Things You Should Know:
We wrote back in April that the media was reminding everyone, on a daily basis, that the current state of the U.S economy is rather bleak. That’s still true. The news from the housing market and the banks is still negative. The skyrocketing cost of fuel is now hurting the automakers and the airlines. The “stimulus’ checks from the Federal Government are being spent at Walmart on food and gas, not at Macy’s. However, the economy was able to grow at a rate of less than 1% in the first quarter. Keep in mind that U.S. is now a service-based economy, which isn’t being hit as hard as the manufacturing sectors. Also, the fallen U.S. dollar is continuing to stimulate growth in exports.
We believe the stock market reached a low point this past March, when the Federal Reserve needed to persuade JP Morgan to buy the faltering brokerage firm Bear Stearns. However, both the stock and bond markets remain volatile. Rising food and gas prices have changed the comments being made by Federal Reserve members, from voicing concern regarding economic growth, to new concerns on rising inflation. The bond markets are now starting to expect the Federal Reserve to raise interest rates later this year, and rates have already risen by about 0.50%. Currently, when economic statistics warn of rising inflation, interest rates rise, bond prices fall, and the stock market tends to shrug off the news as a hint that economic growth will resume. When economic statistics, like the most recent employment report, remind investors that conditions are still rather weak, stocks fall, and bond prices rise. We’re sticking with our estimate that economic growth will be slow for the next 2 or 3 quarters. If oil prices remain this high, U.S. economic growth may turn negative. To hedge against this possibility, we have been lowering money market fund positions by investing in fixed income mutual funds and bonds.
Are we at the bottom of the housing market? Not until housing inventories start to decline. Currently, there is a twelve month supply, based upon current sales. On the positive side, housing affordability is at a three year high, but it’s now much more difficult to get a mortgage. We’re relieved, as we’re sure you are, that the Midwest did not experience the excess building that occurred in Florida, California, Arizona, and Nevada (these states represent 89% of the total increase in foreclosures).
We think that, as long as corporate earnings grow at single digit rates, outside of the financial services sector, international and domestic equities currently look like the best value of all the asset classes. We continue to dollar cost average into these markets, and rebalance your portfolios based upon your long term asset allocation.
D3 Financial Counselors LLC Update:
We’re in the process of updating the financial plans for our Comprehensive clients. The objective of a plan update is to remind clients what rate of return is required on their investments to achieve their retirement goals. It is also intended to inform clients how much risk they do not have to take with their investments. We believe that, if your investment returns, over the long term, exceed your required rate of return, then, theoretically, you can take less risk with your investments. We expect to have plan updates completed by June 30th.
During the middle of July, after we reconcile your June statements, we will start generating your semi-annual portfolio performance reports. Later in the month, we’ll start scheduling meetings to review your plan updates and the performance reports.
We just hired Adam Glassberg, a recent Financial Planning graduate from Eastern Illinois, as an intern. He’ll be helping us with special projects and honing his financial planning skills. The D3 team has now grown to 7 people.
Did you know that we also serve as investment consultants? Peter does bond market consulting for the family office of a multi-millionaire who sold his business. Don offers more general investment advice to an American Indian tribe in Wisconsin.
We’re including an article written about D3 from The Business Ledger newspaper, the leading business newspaper for suburban Chicago. We received the 2008 Annual Award for Business Excellence, in the small company category, in April.
Please share this newsletter with anyone that you think may need some help in “understanding the economic consequences of their financial decisions.”
As a reminder, we do work with people on an hourly basis and, as always,
THANK YOU for your business.
Donald D. Duncan MBA CPA/PFS CFA™ CFP® Nancy Lencioni & Becky Connery
Peter Marchese MBA CFA™ Michael Meyers MBA CFP®