possible claims, according to lawyers who had commented on the proceedings.

Source: Corzine’s ‘Intent’ At Hearing Was To Ward Off Possible Claims, Lawyers Say. Bloomberg.com. December 9, 2011.

Global Economy

EU Leaders Come Together Over Eurozone Crisis, But It’s Far From Over. Early on Friday, European Union leaders, at least most of them, shook hands and agreed to a new “fiscal compact” to help shore up their collective economies, in the interest of strengthening the euro and their union.  They also announced the formation of a few “stabilization tools” to repair the wobbly structure of the euro currency union.

While markets worldwide responded well to the news, most analysts are saying it is still another example of trying to put a band-aid on the situation to prevent a future crisis, rather than fixing what is already broken first.

The European Central Bank is seeing increased pressure to take action amidst these recent discussions, but the bank’s president, Mario Draghi, has stated repeatedly that the bank’s charter doesn’t allow it to directly finance the coffers of individual countries.

The bank is also shying away from making an unlimited commitment to buy euro area government bonds.

Investors have been pining for a financial “bazooka” to blast their debt woes into oblivion, but the ECB is the only institution with this type of firepower; firepower it seems very much unwilling (or unable) to use at present.

Source: Europe Debt Crisis Far From Over. CNN Money Online. December 9, 2011.

S&P Puts 15 Nations On Negative Credit Watch. On Monday of this past week, Standard & Poor’s put the long-term sovereign debt ratings of 15 eurozone nations – including Italy and Spain – on creditwatch negative.  This means that there is at least a 50% chance of a downgrade within 90 days.

This was the largest grouping of countries/entities that have been downgraded at one time in the history of S&P, according to a spokesperson from the agency.

S&P and its rival agency, Moody’s Investors Service, have both been criticized for being overly aggressive and broad-based with recent debt downgrades, including the downgrade of the U.S. from AAA to AA+ back in August.  The ratings firms have also faced scrutiny as the euro crisis has intensified and on Monday, some investors questioned S&P’s move.

Source: S&P Puts 15 Eurozone Nations On Watch For Downgrade.WSJ.com. December 6, 2011.

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 December 10, 2011 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 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.

Diversification does not assure an investor a profit nor does it protect against market loss