Forecasts & Trends

A new report released earlier this month found that the global slump in property and equity markets last year cut the number of millionaires worldwide by 15% to 8.6 million, wiping out two years of increases in wealth. The value of the world's millionaires' assets fell 20% in 2008 to $32.8 trillion, after a 9.4% increase in 2007, according to the latest report. The study also found that the super-millionaires ($30 million and up) got hit even harder than the mere millionaires, which is even more interesting. Even if you are not a millionaire, there is a lot to be learned from this annual report from reputable sources....

Based on the Obama administration's own spending forecasts, the US national debt is projected to double over the next 10 years. Currently at over $11.4 trillion, the national debt is projected to balloon to at least $22.5 trillion over the next 10 years, according to the non-partisan Congressional Budget Office. The CBO now forecasts the fiscal 2009 budget deficit at a record $1.845 trillion alone, with another deficit of $1.4 trillion in fiscal 2010. If our national debt in fact doubles in the next 10 years (and it could more than double), this will be bad news for the US dollar and interest rates, which in turn is bad news for stocks. As you might expect, the liberal media is not talking about these new debt numbers, so I will lay it all out for you this week. Feel free to pass this week's E-Letter on to others - we need to get out the word!...

As long-time clients and readers will recall, I have been actively involved in coaching my kids in their various sports for over a decade, and still am. As I have written in the past, the lessons I have learned from being a sports coach all these years have served me very well in my career in the investment business. In many ways, I feel I am my clients' investment coach. In sports, I have always stressed that you must have both a good offense and a good defense to win championships. The same is true for your investments. You can't just swing for the fences in your investments; you also must protect against huge losses (bear markets), as we have seen over the last year. This week, I will reflect on how sports analogies can make us all better and more successful investors....

This week, Mike Posey resumes his Retirement Focus series of E-Letters by calling attention to the positive things happening in the retirement planning market. Yes, there is a lot of bad news floating around out there, but Mike's analysis shows that there are opportunities awaiting those who recognize and act upon them. As part of the good retirement planning news, Mike will introduce a new actively managed 403(b) program that we are researching. This investment option is offered by Potomac Fund Management, one of our most trusted Investment Advisors. While our due diligence process is not yet completed on this product, we feel confident that we will soon be able to offer this program to those of you who participate in 403(b) programs and have the Fidelity family of mutual funds as an available investment option.

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Last Wednesday the government reported that 1Q GDP declined at an annual rate of 6.1%, thus confirming that we are still in a deep recession. While the GDP report was worse than the pre-report consensus, it was very much in line with what I predicted in my April 21 E-Letter. I continue to believe that we will be in this recession all year.

Several recently released studies highlight the fact that long maturity Treasury bonds have outperformed stocks over the last 40+ years, and by a substantial margin over the last 28 years. I will examine these reports as we go along. Does this mean you should put all of your money in bonds now? I'll tell you why I believe that would be the wrong move to make at this time.

Finally, we get calls every day asking if the recent rally in the stock markets means that the bear market is over, or if this is just a bear market rally. While no one knows for sure, we will take a look at some past bear market rallies to keep things in perspective. I think you'll find this week's letter interesting....

While most of the latest economic reports remain quite bleak, we have seen a few modestly positive indicators over the last few weeks. In addition, the latest Wall Street Journal survey of 53 economists concludes - on average - that the recession will end by the 3Q of this year. If correct, that would be very good news. Yet the leading economic indicators (LEI) and the unemployment rate continue to worsen month after month. Thus, I continue to believe that we will be in this recession for the rest of this year. The Federal Reserve's latest Beige Book assessment agrees, unfortunately. This week, we will take an in-depth look at the latest on the economy, the credit crisis and when we might see an end to this recession. Finally, I will discuss the recent rally in the stock markets, and whether this is a new trend or simply a bear market rally. Let's jump in....

Over the last year, the financial media has focused primarily on the major banks and their solvency issues. We have heard relatively little about the major insurance companies, which were not eligible to participate in federal bailout programs such as the TARP. As I will detail in the following pages, most of the major insurance companies are in financial trouble due to the recession and the credit crisis; some major insurers are large players in derivative instruments such as Credit Default Swaps and Collateralized Debt Obligations which have gone bad. In addition, many property and casualty insurers were dealt a blow by the natural disasters (hurricanes) that occurred last year. Some in the industry predict that if we have another bad hurricane season this year, a number of the nation's largest insurers will go out of business entirely.

The publicly-traded insurers will be releasing their required 10-Q financial statements for the 1Q in the next few weeks, along with their 10-Ks for all of 2008. I am told that these reports are going to look very negative on balance, and this could be quite disturbing to the financial markets including stocks. As we go along, I will tell you specifically what to look for in these financial reports to judge the credit worthiness of your particular insurer. This may be one of the most important and timely E-Letters I have published....

This week, I continue my efforts to keep you informed regarding the sometimes misleading arguments used by Wall Street in support of buy-and-hold investment plans. While these studies and publications are often based on accurate market data, they are skewed in such a way as to reach a deceptive conclusion. I would bet that most investors have seen buy-and-hold promotions that advise against "timing" the market since you might miss the best 10, 20, etc. best days in the market. What these promotions don't tell you is what happens if you miss the worst days in the market. I'll fill you in on the missing information, and you will be surprised at what it reveals.

Then, I'll take on the tired old buy-and-hold argument that you shouldn't move to cash in bear markets because the gains of a new bull market are concentrated in the first few months. Thus, if you are in cash, you'll likely miss out on these early gains. What these shameless promotions conveniently leave out is that this is true only if you are at or near the actual market bottom, which is very hard to predict. I'll balance out this argument by showing what losses you might miss out on if you move to cash, and how missing these losses may more than compensate for any gains lost in a renewed bull market.

Unfortunately, many investors swallow buy-and-hold arguments hook, line and sinker without asking critical questions. It is my hope that resources like this week's E-Letter will empower you to resist these purposely misleading Wall Street promotions. I also encourage you to forward this week's E-Letter to anyone you feel may benefit from this knowledge....