InvestorsInsight Publishing

How to Make Family Wealth Last

Bob Carlson — Thu, 03 Jul 2008 14:09:00 GMT

In the financial and estate planning industry a current rage is The Ultimate Gift by Jim Stovall, a book that recently was made into a movie.

The novel is about a very wealthy man who realized that his wealth could not buy what really matters. Throughout his life, he attempted to make his loved ones happy by giving them money and buying whatever they wanted. Too late, he realized this was not good for the loved ones. He decides to salvage his unspoiled grandson by promising a fortune to the youth if he completes a series of assignments designed to teach him values and impart key insights.

The book's themes are ones we address regularly in Retirement Watch. Wealth is merely a means to one or more ends. Leaving loved ones wealth without ensuring they also have values and purpose is not satisfying to many people. This holiday weekend is a good time to address those themes.

To avoid the unhappy end the book, movie, and various spin off products recommend giving heirs assignments similar to those in the book. A better approach for many families is one practiced for many decades by very wealthy families that have passed both wealth and values through several generations.

The annual family meeting is an important tool for teaching both values and ways to manage wealth or a business. It should be considered by families of almost any level of wealth. The meetings build relationships and communications among family members, especially extended families. They also lay the foundation for making good decisions when important decisions need to be made. After establishing relationships, the most important goal of an annual family meeting is to discuss the family's values, legacy, and lifestyle.

The regular, planned family meeting is especially important among wealthy families in which a business or a pool of assets is managed for or by the family. Yet, other families can use the meeting to maximize communications among members and to perpetuate shared values.

An annual family meeting usually is held at a neutral location, such as at a resort or on a cruise ship. The agenda depends on the family but usually is a combination of business and investment meetings, education sessions, recreational activities, and social events. The meeting can last one to four days, depending on the size and wealth of the family and what needs to be accomplished.

The first decision is whether the meetings will be organized and led by an outside facilitator or whether members of the family will be the leaders. Some people believe that family members will be intimidated and refrain from giving opinions or asking questions if the facilitator is not independent. Others believe their family members can handle the task for most issues.

Before the meeting, all family members should be allowed to give input on the meeting agenda. An outside facilitator might talk with as many members as possible in advance, or a task force of family members could gather suggestions.

At the first family meeting a governance structure and mission statement should be created. The more the family depends on shared wealth, the more important these are. The structure will determine which decisions should be made by a small group and which should be addressed by the larger family. It also determines who has a voice. (Should in-laws be involved? At what age are children involved in decisions?)

It is important for a family to begin annual meetings and establish the structure before there are problems or difficult decisions need to be made. It can take a while to set up a decision making process, and even then several meetings might be needed to make decisions on important matters. In addition, if a difficult problem needs to be addressed, the problem and how some people want it resolved could influence the decision making structure they favor.

The education sessions depend on the family. Some sessions ensure that everyone understands the family's assets and how they currently are managed. Others might discuss the current succession plan or educate family members on how to manage their own finances or on other issues.

Facilitators generally recommend that only about one third of the meetings be devoted to finances. The rest should help build family relationships, values, and interest in the family as a unit. That is why it is important the members believe they have input into planning the meetings, so they will be interested in the sessions.

A final point is not to set expectations too high. It is unlikely that anything major will be decided at most meetings. The goal is to stimulate members to communicate during the year and be willing to attend future meetings. A good 10-point checklist of goals for the meetings and their aftermath is at www.the-williamsgroup.org/wealthtran.html.

Beware The Thin Markets...

Chuck Butler — Thu, 03 Jul 2008 13:08:00 GMT

.........But First, A Word From Our Sponsor..........

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- Over 30 new web pages dedicated to foreign economies and currencies, including tips and insights from Chuck Butler, President of EverBank World Markets
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This is another groundbreaking step from EverBank. And further proof why we're worlds apart from ordinary banks.

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In This Issue..

* ADP prints a huge downside surprise!
* Euros get past 1.58...
* A Perfect Storm?
* Gold continues its move higher!

And Now... Today's Pfennig!

Beware The Thin Markets...

Good day... And a Happy pseudo-Friday to one and all! It is actually Thursday of course, but it's our Friday, as tomorrow is the 4th of July holiday here in the U.S. I think a lot about the Declaration of Independence these days, as I feel there is a faction of people here in the U.S. that would like to tear up the constitution... So, as we come to the day we celebrate the signing of the Declaration of Independence let's stop and remember that it's WE THE PEOPLE that make a difference in this country, certainly not anything that comes out of Washington D.C.!

OK, I'm down from my soapbox... This could really be a Tub Thumpin' Thursday as it has the potential to really kick some rear and take names later. Here's what I'm talking about...

Front and Center, we're waiting for the European Central Bank (ECB) to announce their rate decision... ECB President, Trichet, all but hiked rates 3 weeks ago, when he told us that rates were going higher in the Eurozone, so, the markets are expecting 25 BPS this morning... As I said yesterday, what's really important here is for Trichet to continue to sound hawkish in the press conference following the rate hike.

On the U.S. side, today is a Jobs Jamboree day... The "experts" continue to believe there will be a 6th consecutive month of job losses in June... I agree... The ADP Jobs report that printed yesterday, had a huge downside surprise, which doesn't bode well for the Jobs Jamboree... A reader asked me yesterday what I thought about the ADP report, and here's what I said... In the past, the ADP data has had a far better track record of calling downside surprises than upside surprises in the official payrolls data. So what does that tell us about tomorrow's Jobs Jamboree? It tells me that the dollar bulls had better duck and cover!

Here's where I think the trouble for the dollar today resides... However, and this is just conspiracy talk... As I was driving in today, I got to thinking about how empty the roads were (they're usually pretty empty when I come to work, but today they were REALLY empty!) and that how a lot of people had probably taken the day off to get in a nice 4-day weekend... (how nice would that be!) If that's happening here in St. Louis, it's happening everywhere, including NY City... Could this lead to thin volume today?

Once the Londoners head to the local pubs, the U.S. market could become very thin... That makes it ripe for the pickin'... In other words, a Central Bank could step in and intervene today without repercussions in the markets for 3-days, which could stop the bleeding in the dollar... Or... What if... Trichet and Bernanke have it worked out that Trichet will talk dovish in the statement after the rate hike to stop what they know will be some major dollar bleeding?

That's all conspiracy talk there folks... But the market is so ripe for something like that to happen today... The negative posting of jobs, which is most likely a done deal, and an ECB rate hike on the same day in thin markets are like the Perfect Storm on the dollar... Or... Try this one on for size... How about tomorrow? Yes, tomorrow, as the U.S. feasts on barbequed ribs and ooohs and ahhhs while watching fireworks, the foreign Central Banks could step in... Or Trichet could say something tomorrow...

However, I just have to think it would be today, otherwise the cow is already out of the barn, with regard to further dollar weakness...

If we don't get any of that kind of talk / action today? Well... As I said above, the dollar bulls had better duck and cover!

They guys over at Citigroup Capital Markets think the euro may be nearing an "explosive breakout"... A reader sent me a note about a story he saw that highlighted the euro's possible rise to 1.69... Let's listen in to what Citigroup is saying... "We cannot help but feel that things might be about to get very bad again."

OK... Yesterday, I said that 1.58 seemed to be the euro's boogeyman right now... And almost as soon as I hit the "send button" the single unit jumped to 1.5835 and didn't look back... It's currently around 1.5880... The ADP jobs report yesterday that showed a loss of -79K when only -20K was expected, really got the markets thinking that the Jobs Jamboree would be disappointing, and that would keep the Fed on hold for rates again next month.

With the Big Dog (euro) off the porch and chasing the dollar down the street again, the little dogs, like Aussie, Swissie, Norway, and others were able to join the chase. Only Japanese yen was not allowed to join the chase.

The U.S. stocks markets really took one on the chin again yesterday... Here's what the Wall Street Journal had to say about it... " The Dow Jones Industrial Average and NASDAQ Composite Index closed in bear-market territory for the first time in the current market downturn after a late sell off seized markets. The drop was driven in part by a jump in oil prices, which settled at a new record of $143.57 a barrel on the New York Mercantile Exchange and pushed above $144 in late trading. General Motors shares briefly dipped below $10 for the first time since the Eisenhower administration."

U.S. stocks in bear market territory... U.S. bonds with paltry yields... Do you see any reason for foreign investors to flock to these assets? Capital flow into the U.S. has been teetering on collapsing for months now, if U.S. stocks continue this slide, you can expect Capital Flows to slide too... And that's not good news for the dollar...

Let me stop and explain this before I go on. You see, when a foreigner wants to buy U.S. stocks, he has to exchange his local currency for dollars to "settle" the transaction on the U.S. exchanges... So, if all these "exchanges" fade away, so does all the buying of dollars...

OK... Gold recovered from an early morning sell-off to post another positive gain yesterday. Oil posted higher prices, which helped Gold move higher. But the gate keeper here was the weaker dollar... All the stuff I talked about above regarding a Perfect Storm against the dollar, and higher Oil will all lead to a higher price in Gold...

Here's another arrow headed toward the dollar... The Fed is due to report the market value of the securities they purchased in the Bear Stearns bail out... This will be reported late this afternoon, probably after everyone has gone home... It will be a new line item, so it will be there for everyone to see... And I think it will be used as a proxy for the rest of the sub prime debt that still has to be market down by dealers... There's a manager for this debt (Blackrock) so the Fed can't cook the books or bring the Bureau of Labor Statistics (BLS) in to perform some of their magic on the valuations!

Speaking of the BLS... They could be the wild card today... Let's say the Jobs Jamboree is set to show a very disappointing job loss, but the BLS hangs a big figure on it from the Birth / Death model, thus making the report not look so disappointing... Now don't Tsk, Tsk... It could happen, it has happened, and it will happen again... The question is... Will it happen today? I don't know, but I would say the chance are, cause I wear a silly grin, the moment you come into view... No wait, chances are it could happen today, given all "Perfect Storm"

The Chinese renminbi continues to move slowly with its appreciation VS the dollar... The renminbi has been the kumquat of Asian currencies... But for heaven's sake, could it speed up the process?

Currencies today 7/3/08: A$ .9620, kiwi .7595, C$ .9850, euro 1.5895, sterling 1.9885, Swiss .9880, ISK 78.50, rand 7.83, krone 5.06, SEK 5.9465, forint 148.88, zloty 2.11, koruna 15.02, yen 106.25, baht 33.30, sing 1.3580, HKD 7.7980, INR 43.26, China 6.8510, pesos 10.39, BRL 1.6040, dollar index 72.14, Oil $145.35, Silver $18.33, and Gold... $943.35

That's it for today... This is long time colleague and friend, John Kaupisch's, last day today, as he retires. I wish him well in his retirement. Back to rain here in St. Louis... Sure hope it doesn't wash out holiday weekend plans, like it did for the Memorial Day weekend! UGH!

Every year when we get to the 4th of July, I think about my dad... What a patriot he was... Fought in WWII, and loved his country. But the 4th was special with him, you could always see it in his eyes... He loved the 4th! He also loved to set off fireworks! He used to tell me on pretty, Chamber of Commerce days... "Chuck, they don't have days like this in the Soviet Union"... I say that same thing to this very day and my kids look at me strangely...

So... Be careful this weekend... Don't drive fast, and take chances! I plan on going home and staying there until Sunday, when I take my family to the Cardinals / Cubs game... Have a great 4th! And take a moment to think about the men that signed that Declaration of Independence, they knew they were signing their death wish, but did it anyway... We The People... Remember that! And have a Tub Thumpin' Thursday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Not So Fine at $4.09

Vinny Catalano, CFA — Thu, 03 Jul 2008 12:45:00 GMT

“She’s real fine my 409” 409 Beach Boys

When the price of gas in the US hit $4.09 a gallon, the song that many consumers began singing was decidedly out of tune from the one the Beach Boys sang many decades ago.

Back in the day, 409 had a different, simpler meaning. Summertime, hot rods, muscle cars, and cheap gas. Today’s tune is, unfortunately, more about demand destruction than it is about how to pick up chicks.

Demand destruction is underway on several levels with high energy prices the central part of the scene. Deleveraging is also playing a major role in demand destruction via credit contraction. Then there is threat of greater regulation and more activist governments.

I have noted this more activist role several times before. And, while the US Congress is in recess this week, recent developments show the increased regulatory threat continues and is broadening. Take for example, the recent surprise announcements re CFDs.

Contracts for difference (CFDs) is a swap instrument that many hedge funds (and no doubt other institutional investors) use to establish positions without disclosing the true nature of the ownership. Within the past few days, however, certain rules changes have been instituted by the Financial Services Authority (FSA) that took most professional investors by surprise. Below are a few links re this story.

Investment Strategy Implications

The world economy is experiencing the dark side of both globalization and financial innovation.

Developing economies, mostly China via its policies of excess money creation and subsidies along with hot money flows, continue to provide the demand fodder for high commodities prices, most notably oil. Coupled with capital market flows by major institutional investors away from equities and into commodities (as an asset class), the unsustainably high price of oil will produce one of two high probability outcomes – stagflation (the lite version, most likely) in developed countries or a global recession.

The contraction of financial innovation is also underway as write downs and bail outs force business model changes for financial firms and the consequence of deleveraging produces a substantial cutback in credit creation.

Gas at $4.09 or higher is unsustainable to the world economy. Developed countries can attest to that. So will developing countries, many of whom are heavily dependent on exports to developed countries’ consumers.

The Bank for International Settlements is correct when it declared that the world economy is near a tipping point. For the equity markets, the relevant primary investment question might seem to be “Have the equity markets come to fully appreciate the danger?” In other words, have prices discounted the risks?

I would propose, however, the more relevant question to ask is “Do investors correctly see the complete picture?” In this regard, the answer is more likely no.

409 was in a simpler time. $4.09 is much more complex.

Enjoy the weekend and a happy fourth.

CFD related links: Article 1 Article 2 Article 3

Issue: 7/2/2008

Dave Dispennette — Thu, 03 Jul 2008 02:09:00 GMT

Growth Stocks

AKAM @ $33.80 (Akamai Technologies) provides content and application delivery, application performance and performance management services. Revenues have increased between 34% and 52% during the last four quarters. Earnings have increased between 42% and 52% during the same time frame and are expected to grow 29% this year and another 21% in 2009 to $2.05 a share. We are establishing a position here and will set our stop loss at $31.

This newsletter has been sent to you for informative purposes only and in no event should be construed as a representation by The Stock Playbook or its employees as an offer to sell or solicitation of an offer to buy any securities. The factual information given is taken from sources we believe to be reliable, but is not guaranteed as to its accuracy or completeness. The opinions expressed should be given only such weight as opinions warrant. employees and/or family members may have a position in the securities mentioned and may make purchase and/or sales of such securities from time to time in the open market or otherwise Recipients of The Stock Playbook prohibited from, directly or indirectly, distributing, forwarding , plagiarizing or copying any part of this message without expressed written consent from The Stock Playbook. Some content may have been based, at least in part, on material gathered from Investor's Business Daily ® and/or YAHOO!®

What's Up With The Loonie?

Chuck Butler — Wed, 02 Jul 2008 13:25:17 GMT

.........But First, A Word From Our Sponsor..........

......................................................

In This Issue..

* Euro trading pattern...
* Sterling backs off...
* Data cupboard gets restocked...
* Rupees disappoint...

And Now... Today's Pfennig!

What's Up With The Loonie?

Good day... And a Wonderful Wednesday to you! I hit all my traffic lights on green this morning, so it's going to be a "good day"! Funny how little things like that put a smile on my face...

OK... Another day of watching the euro rise up to 1.5815 and then see it get sold back below the 1.58 figure when the NY boys arrive at their desks. The pattern for the first two days this week has seen that selling in the morning, and then a slow rise in the afternoon, and then back over 1.58 in the overnight markets. That's where we are again this morning...

So, it seems that 1.58 is the boogeyman for the euro these days... That could all change tomorrow, as we will have the double whammy of the ECB rate hike and the Jobs Jamboree showing negative job creation for the 6th consecutive month. Yes, that's right, every month so far in 2008 has recorded negative jobs... OUCH! And people say we're not in a recession? They should know better than to spout off stuff like that when the empirical evidence is as plain as a man with a hatchet in his forehead!

The dollar bulls are laying low of this double whammy tomorrow, and they are playing that old TV game show and chanting... No Whammys, No Whammys! HA!

I've had quite a few readers send along a note asking me what's up with the loonie? Good question! One would think that with the price of Oil above $140, and Gold back to $900, the loonie would be soaring... But NOOOOOOO! The loonie seems to be stuck in the mud at 98-cents. I scratch my bald head on this one... I think that traders stepped away from the loonie when the Bank of Canada (BOC) was doing their Federal Reserve imitation, and cutting interest rates... Now that the rate cuts have ceased, traders are scared to get back into the loonie waters as they have tarred the loonie with the same brush as the dollar south of the border...

What will it take to get the loonie back on the radar screens of traders? Hmmmm... A rate hike by the BOC would do the trick! But... I think that the BOC has painted themselves into a corner, much like their brothers at the Fed... The corner isn't as tiny as the one the Fed Heads have painted themselves into, but it's a corner nevertheless! Inflation is rising in Canada, so maybe... Just maybe... The BOC will come to its senses, and come down from those fences, oh renegade, and hike rates to get the loonie out of the mud!

Yesterday, pound sterling was reliving some of the past touching $2 again... But that was short-lived as profit takers lined up to take a shot at getting $2 for their pound sterling. Then there was some news overnight that really sent the currency lower... Here's the skinny... U.K. house builder Taylor Wimpey failed to raise 500 million pound sterling that it was looking for from inventors, cancelled its first half dividend and announced the departure of its Finance Director. This brought the Housing meltdown back to front and center, and cancelled those hopes that the Bank of England would erase their rate cut a couple of months ago...

And the beat goes on... In Australia... Aussie Retail Sales posted a .7% gain in May... This report surprised many economists in its strength, but not me! I keep telling anyone that will listen that this Aussie economy is strong, and is buoyed by commodity prices... And of course the Chinese economic explosion. Looks like the A$ is knocking on the door to 96-cents again this morning on this report. It also looks like 96-cents seems to be the A$'s boogeyman, much like the euro's 1.58... But I believe these to be temporary stopping points.. Which would mean to anyone that pays attention to stuff like this, that dips below these levels would look like buying opportunities...

The Indian rupee is once again on the skids, falling to 43.17... This weakness in rupees has me worried about this currency. For the longest time, the Reserve Bank of India was selling the currency to keep it from getting too strong. The exporters were screaming bloody murder... And as I was telling a friend of mine at dinner last night... Once traders see that the Central Bank wants to sell its currency, they say, well... "they must know something we don't" and they go along with the sales... That's what's gone on here in India... I'm still a fan of the currency, but this selling has to stop soon!

The data cupboard in the U.S. is getting restocked with tomorrow's Jobs Jamboree, but before the re-stocking takes place, we'll see the last few crumbs of data represented by the ADP Employment report and Factory Orders for May... The ADP Employment report is usually used as a precursor to the Jobs Jamboree, and has, in the past, been a good indicator when jobs were being lost...

Factory Orders will probably keep the one piece of good data going as Oil refineries are included in this data... And we all know that Oil refineries are working overtime to keep up with demand... And to get paid those high bucks that are now available because of the price of gas!

Right now, the "experts" have forecast a loss of 60K jobs in June... I just don't think it will be that "kind"... I think the number will be very disappointing... Especially if the Bureau of Labor Statistics (BLS) doesn't get their hands in the cookie jar again!

For new readers, the BLS has a model they use called the Birth / Death model, that is used by them to guesstimate the number of new Businesses that have opened but not a part of their reporting yet... That's all fine and dandy, but in a slow / recession period like we're in now, they should be taking away jobs on the "death" part of their model... But instead, they add jobs every month... Jobs that most likely don't exist, and lead me to call them "ghost jobs"...

So... Every month, the jobs report is ready for prime time, but the BLS has to massage it with their Birth / Death model, and the final report, which is picked up by the media, and the markets, and affects asset prices... Isn't it sad that something that affects asset prices is merely a piece of data that isn't true? I think so... But... The markets get all lathered up about the report and everything comes to a stop before the report prints... Therefore I call it the "Jobs Jamboree"!

Gold had another good performance yesterday (it's down $7 overnight)... The geopolitical tensions between Israel and Iran get hotter than a firecracker! That and the fact that the negativity in the dollar is growing again, has Gold really bid above $900.

Currencies today 7/2/08: A$ .9590, kiwi .7570, C$ .9795, euro 1.5795, sterling 1.9870, Swiss .9785, ISK 78.85, rand 7.8275, krone 5.0950, SEK 5.9890, forint 149.30, zloty 2.1250, koruna 15.1275, yen 106.60, baht 33.41, sing 1.3620, HKD 7.7990, INR 43.17, China 6.8666, pesos 10.36, BRL 1.5980, dollar index 72.49, Oil $141.35, Silver $17.97, and Gold... $933.65

That's it for today... I have an Op-Ed piece on Forbes.com right now... It can be read / seen here: http://www.forbes.com/home_asia/2008/06/26/dollar-currency-euro-pf-ii-in_cb_0626soapbox_inl.html

Today is Drew McLean's 1-year birthday! Drew is the bouncing baby boy of Jennifer, who has sat at my right or left side on and off since 1995! She just celebrated her 8th year at EverBank! So Happy Birthday Drew!

My radio interview went well yesterday... I've been a guest on that radio show several times now, and each time they say ahead of time that the interview will be 5 minutes... But they always keep me on longer... I'd say that's a good thing! OK... Time to hit the send button... Hope your Wednesday is Wonderful! Wild, Wired, Wacky, but... Most of all... Wonderful!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Beyond the Sound Bite: An Interview with Alec Young

Vinny Catalano, CFA — Wed, 02 Jul 2008 10:53:00 GMT

My interview with the International Equity Strategist for Standard and Poors includes a tilt toward to US equities, the concept of a "home bias" in investing, and attractive and unattractive economic sectors.

The length of the interview is 11 minutes 32 seconds.

(Please visit the site to view this media)

To learn about "Sectors and Styles Strategy Report" newsletter and other subscriber benefits, click here.

To view this month's free sample "Sectors and Styles Strategy Report" sample, click here.

Election '08 - Supreme Court In The Balance

Gary D. Halbert — Tue, 01 Jul 2008 17:20:00 GMT

IN THIS ISSUE:

Presidential Candidates Finally Settled
Is The Supreme Court A “Litmus Test”? Yes!
The Current Make-up Of The Supreme Court
Supreme Court Justices Likely To Retire Soon
What Would McCain Do To The Supreme Court?
Why It Is Still Important For McCain To Win
Recent Landmark 5-4 Supreme Court Decisions
Court Gets It Right On Gun Control, Barely
McCain & Obama’s Reaction To The Gun Decision
A 5-4 Supreme Court Is Better Than 6-3 Or 7-2

Introduction

The next president will likely have the opportunity to nominate 2-3 Supreme Court justices, especially given the ages of the two oldest justices – John Paul Stevens and Ruth Bader Ginsburg. This week, we will discuss the current make-up of the Supreme Court and the deep divide among the liberal and conservative wings of the High Court.

We will also consider what kind of judges Senators McCain and Obama would likely nominate if they are president for the next four years. We will also look at some of the recent landmark decisions from the Supreme Court, and how the votes of Justice Anthony Kennedy are often critical.

I last wrote about the Supreme Court in October 2004, just before the presidential election with President Bush and Senator John Kerry. In that E-Letter, I suggested that some landmark decisions would likely occur during the following four years, and some of those key cases have been decided in the last month alone.

I stressed the importance of having conservative judges on the Supreme Court. It is just as important today, especially with Barack Obama being one of the most liberal Senators in history. So, this suggests we take another lose look at the Supreme Court in light of the upcoming presidential election.

Presidential Candidates Finally Settled

Following the end of the Democratic primaries, our presidential rivals are John McCain and Barack Obama, and not surprisingly Obama has proven to be the early frontrunner in the polls. Obama’s popularity among younger voters ages 18-30 will mean that millions of Americans who have never, or rarely, cast their votes will do so on November 4 for the Illinois freshman Senator.

John McCain, on the other hand, has multiple challenges to deal with if he is to have a chance to become president. McCain, age 72, is a career politician and a self-described “maverick,” meaning that he has not always voted with conservatives on key issues. Yet Obama has skillfully characterized McCain as a “third term for George W. Bush,” and President Bush is one of the most unpopular presidents of the last century.

McCain faces two difficult challenges if he is to have any chance of defeating Obama in November. First, he must somehow solidify the Republican base and get conservative voters behind him, which will be a daunting challenge. Second, McCain must somehow reach out to Democrat moderates and convince them that he is a viable alternative to Obama.

As for solidifying the Republican base, McCain faces several problems. Many conservatives may not be able to bring themselves to vote for McCain given his history of taking positions they disdain. As a result, McCain has been tracking to the right on certain issues, including reversing some of his previous positions, in an effort to solidify the GOP base.

At the same time, McCain is moving to the center-left on certain other issues in the hopes of enlightening many Hillary supporters who are having trouble getting onboard the Obama bandwagon. McCain’s centerpiece for attracting these voters is his position on the environment and global warming.

So, as you can see, McCain faces an uphill battle on several fronts, trying on the one hand to convince conservatives that he is their man, while at the same time trying to woo moderate Democrats. Obama, on the other hand, seems to have the wind at his back.

McCain’s greatest worry is that many conservatives are so disgusted that they may choose to simply sit this election out and not vote at all. Some conservatives don’t realize that a decision not to vote is, in effect, a vote for Senator Obama. Even worse, some conservatives are so upset that they have decided that the best course is to actually hold their noses and vote for Obama in November to ‘teach the Republicans a lesson.’

For conservatives who may be considering not voting at all, or voting for Obama to send a message of disgust to the GOP, I would strongly suggest that we focus our sights on the Supreme Court, and the strong likelihood that the next president will get to select at least two Supreme Court justices.

Maybe this will help get some priorities in order. Let’s start with the current make-up of the Supreme Court to see which justices are likely to retire (or die) in the next four years. Next, we will look at the latest razor-thin 5-4 Supreme Court landmark decisions which could have gone either way. And finally, let’s consider whether, in reality, it makes much difference who is in the White House for the next four years, in terms of the Supreme Court. I will argue that it does matter, and that should help clarify who conservatives should vote for in November. Let’s get started.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc. are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Is The Supreme Court A “Litmus Test”? Yes!

If you are a conservative, there are many things to fear about Barack Obama. He is arguably the most liberal Senator on Capitol Hill. He definitely will raise taxes; he plans to nationalize health care; he will pull our troops out of Iraq; he is soft on the military and national defense; he has no foreign policy experience; and he has ties to some very questionable characters.

If you are a liberal/moderate, there are things to fear about John McCain (although I would argue not as many as Obama, since McCain has a history of voting with the libs on certain issues). After opposing the Bush tax cuts, McCain now says he would push to make them permanent; McCain is strong on the military and is for winning the war in Iraq; McCain’s foreign policy would be more like President Bush’s, presumably; and McCain has consistently been anti-abortion.

There are plenty of reasons not to like either of these presidential candidates, regardless of your political persuasion – if both sides are intellectually honest. Obama is too liberal for some moderates, and McCain is too moderate for some conservatives.

If you are having a hard time deciding who to vote for, or whether to vote at all, might then the debate boil ultimately down to what type of judges each would appoint to the Supreme Court?

This question is certainly not a ‘litmus test’ for me, as there is no way I could vote for Obama, but perhaps it will be of help to those of you who are having trouble deciding.

The Current Makeup Of The Supreme Court

The US Supreme Court today consists of the Chief Justice and eight Associate Justices. They are currently as follows, with a brief description (listing the conservatives first):

John Roberts, Chief Justice – age 53, appointed by George W. Bush in 2005 and is generally considered to be a conservative.

Antonin Scalia, Associate Justice – age 72, appointed by Ronald Reagan in 1986 and is staunchly on the conservative side.

Clarence Thomas, Associate Justice – age 60, appointed by George H. W. Bush in 1991 and is consistently on the conservative side.

Samuel Alito, Associate Justice – age 58, appointed by George W. Bush in 2006 and is consistently on the conservative side.

The following four justices tend to rule on the liberal side of most issues.

John Paul Stevens, Associate Justice – age 88, appointed by Gerald Ford in 1975, initially thought to be a conservative, but was a moderate at best in his early years on the court and then swerved decidedly to the liberal side.

David Souter, Associate Justice – age 68, appointed by George H. W. Bush in 1990, a moderate and disappointment to conservatives, who has consistently voted on the liberal side.

Ruth Bader Ginsburg, Associate Justice – age 75, appointed by Bill Clinton in 1993, a liberal ideologue from the get-go.

Steven Breyer, Associate Justice – age 69, appointed by Bill Clinton in 1994, another liberal as we might expect coming from Clinton.

And the last Associate Justice is the usual “swing voter” on the High Court.

Anthony Kennedy, Associate Justice – age 71, appointed by Ronald Reagan in 1988, who was thought to be mildly conservative at the time, but most often leans to the liberal side as time has gone on.

So in the current Supreme Court we have four generally conservative judges - Roberts, Scalia, Thomas and Alito; four consistently liberal judges – Stevens, Souter, Ginsburg and Breyer; and one sometimes swing voter – Anthony Kennedy (often more on the liberal side).

Casual readers might tend to think it is a good idea to have the High Court so well balanced. Admittedly, there are arguments to support such a position. But as a conservative, I would argue to the contrary. I will explain more as we go along.

Supreme Court Justices Likely To Retire Soon

Supreme Court justices tend to keep their retirement thoughts and plans to themselves, so there is no way to know with certainty if any of the current justices are likely to retire over the next four years. However, it has long been believed that the justices prefer to retire when the sitting president is someone who shares their political ideology, and who is likely to appoint a like-minded replacement.

Should Barack Obama become president, it is widely believed that the two most likely justices to retire will be John Paul Stevens and Ruth Bader Ginsburg.

As noted above, Justice Stevens is now 88 years old, so it would come as no surprise if he chooses to retire next year (or certainly in the next four years) if Obama is president. Interestingly, Justice Stevens was thought to be a conservative judge when Richard Nixon appointed him to the 7th Circuit Court of Appeals in 1970, and when Gerald Ford appointed him to the Supreme Court in 1975. Yet Justice Stevens was at best a moderate on the High Court in his early years, and soon shifted to the liberal side on most issues.

Some believe that Justice Stevens is ready to retire but is waiting until President Bush is gone and someone more to the moderate/liberal side is in the White House.

The next most likely justice to retire is thought to be Ruth Bader Ginsburg, who is now 75 years old. Justice Ginsburg was diagnosed with colo-rectal cancer in 1999 and underwent surgery followed by chemotherapy and radiation treatments. While the surgery and treatments were deemed to be successful, it is unclear how long she wishes to remain on the High Court. Justice Ginsburg is widely considered to be the most liberal justice on the Court, and like Justice Stevens, she may simply be waiting until someone more liberal is in the White House.

Judging by age alone, the next most likely justices to retire over the next few years are Antonin Scalia (72) and Anthony Kennedy (71). There are those who believe that the make-up of the High Court won’t change much if Justices Stevens and Ginsburg retire (or die) during an Obama presidency, and I might agree. Obama would simply appoint two equally liberal judges.

However, if either Justice Scalia or Justice Kennedy should retire, Obama would have the opportunity to dramatically shift the balance on the High Court to the liberal side. Justice Scalia is widely considered to be the most conservative judge in the Supreme Court. If Justice Kennedy, who is considered the swing vote, is replaced with another liberal ideologue, that too would represent a significant shift on the Court.

What Would McCain Do To The Supreme Court?

Obviously, for McCain to have any significant impact on the Supreme Court, he must be elected president, which is not looking very likely at the moment. But let’s assume he wins. In order to assess his chances of changing the Supreme Court, we must first look at the Congressional landscape that is likely to be in place starting in January 2009.

Based on current polling data, the House of Representatives is likely to shift dramatically in favor of the Democrats in this year’s elections. Estimates vary, but it is expected that the Democrats will gain 12-20 seats in the House in November. If so, that will put the House make-up at something like 256 Democrats to 179 Republicans. That will be a huge shift in an already Democrat-controlled House of Representatives.

Of course, it is the Senate that approves and confirms Supreme Court nominees. There, too, the numbers don’t look good for conservatives. Based on current polling data, the Democrats are likely to gain 12-14 seats in the Senate. In that case, the Senate make-up would be something like 63 Democrats to 35 Republicans (and two Independents) starting in 2009.

Given that the Democrats will have such overpowering control of the Senate starting next year, it is unlikely that John McCain will be allowed to get any truly conservative judges on the High Court. At best, McCain might get a moderate or two on the Supreme Court.

It is not clear in the first place what kind of judges that McCain would nominate if he were president. Most would agree that McCain is not a true conservative along the lines of Ronald Reagan, so we don’t know what he would naturally want to do with regard to High Court selections. But that doesn’t matter much. In light of the Senate make-up next year, McCain won’t have many choices if he wished to get his nominees confirmed.

And it likely gets even worse. Let’s say that Justices Stevens and Ginsburg do decide to retire, even if McCain is president. With a 60+ vote control of the Senate, I can almost guarantee you that the liberals are going to demand that any liberal justices who retire must be replaced by a judge with a similar ideology. Of course, that won’t be the standard if a conservative justice retires or passes away. This is sad.

Why It Is Still Important For McCain To Win

As discussed in the Introduction, there are many reasons why conservatives should fear an Obama presidency, but none more important than the future of the Supreme Court. Given the huge shift toward the Democrats in the Senate, Obama will have carte-blanch to nominate the most liberal judges to the High Court.

Again, one might argue that if only liberal Justices Stevens and Ginsburg retire in the next few years, how much damage could Obama do? Yet there is no guarantee that only Stevens and Ginsburg will retire in the next few years. Scalia and/or Kennedy could retire or become ill or die and thus their seats would be on the table. Likewise, none of the Supreme Court justices are immune from accidents or illnesses that could incapacitate them.

Thus, I believe it is quite naïve to believe that Obama won’t be able to significantly upset the balance in the Supreme Court. And then there’s an even more chilling thought: What if Obama wins a second term as president and is in the White House until the end of 2016? In that scenario, Obama might well have the chance to nominate 4-5 Supreme Court judges!

Even if McCain is hamstrung by the liberal Senate, we would be far better off, in my opinion, with his choices for the High Court – even if they are not as conservative as we would like – than those that Obama is sure to nominate and get confirmed easily.

Recent Landmark 5-4 Supreme Court Decisions

As discussed above, the current Supreme Court often comes down to a 5-4 vote, with Justice Kennedy tipping the decisions one way or the other. In just the last month, we have seen two landmark Supreme Court decisions which are most instructive.

In a stinging rebuke to President Bush’s anti-terror policies, a deeply divided Supreme Court ruled on June 12 that foreign detainees held for years at GuantanamoBay in Cuba have the right to appeal to US civilian courts to challenge their indefinite imprisonment without charges.

Justice Anthony Kennedy was, once again, the deciding vote in the 5-4 landmark decision. Kennedy, in writing for the 5-4 High Court majority, acknowledged the terrorism threat the US faces, and the Bush administration’s justification for the detentions, but he opined: “The laws and Constitution are designed to survive, and remain in force, in extraordinary times.”

Conservatives were outraged that the Supreme Court would essentially open up the US court system to alleged terrorists and known enemy combatants – who are NOT US citizens! Imagine the message this decision sends to terrorists around the world. Justice Kennedy was roundly criticized for his swing vote.

President Bush said he strongly disagreed with the decision - the third time the court has repudiated him on the detainees - and suggested he might seek yet another law to keep terror suspects locked up at the prison camp, even as his presidency winds down. But this is not very likely. The Supreme Court is the final arbiter and cannot be over-ruled by the president.

Then on June 25, the Supreme Court made another bone-head decision in my opinion and that of most conservatives. Last Wednesday, in yet another 5-4 decision, the Court outlawed executions for child rapists. The State of Louisiana had sentenced Patrick Kennedy to die for brutally raping his 8-year-old step-daughter. (One expert in pediatric forensic medicine said the victim’s injuries were the most severe he had ever seen from a sexual assault. They even required emergency surgery.)

Once again, Justice Kennedy joined the liberals on the Court who ruled that despite the brutality of the crime, the death sentence violated the Eighth Amendment ban against “cruel and unusual punishment.” In its ruling, the Court suggested its decision reflected “evolving standards of decency that mark the progress of a maturing society.”

Give me a break!! In terms of naked judicial activism, one can cite few better examples than this one. How could any judge advocate leniency for a child rapist and spin it as both “decent” and “mature?” FYI, this decision was criticized by both Senator McCain and Senator Obama.

Justice Alito, noting the sweeping impact of the Court’s decision, wrote in his dissent: “The Court today holds that the Eighth Amendment categorically prohibits the imposition of the death penalty for the crime of raping a child. This is so, according to the Court, no matter how young the child, no matter how many times the child is raped, no matter how many children the perpetrator rapes, no matter how sadistic the crime, no matter how much physical or psychological trauma is inflicted, and no matter how heinous the perpetrator's prior criminal record may be.”

Before the ruling, six states allowed the death penalty for convicted child rapists. Now there are none. You can thank the liberal activists on the Court, and Justice Kennedy, for that.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc. are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Court Gets It Right On Gun Control, Barely

While conservatives were outraged by the Supreme Court decision on the detainees and child rapists, there are also times when Supreme Court decisions outrage liberals as well. Such a landmark decision was handed down by the High Court just last week.

On June 26, the Supreme Court ruled 5-4 in favor of gun rights. Thursday’s ruling by the High Court declared that the Second Amendment to the US Constitution provides an individual right to gun ownership. Once again, it was Justice Kennedy who delivered the deciding swing vote, this time ruling on the conservative side.

The Second Amendment, part of the Bill of the Rights, reads: “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms shall not be infringed.”

The District of Columbia passed a law in 1976 effectively banning handgun ownership in city limits. Dick Heller, an armed security guard and D.C. resident, challenged the law after his handgun application was rejected. An appellate court sided with Heller, ruling that the D.C. ban on handguns was not compatible with the Second Amendment.

The issue for the Supreme Court was simply this: Does an individual U.S. citizen have a right to own a gun, or is this right only somehow linked to membership in a state militia. That issue has been settled, albeit with a dangerously slim margin.

The majority opinion in the case District of Columbia v. Heller was written by Justice Antonin Scalia, joined in by the other three most conservative justices, along with Justice Kennedy in this case. The four more liberal justices endorsed two dissents, one written by John Paul Stevens, and the other by Stephen Breyer.

This decision outraged liberals and even many moderates. Opponents argue that the right to keep and bear arms was only intended to pertain to “militias,” that the days of militias are long gone, and that the Court was vehemently wrong in its decision.

For the record, I happen to staunchly agree with the decision and must admit that Justice Kennedy’s vote surprised me, pleasantly I might add.

McCain & Obama’s Reaction To The Gun Decision

John McCain immediately praised the Supreme Court’s decision which invalidated a District of Columbia ban on handguns. The Republican presidential nominee heralded the justices’ action as “a landmark victory for Second Amendment freedom.”

Voicing a stance that could help him with both conservatives and libertarians, McCain said, “This ruling does not mark the end of our struggle against those who seek to limit the rights of law-abiding citizens. We must always remain vigilant in defense of our freedoms.”

Barack Obama, on the other hand, did another flip-flop. Obama has long advocated that local governments should be able to regulate guns (read: “gun control”). Yet in his official statement on the Supreme Court’s decision, Obama said that he “favors an individual’s right to bear arms,” but also believes the government should have the right to regulate them. Say what?

Obama issued a carefully worded statement apparently aimed at both moderate voters and his liberal base. The statement did not specifically say whether Obama agreed with overturning the specific D.C. gun ban. But he said Thursday’s ruling “will provide much-needed guidance to local jurisdictions across the country.” What is that supposed to mean? Nothing, actually.

A 5-4 Supreme Court Is Better Than 6-3 Or 7-2

In the span of just two weeks, the current Supreme Court has outraged both conservatives and liberals, with Justice Kennedy earning the ire, and praise, of both camps. Both conservatives and liberals railed against the current make-up of the High Court and the fact that landmark decisions often come down to nothing more than Justice Kennedy’s position on the issue.

While I am definitely among those conservatives that were outraged over the detainee rights decision, I would much prefer the current make-up of the Court to that which I believe we will see if Barack Obama becomes president. Perhaps the Supreme Court make-up won’t change significantly if Obama only gets to replace Justices Stevens and Ginsburg with two more liberal judges. However, if Obama gets more opportunities, the High Court could easily shift to a lop-sided 6-3 or 7-2 liberal bias, especially if any of the more conservative justices, or even Justice Kennedy, retire, fall ill, die or otherwise become incapacitated.

In closing, if you are undecided about who to vote for in the presidential election, I suggest that you focus on the implications for the Supreme Court, if nothing else. John McCain was not my choice for the GOP nominee. I don’t agree with him on several important issues. But when I consider the implications for the Supreme Court, John McCain will get my vote in November.

Please let me know if this week’s article has been helpful for you.

All the best,

Gary D. Halbert

SPECIAL ARTICLES

Obama's (& the Democrats') Dry Hole (Must Read)
http://online.wsj.com/article/SB121478199392114387.html?mod=opinion_main_review_and_outlooks

Where does Obama really stand on gun control? (Very interesting)
http://www.realclearpolitics.com/articles/2008/06/scalia_saves_obama.html

Recent Court rulings spotlight election's 'supreme' stakes.
http://www.boston.com/news/nation/articles/2008/06/27/recent_rulings_spotlight_elections_supreme_stakes/

New York Times Perspective On Justice Kennedy (Good, but I don't totally agree)
http://www.nytimes.com/2008/06/29/washington/29scotus.html?_r=2&hp=&adxnnl=1&oref=slogin&adxnnlx=1214741769-RlZ9jRqY23h6QoFs2FcZ+w&oref=slogin

Profit Taking Dominates The Day...

Chuck Butler — Tue, 01 Jul 2008 13:12:00 GMT

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In This Issue..

* Dollar faces Dynamic Duo this week...
* RBA leaves rates unchanged...
* Comparing decades...
* Tankan is somewhat positive...

And Now... Today's Pfennig!

Profit Taking Dominates The Day...

Good day... And a Terrific Tuesday to you! In keeping with Pfennig tradition, I begin each July with words from one of my fave bands of the 70's, Uriah Heep... There I was on a July morning... (I could go on, but you get the point.)

Well, the profit taking that I talked about yesterday morning, continued for most of the morning yesterday, causing the euro to fall from the 1.5810 level I saw when I turned on the screens, to the low 1.57 area. It had to be profit taking because why would anyone buy dollars VS euros as a long time investment, with the dynamic duo of the Jobs Jamboree and an ECB rate decision staring the dollar bulls right in the face this week...

The single unit has pushed back higher overnight to 1.5775, as I look at the currency screens... The European Central Bank (ECB) meets on Thursday this week, and although most of the markets' participants, in the U.S., will be dreaming of barbequed ribs, and fireworks, they will stop to see the ECB raise rates. But the most important part will be ECB President Trichet's press conference following the rate hike... It will be important for Trichet to remain hawkish or else the rate hike will be quickly swallowed up by the profit takers, which means the euro won't get much love from the higher rates.

Trichet received an arrow for his rate hike quiver this morning as German unemployment for June, fell to a 16-year low... This tells me, and should tell you, the barber, and the guy down on the corner selling bakery pretzels that Germany is resisting the global slowdown so far... Germany is the Eurozone's largest economy, so this report carries a lot of weight with the Trichet and the other ECB ministers. Annual growth in Germany remains above that in the U.S. and the employment picture is healthier than that of the U.S.

I just saw a new story flash across the screen that sent shivers down my spine... It said, "Israel is ready to strike Iran"... Please, someone tell me that I was dreaming, having a nightmare...

OK... That ought to get Oil prices moving higher again. Double UGH!

There's been a ton of talk, finally, about inflation... I've been banging the drum for some time about the rising inflation pressures here in the U.S. Now, we have people writing about inflation not being a problem any longer... What? Inflation is nefarious, there's just no two ways about it! Inflation is an errant sheep-biting dewberry! So...let's not lose focus on inflation folks...

My friend, David Galland, recently printed a link of Shakespearean insults... As you can tell I used one above! It is comical! And if you're looking for a way to insult someone and have them scratch their head... http://www.pangloss.com/seidel/Shaker/index.html?

OK... Just in the past 30 minutes the euro has broken higher to 1.58 again... Let's hope the NY Boys, took their all of their profits yesterday, and will leave this rally alone! The euro could revisit its previous high of 1.60 again, but I just can't see it going higher than that, unless all hell breaks loose in the U.S. economy... Then... Who knows how high it can go?

Eli Broad, the Billionaire investor, says that the "U.S. economy is in the worst period of his adult life and that a housing market recovery remains several years away."

I agree... The 70's were pretty rotten in my memory, except for the music, (pre-disco), even the clothes were pretty bad... But at least as a country we were still a creditor nation, and we as individuals were "savers"... The money & credit creation machines hadn't even been thought of yet! We were fighting a war... Same as now... Inflation was everywhere... Same as now... There are lots of similarities to that rotten decade, with the Deficit problem and credit problem sticking out like sore thumb as differences.

Japan's Tankan report, which measures the pulse of the economy, slipped further in the last quarter, but fell less than expected. That's a good thing for yen... And there was some data in the Tankan that indicated the Japanese economy is doing better than the U.S. I doubt this does anything to move the Bank of Japan to move rates higher though... So... In the end... It's a wash as far as rate expectations.

But, as I said, it's a good thing for the yen... And once again today, it is trading with a 105 handle... When the profit taking began yesterday, yen was the first to slip... Which shows me that its not on terra firma one iota!

Yesterday, the Chicago PMI (manufacturing index) surprised on the upside, but was offset by a weaker Milwaukee performance. Today, we'll see the ISM, national pulse of manufacturing, which should remain below the line in the sand, 50 number. Below 50 indicates contraction... And that's where manufacturing has been for months now, which is what initially led me to believe we were in a recession, even though most economists still don't consider this to be a recession... I still say that when the dust settles and all the cards have been played, the National Board of Economic Research (NBER), the people that decide when we WERE in a recession, will confirm my claims... That's the sad part of the deal though... The NBER tells us about recessions after we've experienced them! Great! That's sort of like having someone tell you that you have a hatchet in your forehead... No duh!

The Reserve Bank of Australia (RBA) met last night, and left rates unchanged, as most thought they would for now, but did cast a shadow over the A$, when they said that the 17-year economic expansion was showing signs of slowing... Yeah, you think having rates at these high levels for so long has any thing to do with that, RBA? No biggie, as far as I'm concerned though... Australia gets its economic que from China and the rest of Asia... And as long as China continues to post huge economic gains, the Aussie economy will continue to post strong numbers as well. Those strong numbers will keep interest rates high, and the A$ pointed in the right direction.

Did you see that Brazil announced yesterday that they thought they could double their Oil output after discovering a new reserve? I've said it before, and I'll say it again... Brazil seems to have it all going on right now... We've seen this type of hype over a country and its economy, etc. before... So, I'll temper my statements... But, if you're looking for something that has yield, and feels like a party is going on all the time... That's Brazil... If that scares you... Then stay away!

Pound sterling hit $2 overnight! This is amazing to me! This currency was all but left for dead, after the Bank of England (BOE) said they were beginning a rate cut cycle, and then made the first cut... But things change, and inflation raised its ugly, errant sheep-biting dewberry head, and suddenly the rate cuts were put on hold... Now, the talk is that the BOE might have to come back and reverse that rate cut... And voila! We have pound sterling back to $2! Who would've thunk it?

Yesterday... I mentioned that the tax stimulus checks would be taxed next year... And I was wrong... I was not a recipient of a check, or the letter from the IRS that accompanied the check that explained the non-taxation status... So I apologize for that error...

And more bad news for the U.S. economy. Yesterday, Chrysler announced that they were going to shut down the mini-van plant in my little river town... That's a ton of jobs that will be gone... Speaking of my little river town... Years ago, I was an elected official of that town... And I fought for diversification of our revenues, which at the time was dominated by the Chrysler plant... My town is now ready for this loss of revenue, not that it will like it! But diversification! See... It's the key not only in your investment portfolio, but with city revenues!

OK... Time to get moving toward the Big Finish... I'm listening to the radio and there's an ad that says... "This book will show you how SAVERS ARE LOSERS"... What? OMG! When will all this stuff stop? That add was followed by a guy telling people that even people with "less the good credit" can get a mortgage loan... I thought that had all stopped?

Currencies today 7/1/08: A$ .9570, kiwi .7615, C$ .9855, euro 1.58, sterling 1.9975, Swiss .9850, ISK 79.63, rand 7.90, krone 5.0625, SEK 5.9830, forint 149.15, zloty 2.1275, koruna 15.11, yen 105.35, baht 33.49, sing 1.3590, HKD 7.7980, INR 43.29, China 6.8562, pesos 10.33, BRL 1.6025, dollar index 72.18, Oil $142.40, Silver $17.54, and Gold... $930.72

That's it for today... Don't forget all you Rocky Mountain people, I'll be on the KRCN Denver radio show at 8:20 CT this morning. It's only 5 minutes, but I'll try my best to get all my biggest points across... Let's see, Fed bashing, Fed bashing and Fed bashing... That should do it! HA! I got home late yesterday afternoon, sat down in my recliner, fell asleep and didn't wake up till it was bed time! I guess the meds are kicking in now... Oh boy! Can't wait for the Olympics this year... I really enjoy those competitions. I hear that China is trying to remove the smog before the Olympics begin, by only letting people drive their cars on alternate days... Oh well... The organizers should have thought of that before they picked China! So... Welcome to July! I hope you have a Terrific Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Not That 70s Show

Vinny Catalano, CFA — Tue, 01 Jul 2008 10:08:00 GMT

commentary from this week’s “Sectors and Styles Strategy Report”*:

There has begun to be a fair amount of talk re stagflation and its consequences, both economic and equity valuation. Should the experience in the coming years resemble the stagflationary era of the 1970s, then P/E levels are more than justified to crumble to single digit levels, as they did then.

Dismissing the stagflation threat entirely would be a mistake. Yet, buying into the idea that a 1970s style stagflation environment is in the current economic cards appears to be equally suspect as the world economy are clearly changed considerably since then. There is, however, a stagflationary scenario that does bear serious consideration – stagflation lite.

In a stagflation lite environment, growth stalls like it did in the 1970s but inflation rises at a much more modest degree. In such an environment, the economic impact is obviously more muted, this thanks to a more globalized climate.

From a valuation perspective, P/Es, for example, would be lower than they would be in otherwise less stressed times. But not quite to the degree that they were in the 70s.

Investment Strategy Implications

The broad market investment implications of any version of stagflation are rather straightforward – lower valuation levels. Any time quality of earnings is affected, valuation levels must go down.

In a stagflation lite environment, an investor could kiss the current reasonable S&P 500 P/E level of 19 – 20 times (with the 10 year US Treasury at Approx. 4%) goodbye. Nor would its historical level of 15 times hold. However, only a stagflation period comparable to the 1970s would produce single digit P/E levels as it did then. Hence the higher P/E probability in a stagflation lite world would be somewhere around 12 times earnings.

If that were the case, then an $82 operating earnings (S&P 500) forecast would put the fair value target for the S&P 500 at 984, a full 23% below current levels. Interestingly, 984 brings the S&P 500 down 36% from its high of 1550. In the process, the drop of 554 points from the high achieved in October 2007 would match against the 770 point increase from the low reached in October 2002 (to the high of October 2007) and, therefore, would produce a decline of approximately 75% (from peak to trough). Such a drop would result in a slightly greater than your standard major bull market correction of 2/3s.

Be it stagflation or stagflation lite, it does appear to be touch premature to make such a call. Nevertheless, the market may be taking some of this thinking into consideration, and so should we. More on this prospect in the coming weeks.

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Issue: 6/30/2008

Dave Dispennette — Tue, 01 Jul 2008 01:55:00 GMT

Options

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