Search results matching tag 'Scotia Partners'

How to Recover From the Bear Market

GaryHalbert — Tue, 14 Apr 2009 20:05:16 GMT

IN THIS ISSUE:

Editors Note – The Fed Bails Out Insurance Companies
The Case for Aggressive Allocations
Third Day Advisors
Scotia Partners
Combining Both Programs

Editor's Note - Bailouts for Insurance Companies

Just hours after I sent you last week's E-Letter which alerted you to the serious financial troubles among the nation's largest insurance companies, the Treasury Department announced that TARP bailout monies will now be available for insurance companies. As I indicated, the insurance companies have desperately lobbied for bailouts, and now it looks like they will get them, at least for those that have recently bought up banks or other chartered financial institutions to qualify. I can't say I'm surprised.

Stay tuned as your insurance company may soon be controlled by the Obama administration, along with the banks, General Motors and who knows what else will follow.

Introduction

When you write a weekly E-Letter such as this one that goes out to over one million people, you can expect to get criticized from time to time. After all, people who disagree are more likely to respond than those who agree and appreciate the information provided – nothing new about that – especially since some of my weekly commentaries are devoted to political issues which are almost certain to draw responses from those who disagree with my conservative views.

Recently, however, I have received some criticism from a few readers regarding the fact that I include discussions about the investment programs that my firm recommends in these E-Letters. This comes as somewhat of a surprise, since this E-Letter is provided free of charge, and no one is forced to read it. Still, some readers insist that I should not write about the investment programs I believe in, as to them it somehow taints the integrity of the E-Letter.

I could not disagree more, especially given that we have just witnessed one of the most severe bear markets in history and two bear markets in less than a decade. The active management investment programs I recommend have served to significantly reduce losses in this bear market, and thus they are more relevant than ever. I can only guess that the criticism is coming from those who don’t want to be reminded that their buy-and-hold, low fee portfolios were recently gutted (50% or more) by the Bear Market Express.

This aversion to investment topics may also be indicative of how so many have been misled for so long, and feel they must now stay the course and hope that the market returns to its historical norms. They may make adjustments to their overall portfolio but, as I see it, this is tantamount to rearranging the deck chairs on the Titanic. Of course, everyone is entitled to their opinions.

My firm, on the other hand, is offering a lifeboat to those mired in the clutches of buy-and-hold strategies that have not only failed to meet their investment needs, but in many cases, have resulted in huge losses that have pushed investors even further away from their eventual goals. The reason I mention the investment programs we recommend is that I firmly believe that they offer a viable alternative to some of the failed buy-and-hold strategies that have been so prevalent in the marketplace for many years.

Apparently, many of you are coming around to my point of view regarding active investment strategies that have the flexibility to move to cash or hedge long positions in bear markets. We were pleasantly surprised when about 300 of you who read this E-Letter registered for our March 25 Webinar with Scotia Partners and hundreds more have viewed the recorded version on our website since then. And we have seen the largest influx of new clients and new money in many years in just the last 3-4 months, sadly thanks to the bear market.

Even some mainstream financial advisory firms are now dipping a toe in the active management waters. I am amused at some of the commercial ads that urge investors to come in and visit with an investment counselor to learn of “new” strategies for the current market. In all likelihood, you’ll learn about some of the same strategies I’ve been recommending for almost 15 years.

So, let it be known that from time to time I will continue to discuss how active management strategies can fit into your portfolio. This week, I will revisit two of the money managers that we recommend. You can either read on and see how these two managers have made money this year, despite the bear market, or settle back in your buy-and-hold deck chair and disregard the remainder of this week’s E-Letter. It’s your choice.

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.

Aggressive Programs May Help Recovery

As I have mentioned many times in this E-Letter, the goal of basic active management is to attempt to move to cash in down markets to reduce portfolio risk. However, some investors seek out programs that use leverage or can go both net long and net short in the market for the aggressive portions of their portfolios.

In such programs, the potential for profit (or loss) exists no matter what the market’s direction. As I have written before, I characterize this type of program as being one where the best defense is a good offense. Unfortunately, many of these programs are available only to wealthy investors through hedge funds.

Fortunately, there are aggressive investment programs that are open to virtually any suitable investor. In light of how many retirement portfolios have been decimated by two bear markets in less than a decade, even moderate investors may want to consider having an aggressive investment or two in their overall portfolio. Of course, these allocations should be only a small portion of the assets, but it IS possible to include small allocations to aggressive investment programs and still end up with an overall moderate-risk portfolio.

With that in mind, I’ll spend the remainder of this E-Letter highlighting two aggressive money managers that you have previously read about in these pages. In the discussion below, I’ll briefly summarize the strategy employed by each manager as well as update their performance information.

After that, I’ll show how a combination of these programs might be a viable alternative for aggressive investors who want to diversify their portfolios by including two leveraged, long/short active management strategies. If you would like to learn more about active management strategies in general, see the link to my Absolute Return Special Report in the Conclusion section below.

Third Day Advisors Long/Short Programs

Back in January of 2005, I first introduced Third Day Advisors and its founder, Ken Whitley. The original Third Day program we recommended was the Aggressive Strategy, which allowed aggressive investors the ability to have a leveraged long and short exposure to the Nasdaq 100 Index. Over time, Ken has applied his signal to other market indexes, but all are based on the same underlying trading model.

Ken’s money management strategy is a proprietary blend of momentum, trend-following and overbought/oversold indicators. There are ten basic indicators that Ken uses to analyze the market, with a number of sub-indicators that also factor into each trading decision. Each indicator “votes” on whether to be long, short, or neutral in the market. The model is 100% mechanical, though Ken does reserve the right to override his system’s signals in the case of a national emergency.

Depending upon the market index, Third Day selects among index mutual funds available from the Rydex family of mutual funds. These funds are part of the Rydex Dynamic class of funds that seek to provide investment returns that correlate to 200% of the daily performance of the underlying index. Separate funds are provided for positive and negative (inverse) correlations.

The Third Day investment strategy does not currently employ any traditional stop-loss techniques to automatically exit losing trades. To limit risk, Ken varies his allocation based on the relative strength of his trading signal and market volatility. As a general rule, his allocations may range from a low of 15% to a high of 100% of the account value, depending upon the program. However, maximum allocations are rare and Ken’s various programs are projected to be in cash (money market fund) an average of 42% of the time in any given year based on historical performance.

The lack of a formal stop-loss trades and frequency of trading are additional reasons why Third Day’s investment programs should only be considered for the aggressive portion of an investor’s portfolio, where high volatility and significant periodic drawdowns can be tolerated.

Performance Evaluation

Both the Third Day Aggressive Strategy and S&P Plan have turned in strong performance so far in 2009. As of the end of March, the Third Day Aggressive Strategy posted a gain of over 13% for the first quarter of 2009, while the S&P Plan gained 11.20% over the same period of time. This is even more impressive when compared to the S&P 500 Index which was down over 11% (including dividends), even after an impressive March rally. Of course, past performance is not necessarily indicative of future results.

The Third Day Aggressive Strategy has the longest track record of all Third Day programs with actual trading beginning in November of 2001. This strategy trades the NASDAQ 100 Index, which is often seen as a proxy for the high-tech market sector. Over the course of our experience with this program, we have seen that the heavy high-tech weighting of this particular stock index results in it sometimes deviating from the direction of the overall market. Therefore, investors who elect the Aggressive Strategy should do so with the knowledge that it may be more of a tech sector program than one that is based on the broad market.

In light of the tech sector concentration in the Nasdaq 100 Index, Third Day also began to apply its trading signals to other market indexes. In 2006, the Third Day S&P Plan began actual trading. After watching its performance for a while, we began recommending it to our clients who wanted an active management strategy based on more of a broad-market stock index. Though the S&P Plan had a shorter actual track record than the Aggressive Strategy at the time, we were comfortable recommending this new program because we knew it was traded based on the same signal that Ken Whitley had been producing since 2001.

The actual performance information below provides detailed monthly returns and time window analysis for both the Aggressive and S&P Plan programs. This format will help you to more easily compare the two Third Day programs based on their actual performance. Keep in mind that all of the performance information shown is net of management fees and expenses.

Please see Important Notes at the end of this E-Letter.

As you evaluate Third Day’s performance, it should become clear to you that Ken’s Aggressive Strategy performed much better in the 2000 – 2002 bear market than in the most recent market downturn. Based on our research, we feel that this difference is largely due to a “disconnect” between the tech-heavy NASDAQ 100 Index and the broad market stock indexes.

Third Day’s S&P Plan, on the other hand, was better able to maintain more value during 2007 and 2008 than the Aggressive plan, again owing to the fact that this program is based on the broad market S&P 500 Index rather than the NASDAQ 100 Index. Remember, however, that past performance is not necessarily indicative of future results.

While we would like to have seen the S&P Plan pick up more gains from inverse (short) trades during the worst of the bear market, we have realized that Ken’s trading model is not as adept at handling high-volatility markets as are other programs, such as the Scotia Growth S&P Plus Strategy that I will discuss below.

However, we feel that the Third Day S&P Plan may be a good alternative for the aggressive portion of your portfolio when the market eventually bottoms out and volatility decreases. Also note that both the S&P Plan and Aggressive Strategy have posted double-digit gains as of the end of March. Past performance, however, does not guarantee future results.

The minimum investment for the Third Day program is $50,000 and it is custodied at Rydex Investments. You can obtain more detailed information about Third Day’s strategy and performance on our website at the following link:

http://www.halbertwealth.com/advisorlink/thirdday.php

At this link, you can also learn about an even more aggressive Third Day program called the Ultra Aggressive Strategy. This program also trades the tech-heavy Nasdaq 100 Index, but does so with trade allocations that can be as high as 100% of the account value. As always, read all descriptive and disclosure information on these programs before deciding to invest.

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.

Scotia Partners – Riding the Waves of Volatility

As I mentioned earlier, Third Day’s investment programs experienced difficulty when faced with the high volatility that has characterized this bear market. Scotia Partners’ investment programs, on the other hand, have seemed to almost embrace the increased volatility, performing much better in the bear market than during the previous rally phase of the market.

In 2008, the Scotia Growth S&P Plus Strategy gained over 77% net of fees and expenses, when the S&P 500 Index fell 37%. So far in 2009, the Growth S&P Plus Strategy has posted a gain of over 28% as of March 31, while the S&P 500 Index is still under water. Since its inception in August of 2004, the Growth S&P Plus Strategy has produced an annualized return of 38.83% as of the end of March, while the S&P 500 Index can muster only a negative 4.76% over the same time period. Past performance, however, cannot guarantee future results.

Based on our daily monitoring of Scotia’s performance and trading, we feel that its success has come largely due to portfolio manager Cliff Montgomery’s trading strategy that seeks to trade only on those days that offer the best statistical probability of success. Otherwise, he’s content to sit on the sidelines in the money market awaiting the next opportunity.

Scotia’s Growth S&P Plus investment strategy is a combination of two proprietary trading models developed by Scotia’s owner, Cliff Montgomery. The objective of the strategy is to provide positive returns regardless of market conditions, with significantly reduced risk due to limited market exposure. Of course, there are no guarantees that Scotia can continue to achieve this objective.

Using technical analysis, the basic model seeks to determine a long-term market trend (6-12 months) for the S&P 500, which then sets the overall direction for any trades. Once the long-term trend is identified, the intermediate-term trend is then determined using similar analysis. Only when the intermediate and long-term trends are in agreement will the basic model issue a trading signal.

With the overall market trend identified, the basic model looks for short-term movements against the trend. In other words, the strategy seeks to take advantage of the possibility of a “reversion to the mean.” Cliff’s model views a contra-trend market movement as an opportunity, since future market action should move back in line with the overall trend. Thus, Cliff describes his model as being trend-following in the long term, but contrarian in the short term.

In addition to the basic trading model, the Scotia’s Growth S&P Plus program also incorporates a proprietary overbought/oversold indicator that overlays the basic model. This added signal seeks to identify long or short trades that have a high probability of success, without regard to the direction of the long-term trend indicator. Accordingly, this overlay generally results in more trades per year than would be possible under the basic model.

The Growth S&P Plus Strategy is exceptional in that it has historically been in the safety of a money market account over half of the time and trades only on days when Cliff’s proprietary strategy indicates chances are optimal for a gain. As I have said in the past, this is one of the most interesting trading strategies I have ever seen, and it has certainly done extremely well in a market environment reeling in the wake of the subprime/housing meltdown. Remember, however, that past performance does not guarantee future favorable results.

Like the Third Day programs, Cliff’s methodology is 100% mechanical with no discretionary input, and no provision for Cliff to override any trading signal. However, unlike Third Day, the Growth S&P Plus Strategy does not make graduated or partial investments. Instead, the model will be 100% long in the Rydex S&P 500 2X Strategy Fund, 100% short in the Rydex Inverse S&P 500 2X Strategy Fund or 100% neutral (money market), depending upon the signal.

Because of the selective nature of the trading models, the Growth S&P Plus Strategy has historically been in the safety of a money market fund approximately 65% of the time. Scotia does not employ any formal stop-loss techniques to limit risk other than the relatively short duration of trades. If a trade makes money, the model automatically retreats to cash. If a trade loses on its first day, the model may stay long or short for an additional day. However, if even one indicator disagrees with the others, the model exits the market and goes to cash.

The performance information below tells the whole story. As you review this information, again remember that all numbers are actual returns and are net of fees and expenses, and that past performance cannot guarantee favorable future results.

Please see Important Notes at the end of this E-Letter.

As you evaluate Scotia’s performance, you see that its performance has increased dramatically since mid-2007. If you superimpose a graph of the CBOE Volatility Index (VIX), you will find that Scotia’s jump in returns coincides with a big jump in market volatility, as measured by VIX.

Initially, we thought that this might be an indication that Scotia’s programs were somehow “short-biased,” meaning that they entered into predominantly short trades, which would be favorable in a bear market. However, such a bias would be detrimental in a bull market, so we analyzed the individual trades to determine if there were any bias patterns. Our findings were significant:

Over the period of time from the inception of the Scotia S&P Plus Strategy (August of 2004) through December of 2008, Scotia had the following trading history:

165 Long Trades vs. 113 Short (Inverse) Trades
Win/Loss Ratio – Long Trades - 72%
Win/Loss Ratio – Short Trades - 65%
Win/Loss Ratio – All Trades - 68%
(Past performance does not guarantee future results.)

As you can see, there were actually more long trades than short trades, and a higher number of long trades were successful. The conclusion to be drawn is that Scotia’s Growth S&P Plus Strategy does not appear to have any specific long or short bias. However, because of the increased volatility generally associated with bear markets, such periods have the potential to produce greater relative performance than bull market periods.

The minimum investment for the Scotia Growth S&P Plus Strategy is $25,000 and funds are also held at Rydex Investments. You can obtain more detailed information about Scotia’s programs, including a less aggressive option known as the S&P Moderate Growth Strategy, on our website at the following link:

http://www.halbertwealth.com/advisorlink/scotia.php

As I noted above, literally hundreds of my readers have heard Cliff Montgomery personally explain the specifics of Scotia’s money management strategy via our recent webinar. If you missed it and would like to watch and listen to the full webinar discussion (including all charts), click on the link below:

http://www.halbertwealth.com/webinar/sco20090325/scotiawebinar.php

A Combination Approach

As you have no-doubt observed as you reviewed the above performance information, returns in any given time period can be significantly different – even among aggressive investment alternatives that are traded in a similar manner. Third Day’s Aggressive program did better than Scotia during some years in the up markets between 2003 through 2006, but not in others. Scotia has outperformed Third Day during the volatile bear market that began in 2007, but who knows how long this increased volatility may last?

If we had a crystal ball and could know exactly what kind of market environment to expect in the coming months and years, it would be easy to determine which of these programs to include in your portfolio. However, since we don’t have a crystal ball and most of the “experts” have been horribly inaccurate in their forecasts of what market conditions to expect, we have to find another way to take on the possibility of changing market environments.

If you feel that Scotia and/or Third Day would be suitable for a portion of your portfolio and are within your risk tolerance, I suggest that you consider combining the two programs within your aggressive portfolio allocation. While the past performance of these programs cannot guarantee success, we have seen that each has shown the ability to excel during certain types of market environments. Plus, these programs are not correlated with each other, with an R-squared value of only 0.02.

I would like to be able to provide a hypothetical illustration of these two programs together, but the disclosures necessary to do so would be too onerous in an already long E-Letter. Suffice it to say that, in some cases, combining programs can produce a smoother performance with lower drawdowns. While it’s granted that no combination would outpace Scotia’s recent performance, it is also important to realize that no market environment lasts forever, which is why it’s important to have a combination of programs in a diversified portfolio.

While it is difficult in this E-Letter setting to illustrate a combination approach, you can get an idea of how a combination of these two programs would behave by contacting one of our Investment Consultants at 800-348-3601 or by e-mailing info@halbertwealth.com. Plus, our Consultants can also show you how to incorporate less aggressive actively managed programs into your portfolio.

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.

Conclusions

I hope that by now you have seen that allocating a percentage of your portfolio to aggressive investment programs may help you to recover from the ravages of the bear market. Just keep in mind that aggressive allocations are not suitable for everyone and that such allocations should be kept to a small percentage of the overall portfolio, especially for moderate-risk investors. Never take on more risk than you should in an attempt to quickly recover all of your investment losses.

If you would like to receive more information about any of the programs I have discussed this week, give one of our Investment Consultants a call at 800-348-3601 or e-mail us at info@halbertwealth.com. You can also request information via our online request form. We also have other programs more suitable for less aggressive investors, so be sure to ask about them as well.

If you would like to learn more about active management strategies in general, I invite you to download my Absolute Return Special Report. This informative document explains the difference between active and passive management in much more detail, and also provides expanded descriptions of active management strategies you may want to consider for your own portfolio.

I hope that my discussion of the various actively managed programs available to you through my company is of benefit to you. I realize that some may not be in a position to invest right now, but it’s still important to know about these strategies for the future. We sometimes get calls from long-time readers who suddenly find themselves the recipients of a retirement plan rollover, inheritance, proceeds from the sale of a business or other large lump sum and are glad that they learned about active management before they had the money to invest.

In closing, I want to make it clear that my comments regarding complaints are not in any way an indication that I do not appreciate your feedback. I and my staff go over every response generated by my E-Letters, and I always appreciate your thoughts, concerns and questions. However, in regard to discussing the active management strategies we recommend, I feel it necessary to be outspoken for a number of reasons.

First, I feel that these strategies embody some of the best active managers in the country, and all have undergone our strict due diligence review before being recommended. Second, my firm has been evaluating and recommending active money managers for close to 15 years, so we’re not the new kids on the block. Keep this in mind when your buy-and-hold broker has a sudden revelation about active management strategies.

A final reason that mentioning these programs is important is that the financial media are now catching on that investors are leaving buy-and-hold strategies in droves. In some respects, that’s good. However, it also concerns me because some investors may become the victim of scam artists or enter into investments they don’t understand, all for the promise of making up all of their losses.

It’s a dangerous world out there for the investor, and there is no shortage of individuals who would be more than happy to separate you from the remainder of your nest egg. Therefore, to the extent that I can prevent that from happening, I feel it is my duty to do so and I make no apologies for it. As always, please read the Important Notes and disclosures that follow my signature below.

Offering hope for investors bitten by the bear,

Gary D. Halbert

IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Scotia Partners, Ltd. (SPL), Third Day Advisors, LLC (“TDA”) and Purcell Advisory Services, LLC (PAS) are Investment Advisors registered with the SEC and/or their respective states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from PAS and TDA in exchange for introducing client accounts. For more information on HWM, SPL, TDA or PAS, please consult Form ADV Part II, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor’s 500 Stock Index (which includes dividends), the NASDAQ Composite Index and the NASDAQ 100 Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these benchmarks may differ materially (more or less) from those of the Advisors and these Indexes cannot be invested in directly. The performance of the S & P 500 Stock Index, the NASDAQ Composite Index and the NASDAQ 100 Index is not meant to imply that investors should consider an investment in these trading programs as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index or the stocks listed on The NASDAQ Stock Market that comprise the NASDAQ Composite Index or the 100 NASDAQ stocks that comprise the NASDAQ 100 Index. Historical performance data represents actual accounts in programs named Scotia Partners Growth S&P Plus, Third Day Aggressive Plan and Third Day S & P Plan, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in these programs are managed similarly, the results shown are representative of the majority of participants in each of these programs. The signals are generated by the use of proprietary models developed by Scotia Partners and Third Day Advisors with the objective of participating, on a leveraged basis, in trading days with the highest probability of success. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

When reviewing past performance records, it is important to note that different accounts, even though they are traded pursuant to the same strategy, can have varying results. The reasons for this include: i) the period of time in which the accounts are active; ii) the timing of contributions and withdrawals; iii) the account size; iv) the minimum investment requirements and/or withdrawal restrictions; and v) the rate of brokerage commissions and transaction fees charged to an account. There can be no assurance that an account opened by any person will achieve performance returns similar to those provided herein for accounts traded pursuant to these trading programs.

In addition, you should be aware that (i) these programs are speculative and involve a high degree of risk; (ii) the trading programs’ performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in these programs; (iv) Purcell Advisory Services (for Scotia) and Third Day Advisors will have trading authority over an investor’s account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the trading programs’ fees and expenses (if any) will reduce an investor’s trading profits, or increase any trading losses.

Returns illustrated are net of the maximum management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. Management fees are deducted quarterly, and are not accrued on a month-by-month basis. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. No adjustment has been made for income tax liability. Dividends and capital gains have been reinvested. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.

A Eulogy For Buy-And-Hold Investing

GaryHalbert — Tue, 27 Jan 2009 21:33:53 GMT

IN THIS ISSUE:

News Flash - Buy-And-Hold Is Dead
Or Is It?
The Bottom Line
Actively Managed Programs That Work
Niemann Equity Plus - Master Of The Universe
Scotia Partners - The Best Defense Is A Good Offense

Introduction

In my November 11, 2008 E-Letter, I claimed that buy-and-hold investing might soon be a thing of the past following the catastrophic stock market losses late last year. In light of a second bear market within eight years that has (again!) decimated the retirement savings of the Baby Boom generation, it's not much of a stretch to think the investment strategy that allowed the whims of the market to lay waste to investors' portfolios would be cast aside.

However, buy-and-hold investment strategies are not going gently into that good night. While the financial media has been buzzing with stories of how buy-and-hold is dead, other stories are, like Mark Twain, claiming that the news of its death is greatly exaggerated.

Proponents of asset allocation have even trotted out 81-year-old Harry Markowitz, the creator of Modern Portfolio Theory (MPT), to defend the faith. You may recall that Markowitz won the Nobel Prize in Economic Sciences in 1990 based on his MPT work. However, you may also recall that in my May 24, 2005 E-Letter I documented that Mr. Markowitz did not utilize MPT when investing his own portfolio.

Since 1995, I have been advising my clients to include active management strategies, and especially those that can move to cash or hedged positions when the market drops like a rock. Whether you call it buy-and-hold, asset allocation, passive or index investing, MPT or whatever, the end result is that your investment strategy requires you to ride out bear markets and the potentially huge swings in the market such as we've seen recently.

Let me state this as candidly as possible: If you are trusting Modern Portfolio Theory to help you reach your investment goals, I think you will continue to be disappointed. Whether you are constructing your own portfolios on the Internet or using one of the many brokers or advisors who have no other alternatives to show you, MPT has major flaws that have long been identified, but generally dismissed by Wall Street due to factors I'll discuss later on.

I also believe that there are powerful vested interests in the financial services industry that are seeking to keep asset allocation on life support. This week, I'm going to discuss these forces and tell you why you need to reject their tired old theories. In addition, I'm going to tell you what some brokers who were previously under buy-and-hold's spell are doing, and why you should take notice.

Finally, I'm going to highlight two of the programs that I wrote about last year and let you know how they did. While past performance cannot predict future results, I'm pleased to report that the Scotia Growth S&P Plus Strategy turned in a 77%+ return in 2008. Most impressive, however, is the Niemann Equity Plus Program that has beaten every mutual fund in the universe of funds available to individual investors, based on our risk and return analysis. The details on these programs should astound you, but first, let's give buy-and-hold the burial it deserves.

Buy-And-Hold Is Dead

According to the Investment News publication, a recent survey of 750 millionaires by the Chicago-based Spectrem Group indicated that two-thirds said their advisors did a poor job of managing their investments, and are looking for alternatives. While buy-and-hold is offered under a variety of names, the idea of leaving your investment portfolio to the whims of the market is going the way of the dodo.

This death has not been swift nor has it been merciful, but it has been long expected. Experts have questioned MPT's buy-and-hold strategy almost since it was first promoted, claiming that it was lulling investors into a false sense of security based on historical relationships among asset classes that may or may not continue into the future. However, a strong bull market generally kept these shortcomings from coming to light, at least until the last eight years or so.

The poor performance of buy-and-hold portfolios during the last two bear markets has been a major factor in calling the strategy into question. However, another important factor is that the advantage of low correlation among certain asset classes so highly touted by proponents of asset allocation can be significantly reduced in severe bear markets.

Correlation is a term used to describe the relationship among various types of investments. If different classes of stocks go up in unison, they are considered to be positively correlated. If one goes up when the other goes down, they are negatively correlated. The goal of MPT and asset allocation is to diversify a portfolio among asset classes that have low or no correlation. In theory, this would give an investor a measure of risk management, since not all investments should go up and down together.

However, recent bear markets have shown that correlation tends to increase during declining markets. Thus, the end result has been that correlation is low during bull markets when investors don't need it, but begins to disappear in bear markets when it would be useful.

If MPT buy-and-hold programs had such obvious faults, why did it take so long to die? I think there are a number of reasons for this, including the following:

The financial services industry has invested millions of dollars in research, software, websites, training and marketing pieces that depend upon MPT and asset allocation. To give up on asset allocation would mean scrapping all of this expensive effort, and I don't think that's going to happen.
Sadly, MPT asset allocation programs are all that some investment professionals know how to sell. The concept makes sense to them, has won a Nobel Prize, provides diversification and the software noted above makes it relatively easy to hand a professional looking proposal to a prospective client. What's not to like (other than the performance, of course)?
Some brokers may be open to active strategies, but may be restricted by their broker/dealer organizations from selling such programs unless they are in the form of an approved mutual fund. Since many broker/dealers have been convinced that market timing doesn't work, active managers sometimes can't even get in the door.
This may come as a surprise, but the move to actively managed strategies has also been hampered by the fact that most actively managed programs don't work. We have reviewed literally hundreds of actively managed investment programs over the years, and only a select few have ever been recommended to our clients. I believe that with effective due diligence, appropriate active managers can be found, but those who fail reinforce the idea that market timing and other active management strategies don't work.

Finally, advisors touting MPT strategies are trying to keep clients by claiming that the market is now set up for another bull phase, and that pulling out (or staying out) of the market will make you miss the gains. Actually, this may be true, but it is important to remember that major market indexes had just risen back to their April 2000 levels when WHAM, they were hit again by the subprime bear market. How many rides on that roller coaster do you want to take?

I dare say that many of those investors holding fancy MPT proposals with Monte Carlo simulations showing they have a high percentage chance of meeting their investment goals are now wondering, "How do I get there from here?" How indeed.

Face it, MPT in whatever shape or form has failed many of the Baby Boom generation who needed it to work for them the most. Many are now approaching retirement with decimated portfolios, and are tired of hearing Wall Street's same old buy-and-hold mantra. If buy-and-hold isn't dead, it should be.

Or Is It?

As I noted above, I have read a number of articles recently claiming that buy-and-hold is not dead. Some of these articles use what can best be called "Clintonian" definitions of buy-and-hold. Some have tried to redefine buy-and-hold by calling it "diversification." Others claim that MPT and asset allocation are not really buy-and-hold strategies, since portfolios are periodically rebalanced. Another article even said that one critic of buy-and-hold was really referring to market timing. Now that's a long shot!

I find it very interesting that those who defend MPT are now trying to recharacterize it as the ultimate in diversification. Perhaps that's because diversification is a cornerstone of investing, and everyone pretty much agrees that it's important (even me.) So, if they can equate MPT and diversification, criticizing MPT would be like speaking against baseball, Mom and apple pie.

However, MPT is not the only way to achieve diversification. In fact, putting all of your money into an asset allocation program only provides diversification among asset classes; it does not diversify your portfolio among different investment strategies. Plus, some of the benefits of asset allocation, such as non-correlation, break down in bear markets.

And then there are the tired old arguments about how most of the market's upside is concentrated into just a few days, and that missing those days would negatively affect your return. I just recently received an e-mail from a mutual fund using this old argument as a reason for shareholders to keep their money in their fund. Sorry, but as I have pointed out numerous times in this E-Letter, this is a bogus argument because it assumes you are out of the market all of the best days, but still in the market on the worst days.

An article written in October of 2008 took on those who said buy-and-hold was dead. It quoted Wharton professor and author, Jeremy Siegel, who said "That's about the craziest thing I've ever heard!" He comes to this conclusion, no doubt, from his analysis of 200 years' worth of US stock market returns that shows staying invested in the stock market over a long period is the most effective strategy for creation of wealth.

The problem is that, from an academic standpoint, the long-haul is entirely feasible. In the real world, however, the long-haul may be far too long for investors to wait for their retirement goals to be met. The article gives additional reasons that buy-and-hold is not dead, including:

You can't time the market. Actually, I'll agree with this one in that most investors cannot time the market on their own. That's why I only recommend investment programs where professionals call the shots, and even they aren't perfect.
Warren Buffett is buying. Wow, what an investment recommendation. You should buy an MPT strategy because Mr. Buffett is now buying. Note the date on the article, and then look at what happened in November of 2008. Mr. Buffett lost money. Plus, Mr. Buffett does not buy MPT programs, but rather individual companies that he feels may have value in the long run. Thus, this argument is meaningless to the average investor.
Bargains abound. In the business world, something is a bargain only if you know its true value. Unfortunately, some market analysts equate low price to equity or some other measure as being a bargain. However, just because a stock's or mutual fund's value is lower than it was in the past does not alone mean that it's a bargain. Again, note that the article was written in late October of 2008 and remember what happened in November. I guess those bargains got even better.

The Bottom Line

The bottom line is that it's not likely that buy-and-hold strategies will cease to exist. There are just too many Wall Street entities that have a vested interest in seeing them continue. At the same time, however, I think that the siren song of buy-and-hold is going to be less and less attractive to investors who have seen two bear markets decimate their portfolios over just the last eight years.

The proof is that investors are increasingly moving away from simplistic buy-and-hold strategies modeled on Modern Portfolio Theory. Those 78 million Baby Boomers we always talk about have now experienced two major bear markets just as they are entering the time they can start thinking about retirement. Just like the famous quote, they are now more concerned with the return of their money than the return on their money.

In addition, there are now many stock brokers and broker/dealers who are seeking out alternatives to buy-and-hold strategies in order to better serve their clients. In talking with the active money managers we recommend, they state that the single largest source of new interest in their programs is coming from the brokerage community that once shunned their services.

Actively Managed Strategies That Work

If buy-and-hold strategies do meet their demise, the past decade will likely be credited with being a nail in their coffin. Despite high returns during the tech bubble, and during the 2003 - 2007 market rally, major stock market indexes (and many buy-and-hold investors) are roughly where they were ten years ago. Financial journalists call it a "lost decade," and the reality of the situation is that many investors have not been able to meet their investment goals.

In the remainder of this E-Letter, I'm going to focus on two money managers we recommend, and how they have performed over time. One investment, the Niemann Capital Management Equity Plus Program, will be evaluated over the past 10 years. Another, the Scotia Partners Growth S&P Plus Strategy will be evaluated over a shorter period of time, since it does not yet have a 10-year track record.

I wrote about both of these programs in 2008, so I feel an update is in order. Plus, these two programs offer different perspectives of actively managed programs - one moves slowly in and out of the market, while the other trades frequently using 2X leverage. Together, they allow you to have a glimpse into the world of active investment management and evaluate these strategies for your own portfolio.

From an editorial standpoint, I am sometimes asked why I limit my comments to just one or two programs in the E-Letter. The answer lies not in relative performance, but in the amount of disclosures required for each program. Regulatory rules require that we provide certain important disclosures for each program we feature in the E-Letter. I agree that these disclosures are necessary and important, so to keep the E-Letter to a manageable size, we limit the number of programs we feature in any given issue.

However, we are more than happy to provide performance information for every program we currently recommend. The information can be found on our website, along with detailed descriptions of each strategy. Just click on the following link to see performance information on all of the various actively managed investments we recommend within our AdvisorLink® Program.

Niemann's Equity Plus Program - Master of the Universe

When reading articles in financial publications about a "lost decade," I thought it would be interesting to evaluate some of our programs with long-term track records and compare them to the universe of mutual funds. I have seen some comparisons of investments to the top 100 mutual funds by size, but I thought it would be interesting to see how our Advisors fared compared to ALL mutual funds.

I had my staff run some mutual fund searches on our Morningstar Principia software using performance data as of 12/31/2008 with the Niemann Equity Plus Program as baseline. First, however, I eliminated mutual funds with super-high minimum investments available only to institutional investors. I also restricted the search to Morningstar's "Distinct Portfolios," which eliminates multiple share classes for the same fund. We then searched for mutual funds with 10-year average annualized returns greater than Equity Plus' 10.56%, net of all fees and expenses. According to Morningstar, there were 92 such funds in existence out of a total universe of more than 7,700 mutual fund "Distinct Portfolios."

However, return alone is not all we're looking for. Risk management is a big part of what Niemann offers, since it will move to cash or hedged positions during down markets. As you know, we use "peak-to-valley drawdown" as one way to determine an investment's overall risk. However, Morningstar does not provide drawdown information on mutual funds. Therefore, I used the Equity Plus 2008 performance of -11.4% as a proxy for drawdown in our Principia search.

Using the additional 2008 performance criterion, we found that there was only one non-institutional fund of the 92 noted above that could boast a 10-year annualized return greater than Equity Plus' 10.56%, while also keeping losses to less than -11.4% in 2008. The one fund that beat Niemann's Equity Plus program using the Morningstar filter was the MFS Emerging Market Debt Fund (a bond fund). Thus, Niemann's Equity Plus Program showed that it beat all equity mutual funds in the Morningstar database for the last 10 years, using our search criteria and restrictions. Past results do not guarantee future performance.

However, we weren't done yet. Recall that we use drawdown as a risk-analysis measure in all of our programs. Now that we had narrowed down the universe of mutual funds to a single candidate, we used another of our mutual fund analysis tools to obtain the maximum drawdown of the MFS Emerging Market Debt Fund. We found that this fund has a maximum drawdown of over 33%, while the Niemann Equity Plus Program has limited its worst drawdown to -18.06%.

Thus, when considering 10-year annualized return, 2008 calendar-year performance and maximum drawdown, the Niemann Equity Plus Program beat the entire universe of mutual funds in the Morningstar database. Now that's impressive long-term performance. Past performance, however, is not a guarantee of future results.

While other time periods will likely render different results, I believe the 10-year time window is important for the Niemann program since it encompasses two different cyclical bear markets. While no one knows what the future holds, the ability to deliver a double-digit annualized return over 10 years, coupled with holding drawdowns to -18.06% or less is just the kind of performance we have come to expect from money manager Don Niemann. As always, there are no guarantees for the future.

As noted above, Niemann has been able to produce these returns by utilizing its ability to move to cash or hedge long positions in downward markets, yet the critics still say that "market timing" doesn't work. Well, yes it does if you can find a successful manager like Niemann.

Now it's your turn. Compare Niemann's 10-year annualized return of 10.56% and 2008 performance of -11.4% to your current mutual funds or investment portfolio. To help you with your mutual fund investments, click on the following link to access the Business Week Mutual Fund Scoreboard website. Just enter your fund name or ticker symbol in the box and hit enter. You will then be shown detailed performance information on your fund, including a 10-year return number. Then, compare it to the Niemann Equity Plus performance. You really should do this! Here's the link:

http://bwnt.businessweek.com/mutual_fund

For more information on the Niemann Equity Plus Program and performance, please click on the following link to access our Niemann Equity Plus Advisor Profile. If you would like for us to send you an Investor Kit on this program that contains the Advisor Profile plus documents necessary to establish an account, just click on the link for our Niemann online request form, or give one of our Investment Consultants a call at 800-348-3601.

Be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter in regard to the above performance statistics. Also, keep in mind that the universe of mutual funds on the Morningstar database consists of a wide variety of different types of funds and strategies, many of which are different from those utilized by Niemann.

Scotia Growth S&P Plus - The Best Defense Is A Good Offense

As I mentioned earlier, Niemann's approach to the market is more of a slow and steady strategy, which I feel has been a big key to its success over time. However, this type of investment strategy is also subject to losses during the early part of a bear market, since it gradually moves to cash or hedged positions rather than moving to neutral all at once.

In contrast, there are actively managed mutual fund programs that seek to make money in both up and down markets using specialized funds that "short" the market. In addition, some investors like to up the ante by seeking out programs that not only go long and short, but do so on a leveraged basis. I characterize this type of program as being one where the best defense is a good offense.

One of the best leveraged, long/short mutual fund programs we have ever come across is the Scotia Growth S&P Plus Strategy. We first introduced this program to our E-Letter audience in June of 2008, and it has received a great deal of attention. However, when you look at Scotia's performance over the entire year, it's nothing short of amazing. Past performance is not necessarily indicative of future results.

Scotia's owner and portfolio manager, Cliff Montgomery, has developed a proprietary strategy that was able to navigate the difficult market we experienced in 2008. While the S&P 500 Index lost 37% during 2008 and the Nasdaq Composite dropped over 40%, the Growth S&P Plus Strategy gained over 77%, net of all fees and expenses. While Scotia's past accomplishments cannot guarantee favorable future results, I do think the way Cliff approaches the market merits your consideration.

And that's not all. Though we are early in the year, our Growth S&P Plus test account has already posted a gain of over 13% as of the close of business on January 23rd, while the S&P 500 Index has lost 7.89% (excluding dividends) and the Nasdaq Composite has fallen over 6% during the month. Of course, there's no guarantee that Scotia will end the month with a double-digit gain, but it does show that the Growth S&P Plus Strategy has continued to exhibit the potential to navigate these volatile markets.

As noted above, Scotia trades in and out of the market frequently, and typically is only in the market for a few days at time. And again, the critics say market timing doesn't work. My clients and I know it works, especially if you can find a money manager like Scotia.

It is also important to note that the extreme market volatility in late 2008 caused Scotia to post a worst drawdown of -29.37%. While this was in line with our expectations for the program, it further emphasizes that this program should only represent a small percentage of your overall portfolio, and is generally best suited for aggressive investors.

You can access additional performance information and a full description of Scotia's investment strategy by clicking on the following link to the Scotia S&P Plus Advisor Profile. Or, you can learn more about Scotia's money management strategies by viewing a recording of our recent hour-long online webinar found at the following Internet address:

http://www.halbertwealth.com/webinar/sco20090114/scotiawebinar.php

And again, be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter. If you would like to obtain an Investor Kit complete with the documents necessary to make an investment in the Scotia Growth S&P Plus Strategy, please click on this link to access the Scotia Online Request Form, or call one of our Investment Consultants at 800-348-3601.

Conclusions

The weaknesses of asset allocation have long been known by those of us who have studied it closely and followed the markets. Today, it is encouraging to see that more and more investors and financial professionals are picking up on buy-and-hold's weaknesses. However, I believe the financial services industry has far too much invested in software, sales material and training to allow MPT, asset allocation and other versions of buy-and-hold to slip into the obscurity they so richly deserve.

Even so, many in the brokerage community are reaching out to active money managers in order to have an alternative that won't likely follow the market indexes on their roller coaster ride. This is not conjecture, but the results of conversations with our recommended money managers who are seeing a huge increase in demand for their services from former bastions of buy-and-hold strategies.

In a recent E-Letter, I touched upon this issue and asked what some brokers know that you may not know. The answer to that question is that they know asset allocation doesn't always work. As a result, many brokerage firms are now seeking out alternatives, often led by their brokers whose clients are demanding a new approach to the market.

The fact that some brokers are now looking into actively managed programs might be an indication that it's time for you to consider these strategies for your own portfolio. We can help. We have a 10-year head start on the due diligence and analysis required to select active money managers for our clients. If you are interested in these strategies, I encourage you to give us a call at 800-348-3601, send us an e-mail at info@halbertwealth.com, or visit our website at www.halbertwealth.com.

Wishing you profits,

Gary D. Halbert

P.S. - We often receive questions from prospective clients about how Halbert Wealth Management fits into the equation. Quite simply, we are responsible for the search, evaluation and marketing of third party money managers on behalf of our clients. In the above article, I said that most active managers are not successful in their efforts, so it is our job to separate the wheat from the chaff and offer our clients only those Advisors who we believe have the highest probability of continued success. In addition, I have my own money with every Advisor we recommend, so we can monitor the daily performance and trading activity to determine if they continue to meet our expectations.

Professional active managers typically charge annual management fees of 2-2½%, usually billed quarterly. Rather than charging an investment management fee over and above the Advisor's fee structure for the services we provide as some do, HWM negotiates directly with the Advisor and is paid a percentage of its money management fee. So, by using HWM, clients generally pay no more in management fees than if they were to contact the Advisor directly, plus they get the benefit of our ongoing services.

Note that we always present performance information net of all fees and expenses, so you are better able to evaluate whether an Advisor is adding value over and above the fees charged. For answers to more questions about our AdvisorLink® Program, please click on the following link to review our Frequently Asked Questions publication. GDH

IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Niemann Capital Management, (NCM) Scotia Partners, Ltd. (SPL) and Purcell Advisory Services (PAS) are Investment Advisors registered with the SEC and/or their respective states. Some Advisors are not available in all states, and this report does not constitute a solicitation to residents of such states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from NCM and PAS in exchange for introducing client accounts. For more information on HWM, NCM, SPL or PAS please consult their respective Form ADV Part II and Niemann's Annual Disclosure Presentation, 2007, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor's 500 Stock Index (which includes dividends) and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of the S&P 500 and the NASDAQ Composite Index may differ materially (more or less) from that of the Advisors, and these Indexes cannot be invested in directly. The performance of the S&P 500 Stock Index and the NASDAQ Composite is not meant to imply that investors should consider an investment in these trading programs as comparable to an investment in the "blue chip" stocks that comprise the S&P 500 Stock Index or the stocks listed on The NASDAQ Stock Market that comprise the NASDAQ Composite.

Comparisons to the universe of mutual funds in Morningstar is not meant to imply that an investment in Niemann is comparable to each or any of these different mutual funds, most of which have different strategies and investments than those used by Niemann's Equity Plus program. The comparison is made for informational purposes only.

Historical performance data for Niemann is provided by the Advisor in compliance with the Global Investment Performance Standards (GIPS). Performance figures presented include all actual, fee-paying fully discretionary accounts in a composite. See the Annual Disclosure Presentation, 2007 for more details. Historical performance for Scotia represents actual accounts in a program named Scotia Partners Growth S&P Plus custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in these programs. The signals are generated by the use of a proprietary model developed by Scotia Partners, which is then traded by Purcell Advisory Services. Statistics for "Worst Drawdown" are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Any investment in a mutual fund carries the risk of loss. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

In addition, you should be aware that (i) the trading programs are speculative and involve risk; (ii) the trading programs' performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the programs; (iv) the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the trading programs' fees and expenses (if any) will reduce an investor's trading profits, or increase any trading losses.

Returns illustrated are net of actual management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. Returns for Scotia are deducted in full quarterly, and not accrued month-by-month. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. All dividends and capital gains have been reinvested. Some Funds also charge short-term redemption fees and excess transaction fees (Special Fees), which are billed to shareholders at the time of the event causing the fee. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.

In selecting Funds in which to invest using various analytical tools, Niemann considers the nature and size of the fees charged by the Funds. Niemann's objective is to select a Fund only if Niemann believes the Fund's performance, after all fees, will meet Niemann's performance standards. Consequently, Niemann may select Funds, which have higher or lower fees than other similar Funds, and which charge Special Fees. When deciding whether to liquidate a Fund position, Niemann will take into consideration any Special fees which may be charged. Niemann may decide to sell a Fund position even though it will result in the client being required to pay Special Fees.

Economic & Investment Outlook For 2009

GaryHalbert — Tue, 06 Jan 2009 22:10:01 GMT

IN THIS ISSUE:

Editor's Notes On BCA & The Other Gary Halbert
Obama & The New Age Of Big Government
The Economy -- Have We Seen The Worst Of It?
Are The Bailouts Necessary & Will They Work?
The Latest Disappointing Economic Reports
Stock Markets -- Might We Have Seen The Bottom?

Introduction

2008 proved to be a catastrophic year in the financial and credit markets as well as for most investors as judged by the global equity markets. The credit markets and bank lending activity ground to a virtual halt, something not seen in most of our adult lifetimes. Consumer confidence and spending, which now accounts for over 70% of US GDP, fell off a cliff in the span of just 3-4 months late last year. We are now in an unprecedented "credit crisis," the outcome of which remains to be seen.

The US government and the Federal Reserve have responded to the credit crisis in ways that most of us could never have imagined, and they are not nearly done yet. Much more is to come. We can agree or disagree with these giant bailout measures, but like them or not, even more enormous government rescue programs are sure to come in the Barack Obama administration, on top of his already aggressive plans such as nationalized health care, etc.

One thing to keep in mind is that our new President is a man who embraces government ownership and control of the private sector, so we can expect more massive bailouts in the next year or longer as needed. Already, Mr. Obama is suggesting another fiscal stimulus package approaching $1 trillion this year, and that is just the beginning -- I promise. But the point of what follows is not a political piece. The question is whether or not the plans will work.

What we do know is that we are officially in a recession that reporting agencies now believe began in December 2007. Most forecasters now expect that GDP plunged 4-5% (annual rate) in the 4Q of last year, and will continue to fall for at least a couple more quarters. Meanwhile, deflation is becoming a greater threat. In the pages that follow, we will take an in-depth look at the latest economic and inflation numbers. I'll give you the latest thinking from my best sources on what may lie ahead.

But first, I have a couple of important Editor's Notes that have resulted from many reader inquiries, before we get into the meat of this week's letter. Let's get going.

Editor's Notes

The Bank Credit Analyst: I frequently get questions from long-time readers asking why I do not mention the Bank Credit Analyst (BCA) or quote from their monthly reports as I have for many years. Considering the amount of interest, an explanation is in order.

You may recall that BCA maintained throughout 2007 that the subprime mortgage dilemma would be contained to the housing market, and that a recession was not the most likely scenario for the US or the rest of the world. Then in early 2008, BCA did an abrupt about-face on the subprime crisis, complete with a forecast of a credit crisis and a potentially deep global recession.

I have to admit I was surprised that BCA was late in identifying perhaps the most significant trend change in our lifetimes and an oncoming credit crisis. However, no economic forecasting service is perfect, and I have a number of other sources of economic and financial forecasts that were also late to recognize the full effect of the subprime debacle. So that is not the reason I no longer quote BCA.

Quite the contrary. In early 2008, BCA contacted me in regard to my summarizing and quoting their materials. According to BCA, some of their subscribers had complained about having to pay a large amount of money for what I periodically offered to my clients and E-Letter readers for free. When I first began sharing BCA's outlook over 20 years ago, my comments were limited to a monthly newsletter that went only to my clients and prospective clients. Now, however, my Forecasts & Trends E-Letter goes out to over a million e-mail addresses each week.

While BCA has long been a valuable source of information for me, I fully understand their concerns. After all, they make their money through subscriptions, so anything that might diminish their subscription base would obviously need to be addressed. As a result, I agreed to no longer quote or summarize BCA's views of the economy or markets in light of their concerns.

Finally, it is important to note that BCA has never been my sole source of economic information and forecasts. My staff and I review numerous other sources for forecasts and analysis that help me in forming my own view of the economy, the markets, etc.

The "Other" Gary Halbert: As a reminder, to this day I am often confused with Gary C. Halbert, which is most interesting since Gary C. Halbert passed away in early 2007. For the record, I am Gary D. Halbert and am no relation to Gary C. Halbert; in fact, I never met the man. Apparently, Gary C. Halbert was a successful copywriter and marketer at some point in his life, and he had a newsletter called "The Gary Halbert Letter" and a website by the same name.

The confusion typically occurs when someone does an Internet search for "Gary Halbert." If you type Gary Halbert into Google, for example, the entire first page of results are for Gary C. Halbert -- even though the man has been dead for nearly two years. The first Google result for me -- Gary D. Halbert - is not until the lower part of page two.

We have often wondered how much business we have lost over the years from investors who searched the Internet looking for me but found the other Gary Halbert instead and were not favorably impressed! I have no idea why Gary C. Halbert's website is still on the Internet.

If, however, you type in "Gary D. Halbert," you'll find me at the top of the non-sponsor results. Bottom line: if you should refer someone to me, please advise them to include my middle initial "D." if they wish to find me on the Web. Better yet, advise them to go to my website at www.halbertwealth.com.

On that note, let me extend a huge THANK YOU to all of our clients who have referred friends, relatives, etc. to us over the years. Client referrals are one of our best sources of new business!

With the above noted housekeeping items out of the way, let's turn our attention to the economy, the ongoing credit crisis and the investment markets. But first, let's consider the bigger picture of what to expect from President Obama. The following is not meant to be a political slam on our soon-to-be new president; rather it is simply a perspective on the times to come.

Obama & The New Age Of Big Government

There is no arguing that Barack Obama is one of the most liberal politicians of our time, as is Joe Biden. President-elect Obama believes that more government is the solution, not the problem. He has stacked his new Cabinet with Clinton retreads who believe as he does, including Hillary Clinton as his Secretary of State designee.

President-elect Obama vows that as soon as he is in office, he will pass a gargantuan financial rescue bill (bailout) that is estimated to be as large as $800 billion to $1 trillion in an attempt to unfreeze the credit markets and create at least one million new jobs. No doubt the Democrat controlled Congress will go along. It appears that a number of Republicans will go along as well.

Mr. Obama says his huge rescue plan will be targeted at tax cuts and infrastructure projects that will create new jobs. I, however, predict that much of the bailout money will continue to go to recapitalize banks, financial institutions, automakers and other large companies that get into serious trouble. Obama may have no choice if he and the Fed are to stave off a debt deflation and a depression.

In fairness to President-elect Obama, he comes into office at one of the worst possible times in the last century. He is inheriting the worst economy in decades, the worst financial crisis since the Great Depression and a record large federal budget deficit -- just to name a few. He has an enormous job ahead of him with major problems that have no immediate solutions, and which may get worse before they get better.

But keep one thing in mind dear readers. President-elect Obama comes from a political persuasion that believes it is perfectly acceptable for the government to own equity stakes in the private sector. And he comes into power at exactly the time in which much of the public is more than willing to see this happen, and when even some conservative analysts admit that such steps are probably a "necessary evil."

Based on the many comments I receive from readers, it is obvious that many of you are totally against the government bailouts. Be warned, however, that the bailouts are far from over in my opinion. So it is in this context that I move on to more specific issues.

The Economy -- Have We Seen The Worst Of It?

As noted above, we see and read lots of economic, financial and investment forecasts at my company. Here is the general consensus on the economy of late (obviously, there are forecasts that are better and worse than the consensus I see out there). The general consensus is that the US economy (GDP) fell by an annual rate of 4-5% in the 4Q. We won't get the first official GDP estimate until the end of this month.

The general consensus is that the first half of 2009 will also see negative GDP, but perhaps not as bad as the 4Q we just endured. The unemployment rate is expected to rise to at least 8%, and some believe 10%, well before the end of this year. However, most forecasters currently believe that the US economy will bottom out and begin a slow recovery some time in the second half of this year -- assuming, of course, that there are no more big negative shocks, and that the banks slowly resume lending.

Some of my respected sources believe that, if necessary, the Obama administration and/or the Fed will institute some government mechanism that will guarantee bank loans if that's what it takes to unfreeze the credit markets. (I'm not making this up, folks.)

Assuming the economy bottoms out sometime in the second half of this year, the general consensus is that GDP will grow at a below-trend rate of only 1½-2½% for the next several years following 2009 as the world continues to deleverage (i.e. -- reduce debt).

Of course, there are some respected forecasters that believe the above noted scenario is too optimistic. Some believe that the bailouts will not be successful, the credit markets will not unfreeze this year, and that we are headed for a modern day depression. Others believe that even if the bailouts work, we will be facing runaway inflation in 2010 and beyond. Clearly, there are few, if any, rosy scenarios floating around today.

Are The Bailouts Necessary & Will They Work?

Most conservatives (and even some liberals) I talk to are opposed to the various government bailout measures to-date and the trillion dollar rescue package that President-elect Obama has planned. Many say, "Let ‘em all fail." Several media polls have shown that a majority of Americans are opposed to the bailouts. Personally, I would much prefer an economic stimulus plan that eliminated the capital gains tax and reduced other taxes, but that is not going to happen with the Democrats in control of Congress and the White House.

Given that reality, most of the sources that I respect agree that the bailouts and the various actions by the Fed were necessary in an effort to avoid a debt deflation and a possible depression. Their argument is that with consumer spending accounting for over 70% of GDP, and with consumer spending having fallen off a cliff, the government had to step in to keep us from going from a serious global recession to something worse.

In fact, some forecasters are calling on other countries to follow the lead of US policymakers and slash their interest rates and recapitalize their money center banks. Some actually criticize Europe for resisting such rescue efforts, while praising the UK for its financial rescue efforts.

Further, I would also say that there is a consensus in the forecasting world that it was a huge mistake for the government to let Lehman Brothers go bankrupt. Many analysts believe that it was the failure of Lehman that caused the major banks to put a lockdown on lending, even to each other.

I certainly don't expect to make any bailout converts with this discussion. However, I think it is pertinent to point out that there are respected analysts and forecasters that believe the government and the Fed had no choice but to do what has been done, and that the government may have to do even more if we are to avoid a depression.

Now to the question of whether the bailouts will work. At this point, the answer is we don't know. The first "economic stimulus package" of $168 billion last spring was considered pretty much a non-starter. Various sources have estimated that most Americans who received the tax rebate checks in late April and May saved most of the money or used it to pay off credit card debt or other bills, rather than spend the money as was hoped by the Bush administration.

One thing is clear, however: the Bush administration did not have a well-designed plan for how it intended to use the first $350 billion of the $700 billion Troubled Asset Relief Program (TARP). That was obvious when President Bush and Treasury Secretary Paulson changed the objective of the TARP from buying up troubled mortgage-related securities to recapitalizing the major banks and most recently the automakers.

Some (but certainly not all) of the criticism of Bush and Paulson may have been unfair. I don't believe anyone knew how difficult it would be to reinstate trust in the credit markets and to get the major banks lending once again. As discussed above, President-elect Obama will face the same challenge when he takes office, and talk of some kind of government loan guarantee program for the banks continues to gain momentum, for better or worse.

While it remains unclear if the bailouts will work, there is now little doubt that Mr. Obama's request for a massive new rescue program of up to $1 trillion will be passed by the Congress within the next month or two. Over the weekend, several leading Republicans stated that they would support such a huge stimulus program, provided it was not loaded with earmarks. So I believe it is safe to assume we will see Obama get his wish.

The Latest Disappointing Economic Reports

I have been poring over economic data for over 25 years, and I do not remember another time when the various reports have been as overwhelmingly negative as over the last month or so. Let's take a look at the latest numbers. As noted earlier, most forecasters expect that 4Q GDP fell by 4-5%; however, that report won't be out until January 30.

The final report on 3Q GDP was an annual rate of --0.5%, about as expected, following +2.8% in the 2Q. The decline in 3Q GDP was largely the result of a 3.8% drop in personal consumption expenditures.

The Index of Leading Economic Indicators (LEI) fell 0.4% in November (latest data available). The LEI has been falling for over a year. More troubling, the six-month change in the LEI was negative 2.8%, and the 12-month change was --5.6%. The Conference Board reported that the Consumer Confidence Index fell to a new all-time low of 38.0 in December.

Consumers' appraisal of current conditions grew substantially worse in December. Those claiming business conditions are "bad" increased to 46.0% from 40.6% in November, while those claiming business conditions are "good" declined to 7.7% percent from 10.1%. Consumers' assessment of the labor market was also considerably more negative than in November. Those saying jobs are "hard to get" rose to 42.0% from 37.1% in November, while those claiming jobs are "plentiful" decreased to 6.2% from 8.7% a month earlier.

The plunge in consumer confidence resulted in even worse than expected retail sales during the holiday season. Spending Pulse, an organization that collects consumer spending data from MasterCard, says consumers spent about 20% less on electronics, women's clothes and jewelry in November and December in comparison with the same period last year. Spending Pulse says total retail sales declined up to 8% during this holiday season.

The numbers are not all in yet, but it also appears that online sales declined for the first time ever. Reuters reported that online sales for the holiday period up to December 23 fell 3% from the same period last year, marking the first decline in Internet spending since comScore, Inc. started tracking online sales in 2001.

On the manufacturing front, the news is equally dismal, if not worse. The Institute for Supply Management (ISM), a purchasing management group based in Tempe, Ariz., said its manufacturing index was 32.4 for December, the lowest reading since June 1980, when it stood at 30.3.

Manufacturing activity failed to grow for the fifth consecutive month, according to the ISM, and ISM noted that the December decline was representative of all sectors of manufacturing. An ISM index reading above 50 indicates growth, while a reading below 50 indicates a slowdown. A reading below 41 is typically associated with recession in the broader economy.

Industrial production fell 0.4% in November and was 5.5% below yearago levels. Capacity utilization (the factory operating rate) fell to 75.4 in November, down from 81.1 a year ago. Durable goods orders declined 1.0% in November, following the huge drop of 8.4% in October. It was the fourth consecutive monthly decline in durable goods orders.

The unemployment rate jumped to 6.7% in November, the highest level in more than 14 years. Forecasters expect the December unemployment rate to jump to 7% when the latest report comes out on Friday. Nonfarm payroll employment fell sharply by 533,000 in November. As noted earlier, most analysts expect the unemployment rate to rise to 8% or higher in the first half of 2009. At 500,000 jobs lost per month, it could hit 10% by the end of this year if the economy doesn't begin to rebound.

News on the housing front was equally disappointing. Sales of existing homes plunged 8.6% nationally in November. New homes sales also declined again in November. The national median sales price for existing homes fell by the largest monthly amount on record in November. The median price was $181,000 as compared to $208,000 a year ago, a decline of 13.2% nationally. Of course, in many areas prices are down far more than 13% over the last year.

The National Association of Realtors reported that there were 4.2 million unsold homes on the market at the end of November. At the current sales pace, it would take 11.2 months to sell all the homes on the market. NAR also notes that many homeowners have taken their properties off of the market. Understandably, housing starts continue to plunge, with November starts at 625,000 versus 771,000 a month earlier.

Deflation -- Consumer Price Index Goes Negative

As I have discussed above and in previous E-letters, the government and the Fed desperately want to hold off deflation in the economy. This fear is the overriding reason behind the bailouts, including the potentially $1 trillion stimulus package Mr. Obama and Congress are planning. Lawmakers are particularly frightened now that the Consumer Price Index has gone negative for the last several months, and especially as it plunged lower in October and November.

In October, the CPI fell by a full 1.0% - the largest monthly dive since records began to be kept in 1947. Yet the record October decline was significantly eclipsed in November when the CPI plunged 1.7%. The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) decreased a full 2.0% in November. Of course, the significant fall in energy prices is helping this trend along, but there is much more at work here than just falling gasoline prices.

For the 12 months ended November, the CPI actually rose 1.1%. That compares starkly to July of last year when the CPI was up 5.6% on a year-over-year basis. The trend in price inflation is clearly falling rapidly. Even the "Core" CPI -- less food and energy -- is falling. The Core CPI was down 0.1% in October and was unchanged in November.

Wholesale prices are falling even faster. The Producer Price Index fell 2.8% in October and another 2.2% in November. The 2.8% dive in October was the largest monthly decline on record. The Labor Department also reported that the price of imported goods dropped 4.7% in November and more than 10% in the past quarter. Prices are coming down in a hurry! This is Bernanke's worst nightmare!

Price data such as the above, and similar numbers from around the world, are leading to increased discussion about deflation. A recent cover story in The Economist made it pretty much official: Deflation, not inflation, is now the greatest concern for the world economy.

Over the past year, producer prices have fallen throughout the developed world. Consumer prices have been falling for the last six months in France and Germany. In Japan, wages have actually fallen 4% over the past year. Prices are also falling in China and Hong Kong.

So far, none of these price declines looks anything like the massive deflation that accompanied the Great Depression. But the appearance of deflation as a widespread problem is disturbing, not only because of its immediate economic implications, but because until recently most economists regarded sustained deflation as a fundamentally implausible prospect, something that should not be a concern.

Such assumptions are now under fire as the Fed has slashed short rates to zero. I assume we'll be discussing deflation a lot more this year.

Stock Markets -- Might We Have Seen The Bottom?

The US and global equity markets will be buffeted in 2009, on the negative side, by slowing economic growth, continued deleveraging, a shortage of credit and possible deflation. On the positive side, the markets should be aided by extremely low interest rates, the government's massive efforts to reflate the economy and unfreeze the credit markets and the possibility that a lot of money now on the sidelines could come back into the market at some point.

Unlike the general consensus about where the economy is headed this year (worse in the first half, but a recovery by year-end), there is no such consensus regarding where the stock markets are going over the next year or longer. Opinions and forecasts are all over the board.

Some analysts I respect believe that the US stock market is in a secular bear market, and that we probably have not seen the worst of it. If the economy is going to get worse in the near-term, and then grow at below-trend rates of 1½-2½% over the next 2-3 years after 2009, this is a rather dire forecast for corporate earnings, which supports the case for lower stock prices over time.

Other analysts I also respect believe that the waterfall collapse in equity prices in 2008 significantly overshot on the downside, and that the November lows could represent the bottom, although they would not be surprised to see a retest of the late November lows at some point.

Forecasters in the latter camp point to the fact that there is an ocean of money around the world that is sitting in Treasuries and other no-risk/low-risk vehicles earning next to nothing. They suggest that with an even modest uptick in consumer confidence, a flood of domestic and international money could come rushing back into US equities -- especially with the rebound in the US dollar last year.

Most analysts in both camps seem to agree that the equity markets are overdue for a potentially strong corrective rally which could play out over the next several months. Specifically, most forecasters I read believe that there will be some kind of "Obama rally" after the inauguration. The problem is that the broad equity indexes have already rallied 20-25% from the five-year lows in November.

Conclusions

One thing appears clear: 2009 is likely to be another wild year in the markets. So, what is an investor to do? Remain in cash and earn little or no return, or jump back into equities and risk losing even more money if the market retests the November lows as some analysts expect? I can't tell you what the market is going to do in 2009, but I can restate what I have said since beginning this E-Letter in 2002 -- it's wise to have at least part of your portfolio in an investment program that can switch to a defensive posture (cash or hedged) in uncertain markets, in my opinion.

While I don't have space in this week's E-Letter, in upcoming issues I'm going to discuss how active management -- investment programs that have the ability to go to cash or hedge long positions - benefited investors in 2008. I'm also going to highlight the huge inflows into some of these programs during 2008, even though most mutual funds were hemorrhaging assets badly. And you may be interested to learn where these inflows were coming from. What do they know that you don't know? The answer may surprise you.

I'll also bring you up to date on the performance of the latest additions to our AdvisorLink team, the Scotia Partners Growth S&P Plus and S&P Moderate Growth programs. While past performance cannot guarantee future results, suffice it to say that Scotia's programs continue to meet our expectations.

If you'd rather not wait on these future issues and want to learn more about Scotia and the other actively managed investment programs that have the potential to become defensive when market conditions warrant, feel free to give one of our Investment Consultants a call at 800-348-3601 or send us an e-mail at info@halbertwealth.com. You can also find out more about these programs on our website at www.halbertwealth.com, or request a complete Scotia Investors Kit by completing our online Scotia request form.

Wishing you a profitable New Year,

Gary D. Halbert

SPECIAL ARTICLES

Tyranny of the Tax-Exempt (Must Read!!!)
http://www.newsmax.com/insidecover/obama_stimulus_package/2009/01/06/168219.html

Obama's Trillion Dollar Political Stimulus Package
http://www.realclearpolitics.com/articles/2009/01/fiscal_follies.html

Obama Eyes $300 Billion Tax Cut - What A Surprise!
http://online.wsj.com/article/SB123111279694652423.html

Obama Lies About Government Bailout Plan
http://www.aim.org/aim-column/obamas-lies-about-government-bailout-plan

"Gifting" & Things To Be Thankful For This Holiday

GaryHalbert — Tue, 25 Nov 2008 19:56:05 GMT

IN THIS ISSUE:

Gifting To Those You Love
Gifting: Control Is The Issue
A Good WayTo Gift, In My Opinion
A Time To Give Thanks

Introduction

As we near the end of November, the current economic and stock market situation may make giving thanks the last thing that enters our minds. However, even with all of the negatives we have encountered in 2008, we still live in the greatest country in the world, and one that offers as much promise and opportunity as ever.

It is therefore with confidence that I write this Thanksgiving week E-Letter that encourages you to seek out those people and things that you can be thankful for. As the market has shown us, wealth can be fleeting, but our families, friendships and faith can always be sources of gratitude, no matter what kind of mess the world is in.

Also, since we're entering the season of giving, I want to revisit the issue of "gifting" and how you can give up to $12,000 per year to your kids or grandkids (or anyone for that matter) with no tax consequences. A husband and wife can give $12,000 each, or a total of $24,000 a year, to each child or grandchild with no tax consequences for the donors or the recipient(s).

Gifting is one good and legal way to minimize estate taxes. You can transfer large sums of money to your kids or grandkids (or whomever) by taking advantage of gifting. Of course, there are smart ways to do this, and there are not-so-smart ways to do this. You need to be careful in how you take advantage of the "gift tax exclusion."

The point is, this is the time of year to consider the smart ways of gifting to those that you love. I will discuss this in more detail in the pages that follow.

And given that this is the week of Thanksgiving, I will tell you what I am particularly thankful for this year. Let's get started.

Gifting To Those You Love

Let me start this discussion with a quick bit of background. Being in the investment management business, we get questions every year from clients and prospective clients who are trying to help their kids or grandkids learn to save and invest wisely. One of the most common observations along this line is: "I would really like to help my kids with investing, but they just don't have enough money to get started."

This is all too true. Most young families just make ends meet and don't have the savings to start an investment program when they really need to. Along that line, another very common comment we hear is: "I would love to give them the money to get started, but I worry they would just blow the money on wasteful things."

Yet there are ways to gift money to your kids or grandkids that are not only earmarked for certain financial expenditures (college, medical, etc.), but can be targeted for investments that will serve them well later in life. And there are ways you can increase the odds that money you gift to your kids or grandkids will be used for the purposes you desire.

I will talk more about that below, but first let's explore the basics of the gift tax exclusion. Current tax law allows you to gift up to $12,000 per year to a child, grandchild, or anyone, with no tax consequences to either the donor or the recipient. As noted above, a husband and wife can give $12,000 each, or a total of $24,000 a year, to an individual in 2008 with no tax consequences for the donor(s) or recipient(s). The gift tax exclusion is indexed to inflation, and the IRS has recently announced that it will be increased to $13,000 for 2009.

The annual gift tax exclusion is one of the most popular ways that individuals have to transfer a portion of their estates to their heirs over the years prior to their deaths, thus reducing the significant estate taxes their heirs will have to pay. Gifting has the double benefit of helping those you love and reducing estate taxes that go to the government.

I'm surprised that more families don't take advantage of the gift tax exclusion. My wife, Debi, and I gift the maximum to our two kids - currently $12,000 per parent or $24,000 a year to each kid. We gift this money each year into trusts that we have set up for each of our kids.

Gifting: Control Is The Issue

One of the requirements of the gift tax exclusion is that the beneficiary must have ownership and control of the assets donated. This is a big deal when considering gifting $12,000-$24,000 (perhaps annually) to a child, grandchild or other person(s). Generally speaking, if you gift it, the money becomes theirs, and it is possible that they can just blow the money on wasteful spending if they want.

This is one reason why many people do not elect to take advantage of the gift tax exclusion, as far as I can tell in talking to estate tax attorneys. But there are ways - directly and indirectly - to effect control of the assets gifted to a child or grandchild. If the child is a minor, the gifts can be made to a trust which can designate what the money may be spent for, such as college, medical expenses or whatever.

As noted above, Debi and I have established trusts for each of our children, and these trusts are where we make our annual contributions. Trust laws vary among the states, so I won't get into what type of trusts may be best in your particular situation, but this can be a very good way to transfer assets to minor children and maintain control over those assets, at least until they reach legal age, or whatever age you specify in the trust(s).

In some states, minors do not have the right to execute a contract, and thus cannot own stocks, bonds, mutual funds, annuities and life insurance policies in their names. In such cases, parents cannot simply transfer assets directly to their minor children, but instead must transfer the assets to a trust. The trust(s) can be a private trust you establish for your kid(s) with the help of an attorney, or a custodial account such as a UGMA or UTMA account, both of which can hold securities.

The Uniform Gift to Minors Act (UGMA) established a simple way for a minor to own securities without requiring the services of an attorney to prepare trust documents or the court appointment of a trustee. The terms of UGMAs are established by state statute instead of a trust document. The Uniform Transfer to Minors Act (UTMA) is similar, but also allows minors to own other types of property, such as real estate, fine art, patents and royalties, and for the transfers to occur through inheritance. The UTMA is slightly more flexible than the UGMA.

To establish a custodial account, the donor must appoint a custodian (trustee) and provide the name and social security number of the minor. The donor irrevocably gifts the money to the trust. The money then belongs to the minor but is controlled by the custodian until the minor reaches the age of trust termination. The age of trust termination is 18 to 21, depending on the state and whether it is an UGMA or an UTMA. Most UGMAs end at 18 and most UTMAs at 21, but it does depend on the state. The custodian has the fiduciary responsibility to manage the money in a prudent fashion for the benefit of the minor. Custodial accounts are most often established at banks and brokerages.

The bottom line is that gifting is a great way to transfer assets to those you love without tax consequences. But there must be a high degree of trust involved. If you do elect to form trusts, be sure to consult with an attorney that is familiar with the laws of your state.

Gifting To Adult Children

As noted above, you can gift to minors by establishing trusts in which the donor(s) can maintain control of the assets. But there is also a way to gift to adult children which can also be effective, at least in my experience.

Consider gifting them an investment account. Here is one way it can work. Let's say you are the parents or grandparents of an adult child. The two of you agree to gift $24,000 (or some lesser amount) to your adult child or grandchild. But you only agree to gift the money if it goes into a specified investment account. And you may agree to gift another $24,000 in the following year (or years) if things go as planned.

This approach is only advised if you have a good relationship with the adult child (or whomever you wish to help). It should be laid out carefully at the onset that this investment account is indeed a long-term program, and that the money should be kept in the account and not withdrawn for expenses, spending, etc.

For donors who have the where-with-all to gift for more than one year, the main gamble is really the first year in regard to adult children. You make it clear that if they maintain the investment, rather than spending the money, you may (at your discretion and under certain specified conditions) continue to make gifts in future years. This provides a huge incentive for the beneficiary to keep the money in the investment account.

If they don't, you simply stop the gifts beyond the first year. Sounds simple, but it can be very effective.

This method of gifting will also create a big incentive to the child or grandchild to become more knowledgeable about investing in general, which is what you want. If they get into investing, that means they'll likely get more serious about saving, cutting expenses, building wealth, etc.

Another consideration in light of the market's recent downturn is the possibility of gifting an asset or investment account that has depreciated in value. Assuming the asset is one that has a good chance of regaining lost value in the future, gifting it now at a lower fair market value would transfer any future gain to the recipient and possibly reduce the donor's potential taxable estate. Plus, the donor would get more bang for the buck by gifting a discounted asset.

Of course, this and any other gifting strategy has potential tax ramifications for the donor and recipient that must be considered. The original cost basis for the gifted asset goes with it, as well as the potential tax consequences from any subsequent gains. In some cases, it may be more advantageous for the donor to sell the asset and take a tax loss rather than gifting it.

As always, the best course of action depends upon your individual situation, so it's important to seek out the advice of a qualified tax professional or estate planning attorney before pursuing any gifting strategy.

A Good Gifting Strategy, In My Opinion

Let's say that you and your spouse want to make a cash gift of $24,000 to a child or grandchild via the gift tax exclusion. And let's say you agree with me that an investment account is the way to go. Now what? In previous issues of this E-Letter, I have discussed the Scotia Partners investment programs, and we feel that these programs may offer a unique opportunity for those who are seeking a way to gift an investment account to children and/or grandchildren.

Scotia offers two investment programs that employ a proprietary investment strategy using both long and short trades, as well as 2X leverage. The Scotia S&P Moderate Growth Strategy uses trend-line reversion to identify the best days to be in the market. Because of this selectivity, the Moderate program has historically been in the market only about 25% of the time, and in the safety of the Rydex US Government Money Market Fund the remaining 75%. Of course, there are no guarantees that these percentages will remain the same in the future.

The Scotia Growth S&P Plus also uses the trend-line reversion system discussed above, but adds another money management technique to identify "overbought" and "oversold" market conditions. This strategy overlay is the "plus" in Growth S&P Plus, and results in this program being in the market more often than the Moderate program. On average, the Growth S&P Plus program has historically been in the market apprx. 35% of the time and in the money market the remaining 65%. Again, there are no guarantees for the future.

Both programs are somewhat unique in the money management business because they will exit the market immediately upon experiencing a gain, thus reducing the possibility of being "whipsawed" by volatile market action. The Moderate program also limits initial trade allocations to 50% of the account value, but will move to a 100% allocation on subsequent days. The S&P Plus program, on the other hand, always uses 100% allocations.

Our analysis has shown that both Scotia programs have thrived on the increased market volatility that began in mid-2007. The table below shows both programs' recent performance as compared to broad market indexes:

	Scotia Growth S&P Plus Strategy	Scotia S&P Moderate Growth Strategy	S&P 500 Index	Nasdaq Composite Index
YTD	91.50	61.06	(32.84)	(35.11)
1-year	116.12	63.66	(36.12)	(39.81)
2-year	70.88	35.25	(14.46)	(14.73)
3-year	46.24	24.50	(5.22)	(6.72)
5-year	N/A	19.59	0.26	(2.29)

Actual performance record (annualized) as of October 31, 2008. Past performance is not necessarily indicative of future results. Be sure to read the Important Notes at the end of this E-Letter.

Best of all, Purcell Advisory Services (Scotia's back-office and trading platform) has agreed to reduce their normal $25,000 account minimum to $24,000 in order to accommodate gifts from two parents or grandparents to a single recipient.

In order to do this, we will help you establish an account at Rydex Funds through Purcell Advisory Services, and grant Scotia the authority to manage the funds on your (or the recipient's) behalf. You will receive copies of the monthly account statements if you are the custodian for an UTMA or UGMA account.

As always, I have my own money invested in both of these programs. However, keep in mind that these are moderate to aggressive investments, so only pursue this idea if you and the recipient of the gift are comfortable with the risks involved. If this sounds like something you are interested in, or if it may be a suitable gift for someone you love, give us a call at 800-348-3601 and we will send you the necessary paperwork to review and get started.

A Time For Giving Thanks

At times like these, we often come into the Thanksgiving season feeling anything but thankful. I have to admit that the prospects of a global recession, plummeting stock markets, decimated retirement savings, growing unemployment, etc., etc. can take our eyes off of the people and things around us to be thankful for. We sometimes prefer to mutter "why me" instead of giving thanks.

However, the Bible counsels us "In everything give thanks…," even though we as humans often have a hard time following this directive. During the Thanksgiving season, I think it's important to find the silver lining around the dark clouds, hard as it may be. In doing so, we sometimes better realize the things that are really important in life.

What follows is a collection of things that I am thankful for this year.

Thanks For Long-Distance Relationships

One of the benefits of writing a nationally distributed E-Letter is that I have business relationships spread all across our great country. Sometimes it is easier to express thanks to those that you see and talk to in person than those who are only available via e-mail or telephone. However, I want to take this opportunity to thank the various long-distance relationships that mean so much to me personally.

First, I want to express appreciation for my clients, who really make all of this possible. Were it not for those who have entrusted us to manage their investments, there would be no E-Letter. My companies currently have over 1,100 clients representing every state in the Union, and many of these individuals have been our clients for over a decade. In many cases, what began as client/advisor relationships have now developed into warm friendships.

Next, I want to express my sincere appreciation to all of you who regularly read my E-Letters. Since its start in September of 2002, I have continued to be impressed at the quality of most responses to my writing. While there have been a few abusive responses, even most readers who did not agree with me offered reasoned arguments that respected the right to have a different opinion. These comments, both those that agree as well as those that disagree, help me to put out a better E-Letter.

I also want to say "thanks" to all of the staff at InvestorsInsight for providing a platform for me to get my message out to you. As I have said before, the E-Letter grew out of periodic e-mails to my clients after the 9/11 tragedy. There was so much mis-information out there that I wanted to try to help sort through the stories. A year later, InvestorsInsight saw some of my writings and requested permission to publish them as a weekly E-Letter and the rest, as they say, is history.

Other long-distance relationships to which we owe a debt of gratitude are our consultants, which include accountants, legal counsel and those that help us evaluate and track money managers. It has become a fact of life that good counsel is necessary for a successful business, and I think ours are among the best in the industry.

The final long-distance relationships I'd like to thank are the Advisors we recommend. Since we perform due diligence on each of them, we are well aware of all of the work it takes to formulate and implement a market strategy designed to manage the risks of being in the market. We also appreciate the hard work of each of their staff members who diligently process account paperwork that we send to them.

Thanking Those Close To Home

I would be remiss if I did not extend a hearty "thanks" to my internal staff. I am very fortunate in that most of my employees have been with me for over a decade. There are members of my staff that help me research topics for the weekly E-Letters, while others process information requests and speak to readers who call with questions or comments. And all of this is over and above their regular duties required in our investment management business.

During this time it is important to never forget to be thankful for your family. My wife, Debi, works in the business and is an important sounding board for many of the ideas that make their way into the weekly E-letters. She is also the CFO of the company and handles all of the detailed financial duties that allow me to concentrate on writing and overseeing our investment management business. She does all that and is still my best friend and a great Mom!

I'm also thankful for my kids. While many newspaper, radio and TV stories lament "out of control" teenagers, I am thankful that my kids are not among them. My son, Tyler, is now a freshman in college, makes good grades, goes to church regularly and works here in the office during the summers. My daughter, Jordyn, is an energetic junior in high school who also makes good grades, plays sports and has never been any trouble whatsoever.

The Biggest "Thank You" Of All

On a larger scale, I am thankful to be living in the greatest country on the face of the earth. Sure, we have our problems, especially in light of the current financial crisis, the stock market plunge and the global recession, but I'd be willing to bet that there are citizens of many other countries who would trade places with us in a heartbeat.

I'm even grateful in the wake of an election that didn't go the way I would have preferred. Only in a country where you have the freedom for political discourse can you have a situation where the will of the people speaks as loudly as it did just a few weeks ago. In 1994, a similar message was sent when the Republicans gained control. In many countries, such a shift in power cannot happen without a bloody revolution, but here in America, our votes give us the ultimate say as to the direction of the country.

I am sometimes amused at politicians and celebrities who make controversial statements, and then complain about losing votes or income. It is important to remember that our freedom of speech has never been a freedom from consequences for what we say. These complainers should be thankful that they live in a land where they have the right to say whatever they want without having to fear being hauled away in the middle of the night by the "thought police."

And finally, though there seems to be a vocal minority who want to challenge the "One Nation, Under God" concept, I don't think that we should ever forget to thank Him who has blessed our nation so bountifully. No matter what detractors may say, our nation was founded upon Biblical principles, and I think that's a big reason why America has been so successful and has lasted for so long.

Even though a vocal minority wants to push the separation of church and state to ridiculous extremes, they'll never be able to remove God's influence from the precepts upon which this country was founded, nor the solid beliefs of its people.

These are just a few things that I am very thankful for during this Thanksgiving season. As you are inundated with food, football and Christmas shopping promotions this week, please don't forget to stop for a minute, bow your head and be thankful for all of the blessings you have received during the year. I certainly am!

Wishing you a bountiful Thanksgiving holiday,

Gary D. Halbert

SPECIAL ARTICLES:

There is a Silver Lining
http://www.newsweek.com/id/163449

Despite Hard Times, Families Count Blessings
http://www.miamiherald.com/360/story/781244.html

Neither the Great Depression Nor Japan
http://www.morganstanley.com/views/gef/archive/2008/20081120-Thu.html

IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Scotia Partners, Ltd. (SPL), and Purcell Advisory Services, LLC (PAS) are Investment Advisors registered with the SEC and/or their respective states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. There is no foolproof way of selecting an Investment Advisor. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from PAS in exchange for introducing client accounts. For more information on HWM or PAS, please consult Form ADV Part II, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor's 500 Stock Index (which includes dividends), and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these benchmarks may differ materially (more or less) from that of the Advisor. The performance of the S&P 500 Stock Index and the NASDAQ Composite Index is not meant to imply that investors should consider an investment in the Scotia Partners Growth S&P Plus trading program as comparable to an investment in the "blue chip" stocks that comprise the S&P 500 Stock Index or the stocks that comprise the NASDAQ Composite Index. Historical performance data represents an actual account in a program named Scotia Partners Growth S&P Plus, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in the Scotia Partners Growth S&P Plus. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for "Worst Drawdown" are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

In addition, you should be aware that (i) the Scotia Partners Growth S&P Plus program is speculative and involves a high degree of risk; (ii) the Scotia Partners trading program's performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the program; (iv) Purcell Advisory Services will have trading authority over an investor's account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Purcell Advisory Services trading program's fees and expenses (if any) will reduce an investor's trading profits, or increase any trading losses.

Returns illustrated are net of the maximum management fees, custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. No adjustment has been made for income tax liability. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.

Mortgage Bailout Passes, Finally - Now What?

GaryHalbert — Tue, 07 Oct 2008 21:04:06 GMT

IN THIS ISSUE:

An Inside Look At The Mortgage Bailout Bill

Equity Ownership & Limits On Executive Pay

Mortgage Assistance & The Bankruptcy Code

Expanded FDIC Limits On Bank Accounts

Was The Bailout The Right Thing To Do?

The Senate's $150 Billion In Extra Bailout Pork

John McCain Blew An Election Saving Opportunity

Electoral Map Now Leaning Heavily To Obama

Scotia Partners - Making Money In The Bear Market

Introduction

The massive $700+ billion bailout package finally passed Congress and was signed into law by President Bush late last Friday, to the dismay of millions of Americans. The House rejected the huge bailout bill on Monday, and the Dow Jones promptly plunged a record 777 points on that same day. Fearing the worst, the Senate amended the bailout with another $150 billion in pork and passed it overwhelmingly on Wednesday, with both Senators Obama and McCain voting in favor. On Friday, the House passed the bill by a comfortable margin.

This emergency bailout plan supposedly had only one goal: to allow the government to hoover up hundreds of billions in distressed mortgage-related securities from banks and financial firms to shore up our faltering banking and credit markets. No one knows if this rescue plan will work, or if the government will need even more money later. We'll discuss all of this as we go along.

The Senate passage of the $700 billion bailout bill on Wednesday included, drum roll please, yet another $150 billion in mostly pork barrel spending, bringing the final cost to $850+ billion. Why was this extra spending necessary? I would argue that the extra $150 billion in pork was added to buy more "yes" votes for the bailout plan in the Senate and sweeten the odds for passage in the second vote in the House. Wait until you read what they added below (hint: they think we are all idiots!).

I did not think that Secretary Paulson's initial $700 billion bailout plan was the best approach, with no accountability, no transparency and no oversight. That was never going to work or be passed. Actually, I would have preferred one of the alternative rescue plans that would have involved government loans and insurance for ailing banks, rather than the Treasury buying up distressed assets directly. But John McCain never got behind such alternative plans, so they fizzled, and now his presidential campaign is in real trouble.

There is so much to talk about this week I'm not sure where to start, but I think the best place to begin is with a summary of the latest bailout bill, now that it has become the law of the land. We will also take a look at the extra $150 billion in pork that the Senate added to the bill. Next, we'll revisit John McCain's latest moves and the Electoral Map, which shows him falling fast in the polls.

Finally, we will revisit Scotia Partners, a very successful money manager that I have written about several times this year - and for good reason. As you can read at the end, Scotia is one of the few money managers that has done well in this bear market in stocks. As always, past performance is no guarantee of future results.

An Inside Look At The Mortgage Bailout Bill

Since my company is intimately involved in the securities business, and since government regulation of the securities business gets more complex every year, we engage top-notch law firms to help us sort through the regulatory maze. One of our main legal firms is Sidley Austin LLP, one of the leading law firms in the industry.

Sidley Austin released a detailed summary of the latest government bailout bill, and its possible ramifications, on Friday of last week. We appreciate these periodic reviews from our attorneys, and the ability to share them with our clients and readers. What follows is my abbreviated summary of Sidley's latest analysis of the final bailout bill.

On October 3, the House of Representatives passed the "Emergency Economic Stabilization Act of 2008,"(the "Act") which authorized up to $700 billion in new government spending (actually more than that) to bail out banks and financial institutions that hold troubled mortgage and related debt. The Act will create a "Troubled Asset Relief Program" ("TARP") which will be overseen by the Treasury and will be the vehicle in which distressed assets are purchased from banks and other sellers of mortgage-related securities.

The Act authorizes up to $700 billion to the Treasury Secretary to enable TARP to purchase and fund commitments to purchase "troubled assets" from "financial institutions." Financial institutions, in this case, are defined as those which are established and regulated under federal or state law, or have significant operations in the US (in the case of foreign entities). The Act suggests that financial institutions would include, but would not be limited to: banks, savings and loans, credit unions, broker-dealers and insurance companies. The 'but not limited to' language gives the Treasury significant flexibility in determining which entities may participate in the TARP.

"Troubled assets" initially include residential or commercial mortgages and any securities, obligations or other instruments that are based on or related to such mortgages originating on or before March 14, 2008. Yet the language also authorizes the Treasury Secretary, in consultation with the Fed Chairman, to purchase any other financial instruments they deem necessary to promote financial market stability, but such non-mortgage related asset purchases must be reported to the Congress. Again, the scope of potential asset purchases is very large.

The Act provides up to $700 billion to the Treasury, but unlike the original proposal, the Act will make only $250 billion available in the first tranche, with the next $100 billion coming upon the President's request, and the final $350 billion subject to a joint resolution of Congress.

The Act states that the Treasury can establish programs, vehicles or entities that are authorized to purchase troubled assets, manage the assets and dispose of them over time. I predict this will result in dozens of newly-created government agencies and sub-agencies and many new federal employees (presumably dominated by out-of-work ex-bankers) under the Treasury.

The Treasury Secretary is directed to minimize taxpayer expense by encouraging the private sector to participate in purchases of troubled assets, and to invest in financial institutions, thereby providing opportunities for private funds looking to leverage the TARP as a partner rather than a competitor. Here, too, the Secretary has broad flexibility in such partnership arrangements. However, the Secretary is required under the Act to take steps to avoid the "unjust enrichment" of any financial institutions that participate in the TARP. This will be tricky to enforce.

Interestingly, the Act stipulates that the Treasury "must make available to the public in electronic form the description, amount and pricing of assets it acquires pursuant to the Act within 48 hours of purchase, trade or other disposition." This language was included to require "transparency," meaning that the public will know what the Treasury is paying for the assets it purchases. This requirement is intended to make clear that there is a market for these distressed mortgage-related assets and what the government is paying for them.

I would point out that while some Americans may appreciate knowing what the Treasury is paying for these distressed assets, and while this knowledge may help in freeing up liquidity in these markets, there is little doubt that potential buyers of these same securities down the road will take what the government paid for then into account when submitting offers to buy these same securities in the future.

Equity Ownership & Limits On Executive Pay

Then there is the matter of the Treasury taking equity positions in those financial institutions that sell assets to the TARP. The Act requires that the Treasury receive either warrants with the right to receive non-voting common or preferred shares from participating public companies, or a senior debt instrument in cases where the selling company is not listed on a national securities exchange.

As I read it, this process will be very complicated since the Act envisions that the Treasury will get a large enough position in potential ownership (warrants) or debt to cover any losses it might incur when it eventually sells the assets down the road. If so, this suggests that the Treasury could require a large stake in the institutions wishing to unload toxic securities, which could discourage participation.

This, of course, also brings up the question we have had all along: How does the Treasury value many of these very complex and esoteric mortgage-related instruments? Many of these credit swaps, CDOs and derivatives are extremely hard to value, which is a big reason why we are now in a credit crisis.

Next is the matter of limiting executive compensation for those companies that wish to participate in the program. In addition to requiring an equity position in the companies wishing to sell assets to the TARP, the Act also requires the Treasury to limit the compensation paid to top executives of the participating companies, especially in terms of undue bonuses and so-called "golden parachutes." Specifically, the Act changes the tax code (Section 162m) such that the corporate salary tax deduction is reduced from the current $1 million to only $500,000.

These compensation changes include the top five executives in each participating company. This effectively will put a ceiling of $500,000 on the salaries of the top five execs of the participating companies, plus whatever bonuses, if any, that are allowed by the Treasury Secretary. Again, it remains to be seen just how many companies will take the equity hit and the executive compensation hit required to participate in the bailout program.

Next, we turn to the insurance provisions in the Act. In a concession to Republican opponents of the original Treasury plan, the Secretary is required to create a program for the guarantee of troubled assets, as an alternative to straight asset purchases. Under this plan, the Treasury could agree to insure troubled assets on the books of participating companies. Upon request from a financial institution, the Secretary may guarantee, on terms established by the Secretary, the timely payment of principal and interest on a troubled asset. Frankly, I don't understand how this insurance mechanism will work, but it is not clear that the Treasury will even make use of it.

Mortgage Assistance & The Bankruptcy Code

One of the most troubling aspects to the proposed bailout (at least for conservatives) was the suggestion that the Bankruptcy Code should be changed so as to allow bankruptcy judges to unilaterally modify terms of mortgage loans. The Act does not contain any such amendments to the Bankruptcy Code that would permit so-called "cram downs" by bankruptcy judges. However, the Act does contain provisions designed to insure that the government uses its vast powers as the owner of mortgages and mortgage-backed securities to facilitate loan modifications (such as reduced interest rates, principal amounts, monthly payments and/or extended time of repayment) in order to prevent avoidable foreclosures.

In fact, the Act requires the Treasury to implement a plan that seeks to maximize assistance to homeowners and to encourage servicers of underlying mortgages to take advantage of programs to minimize foreclosures, including the HOPE for Homeowners Program under Section 257 of the National Housing Act. Also, the Treasury is authorized to use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.

Expanded FDIC Limits On Bank Accounts

In an effort to shore up confidence among depositors, Congress added a provision to the bailout bill to increase FDIC insurance from $100,000 per account to $250,000 per account beginning on October 3 and until December 31, 2009. While the Act provides this increased limit temporarily, the FDIC Chairman, Sheila Bair, said that she expects Congress to make the increase permanent later this year. If the credit crisis continues, I would expect Congress to insist that the government guarantee all amounts in bank accounts and credit unions, as it has already done for money market mutual funds.

Previously, to ensure that more than $100,000 was covered by FDIC insurance, many consumers had spread cash among multiple banks, especially in recent weeks. People had also been setting up separate accounts in each spouse's name at the same bank, which provided $100,000 for each of the two separate accounts, plus a joint account (husband and wife) which doubled the coverage to $200,000 - or $400,000 total for all three accounts. Under the financial rescue plan which raises the coverage to $250,000, this combination of a joint account and a separate account in each spouse's name will result in $1 million total coverage.

Was The Bailout The Right Thing To Do?

As noted earlier, I would have preferred one of the alternative rescue plans that would have involved government loans and insurance for ailing banks, rather than the Treasury buying up distressed assets directly. But what was abundantly clear was the fact that something had to be done. The financial markets around the world were seizing up, and we were facing an international credit crisis, which may yet be far from over.

So while the $700+ billion bailout, with the government directly buying up hundreds of billions in distressed mortgage-related securities, was not my first choice, the government had to take action in my opinion. Millions of Americans were outraged over the bailout plan and many still are. Yet the market plunge of 777 points in the Dow on Monday of last week, after the House failed to pass the bailout, certainly sent a signal to many Americans that the situation was growing dire.

While the summary of the bailout bill above should be helpful, there is still much that we don't know. We still don't know, for example, how the Treasury will price the assets it will be buying, especially in light of the new wrinkles such as the equity stake they will demand from the participating companies. Will the government pay too much, to the expense of taxpayers? Will they pay too little, thus causing more waves of failures? We don't know.

Likewise, we don't know if the $700 billion will be nearly enough. Estimates vary widely, but it is generally agreed that there is at least $2 trillion in troubled mortgage-related paper out there, just in the US. Fortunately, it is also generally agreed that not all of that $2 trillion in subprime and other mortgage-related paper is worthless. That remains to be seen, of course.

The next question is, when will we know if the bailout is working? A lot may depend on when it begins. Some suggest that it will be several months before the Treasury gets the bailout plan up and running. There is a feeling that it may have to wait until after the new administration gets into power on January 20. Personally, I don't think we can wait that long.

Clearly, the markets will let us know, loud and clear, whether the new bailout plan is an acceptable option, and just how soon it needs to get up and running. I for one do not believe the bailout plan passed last Friday is a panacea, and I certainly expect the markets to continue to be a wild roller coaster just ahead. Yesterday (Monday) was a good example when the Dow Jones plunged 800 points by mid-day before reversing to close down 363, or 3.5%, on the day.

The Senate's $150 Billion In Extra Bailout Pork

Politicians on both sides of the aisle in Washington have one universal solution for solving serious issues: When in doubt, just throw more taxpayer money at the problem. This line of thinking certainly came into play when the House failed to pass the massive bailout plan on Monday of last week. The Senate wasted no time in adding on another $150 billion to the already massive $700 billion bailout plan.

There was enormous pressure to pass some kind of massive bailout plan, especially with Bush, Bernanke and Paulson warning of financial Armageddon. So what was the Senate's first thought as to what it should do? Let's add even more money to the tab so as to make it easier for House members to change their votes. This is sick! Here is a summary of the last minute add-ons:

The Senate extended provisions to exempt many Americans from the Alternative Minimum Tax, which was never intended to affect millions of middle class Americans. Never mind that Congress does not have the guts to address this egregious tax measure directly and eliminate it.
Another provision added in the Senate would require most employers and health insurers to put mental-health problems on par with physical illnesses, including coverage for hospital stays and doctor visits as well as co-payments and deductibles.
The Senate bill also added in several more key elements designed to attract House Republican votes - particularly popular tax measures that have garnered bipartisan support. It would extend a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels. It would also continue a host of other expiring tax breaks, among them the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns. And there's more.
$397 million for the "domestic production activities deduction" for the motion picture industry, and another $81 million to extend and modify treatment of "certain film and television productions."
$179 million for tax incentives for "investment in the District of Columbia." $100 million in tax breaks for "certain motorsports racing track facilities." $61 million in added credits for "steel industry fuel."
$49 million in tax breaks for people (mostly in Alaska) receiving compensation from the litigation over the Exxon Valdez oil spill. $49 million for a charitable deduction for corporations that donate books to libraries. $33 million for an economic development credit in American Samoa. $2 million in excise tax exemption on "certain wooden arrows designed for use by children."

These are just some examples of the many spending measures that were added to the $700 billion bailout plan in the Senate. We can argue about the importance of these expensive add-ons, but they never should have been a part of a financial system rescue plan in my opinion. In total, these so-called "sweeteners" (formerly known as 'earmarks') were included in the Senate version at a cost to taxpayers of at least $150 billion, bringing the total tab for the emergency bailout bill to over $850 billion.

What is clear is that these huge add-ons in the Senate were designed to give more House members "cover" so that they could switch their votes in favor of the bailout package. Never mind the cost to taxpayers. And it worked. The bailout bill passed in the House rather easily last Friday. Such is the twisted political world we live in.

John McCain Blew An Election Saving Opportunity

I really hesitate to throw in this last point, but I shall. In my view, Senator McCain blew the last opportunity he had to save his presidential campaign with his vote in favor of the massive government bailout plan. Senator McCain has accurately portrayed himself as a political 'maverick' that has frequently gone against the Republican Party on numerous contentious issues over the years. That is why he is not so popular among the GOP faithful.

With public sentiment so overwhelmingly negative over this massive bailout bill, it would have been easy for either McCain or Obama to come out against it. But Obama quickly got behind the bailout. If McCain had come out against it, and in favor of one of the alternative plans (or better yet, offered a plan of his own), he could have generated a potentially large shift in public opinion in his favor. But he didn't for reasons unknown.

As the maverick on curtailing wasteful spending, McCain could have easily justified his vote against the bill, especially with the extra $150 billion in largely pork-barrel spending put in by the Senate, in which he is a member, but he didn't. Like Obama, McCain quickly fell into line.

For the first time during this presidential campaign, Senator McCain pulled ahead of Obama shortly after the successful Republican National Convention. But then the mortgage-related financial crisis began to unfold. The media, not surprisingly, laid the blame on the Bush Administration (what else is new), and McCain's lead in the presidential polls evaporated.

Over the last 2-3 weeks as the financial crisis rose to the front pages, McCain's showing in the polls has worsened by the day. The presidential election is far from over, but as this is written, Senator McCain is behind by 5-6-7 points or more in the national polls. He will need a major gaffe by Obama, or some other serious surprise, to have a chance of winning on November 4.

Maybe Senator McCain felt he had no choice but to vote for the massive government bailout plan. I don't know. But I do believe his failure to get behind one of the alternative plans, or suggest a new one of his own, has sunk his presidential chances.

Along that line, let's take a look at the latest Electoral Map where Barack Obama has taken a commanding lead.

Electoral Map Now Leaning Heavily To Obama

The general election is less than a month away and Barack Obama is dominating John McCain in both national and state polls. Not a single national poll has McCain in the lead; in fact, Obama leads by an average of nearly six points which is beyond the margin of error.

The states solidly in the McCain column now total only 163 electoral votes. The states solidly in the Obama column total 277 electoral votes. He only needs 270 to win. If the election were held today, Obama would win even if McCain carried all the toss-up states.

I hate to be the bearer of bad news but the situation is what it is. So is McCain totally sunk? Well, never say never, but his path to 270 looks very bleak. McCain would have to pull the mother of all hat tricks and carry all seven toss-up states. (They are: IN, OH, NC, FL, CO, NV and MO.) And, he would also have to recapture VA which is now clearly in the Obama column.

It should be noted that North Carolina, Indiana and Virginia have not voted for a Democrat for president in decades. NC last voted for a Democrat - Jimmy Cater - in 1976. And IN and VA have not voted for a Democrat president since Lyndon Johnson in 1964. This is a dire situation for John McCain.

The most obvious problem McCain faces is the financial melt-down. (No it isn't Sarah Palin, though she has not helped his cause with many voters.) The financial crisis could not have come at a worse time for him, or a better time for Obama. No other issue will have much traction between now and the election; it will be all financial crisis/economy all the time. This takes McCain's biggest strength - security/foreign policy - off the table. The party in power gets the blame and takes the credit for the economy, and now there is nothing but blame to be had.

The presidential lines have been clearly re-drawn - it's no longer close. This election is now Obama's to lose. If the Electoral trends continue as they have in the last few weeks, Obama could win in a landslide. If McCain manages to win, I am sad to say, he will be the political comeback artist of the century!

Scotia Partners - Making Money In The Bear Market

Since early June, I have written about the Scotia Partners investment programs several times in this E-Letter. Many of you have responded and requested information on Scotia's Growth S&P Plus and S&P Moderate Growth investment programs, and I'm pleased to say that a number of my readers have become clients.

Many others, however, have been calling periodically to see how the Scotia mutual fund programs fared during the market's wild (mostly down) gyrations in September. I am all too happy to update everyone!

During the month of September, the Scotia S&P Plus program was up a whopping 22.67% net of fees, and the less aggressive S&P Moderate Growth program delivered a net gain of 26.37%. As you can see, both of these programs compared very favorably to the S&P 500 Index's loss of over 9% during September. These are real numbers in real accounts in real-time trading.

From June 1st through September 30th, Scotia's Growth S&P Plus program has produced a gain of 60.37%, with the Moderate program close behind at +41.25%, both net of fees. Thus, the E-Letter readers who got on board early on have had quite a good ride, depending upon when their money was actually invested. The monthly details for both programs for June through September are as follows:

Program Name	June Return	July Return	August Return	September Return	YTD Return (as of 9/30)
S&P Plus	+ 16.21%	+ 8.66%	+ 3.53%	+ 22.67%	+ 112.59%
S&P Moderate	+ 6.94%	+ 5.92%	- 1.32%	+ 26.37%	+ 62.85%

Past performance is not necessarily indicative of future results.

Remember, the underlying investment strategy employed by Scotia's founder, Cliff Montgomery, has have thrived during the market's greatly increased volatility since the middle of 2007. Thus, it was no surprise to us that September's spike in volatility was actually good for Scotia's performance.

Hopefully, the financial markets will calm down soon, but the stock markets have continued their wild ride so far in October. Frankly, it is impossible to know how long this high level of volatility will continue. If you agree, then the S&P Plus and/or S&P Moderate program may be a good place for a partial allocation within your overall portfolio.

Many of you read about Scotia early on but wanted to wait and see how they would perform. Yet if you had invested on July 1, you would have enjoyed profits of 38.0% in the S&P Plus program, and over 32% in the S&P Moderate program in July, August and September alone. Again, past performance is not a guarantee of future results.

If you would like to see if one of the Scotia programs might be suitable for your portfolio, please call one of our Investment Consultants at 800-348-3601. Or, you can request additional information by sending an e-mail to info@halbertwealth.com, or clicking on our Scotia online request form link.

Also, be sure to read all of the Important Notes and disclosures following my signature below.

Wishing you profits,

Gary D. Halbert

IMPORTANT NOTES: Halbert Wealth Management, Inc. (HWM), Scotia Partners, Ltd. (SPL) and Purcell Advisory Services (PAS) are Investment Advisors registered with the SEC and/or their respective states. Information in this letter is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. There is no foolproof way of selecting an Investment Advisor. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from PAS in exchange for introducing client accounts. For more information on HWM, PAS or SPL please consult Form ADV Part II, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

The Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these Indexes may differ materially (more or less) from that of the Advisor. The performance of these Indexes is not meant to imply that investors should consider an investment in the Scotia Partners Growth S & P Plus or the Scotia Partners S&P Moderate Growth trading programs as comparable to the stocks that comprise these Indexes. Historical performance data represents actual accounts in programs named Scotia Partners Growth S&P Plus and Scotia Partners S&P Moderate Growth, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in these programs. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for "Worst Drawdown" are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

In addition, you should be aware that (i) these programs are speculative and involve a high degree of risk; (ii) the Scotia Partners trading programs' performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the programs; (iv) Purcell Advisory Services will have trading authority over an investor's account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Purcell Advisory Services trading program's fees and expenses (if any) will reduce an investor's trading profits, or increase any trading losses.

Returns illustrated are net of the maximum management fees (which are deducted in full quarterly, and not accrued month-by-month), custodial fees, underlying mutual fund management fees, and other fund expenses such as 12b-1 fees. They do not include the effect of annual IRA fees or mutual fund sales charges, if applicable. No adjustment has been made for income tax liability. Money market funds are not bank accounts, do not carry deposit insurance, and do involve risk of loss. The results shown are for a limited time period and may not be representative of the results that would be achieved over a full market cycle or in different economic and market environments.

A Misguided Slam On Active Management

GaryHalbert — Tue, 09 Sep 2008 20:17:18 GMT

IN THIS ISSUE:

"Market Timers Don't Own Yachts"
Why Market Timing Gets A Bad Wrap
Pros and Cons of Market Timing
The Bottom Line On Market Timing
A Market Timer Doing It Right
Scotia's Moderate Risk Strategy

Introduction

I might have known it would happen. The very week last month that I discussed the value of traditional market timing investment strategies in this E-Letter, market timing was attacked in a major financial publication.

About the same time that I published my August 12 E-Letter extolling the virtues of traditional market timing, mutual fund manager David Dreman, chairman and founder of Dreman Value Management, published an article in Forbes magazine that cast market timing strategies in a very unfavorable light.

Don't get me wrong, I'm used to the mainstream financial media trashing traditional market timing and other active management strategies. The same goes for many other investment professionals whose livelihoods generally depend upon their clients buying-and-holding the investment programs that they sponsor, more or less permanently.

Part of this argument goes back several years when New York Attorney General Eliot Spitzer called certain illegal practices discovered in the mutual fund industry "market timing," when they were nothing of the sort. Of course, many in the financial services industry chimed in with Spitzer, since they have never liked market timing in the first place.

No, I'm not surprised or upset that David Dreman chose to take a stand on market timing that is opposite to my view. However, I did think he was a bit arrogant (and wrong) in the way he did so. In my opinion, arrogance has no place in investment management. And when I survey some of the funds that Dreman is managing, I would think it especially true in his case.

In this week's E-Letter, I'm going to discuss the main comments that David Dreman made in his Forbes article demeaning traditional market timing. I will also provide some additional insight on the benefits of market timing as implemented by the successful active managers I recommend and certain others.

To make my point, I'll also reintroduce you to Scotia Partners, and their market timing programs that are the envy of the industry at the moment. Scotia has been knocking down exceptional returns in this very difficult stock market environment of the last 12-18 months, when most fund managers have been struggling to say the least.

As always, past performance is not necessarily indicative of future results, and there is no guarantee that Scotia will be able to continue delivering its clients with such lofty returns. However, if you are growing weary of buy-and-hold, tired of staying the course and suffering repeated market losses, I think you'll be very interested in hearing the analysis that follows.

Of Yachts & Market Timers

In David Dreman's latest Forbes piece, the jab at market timing is actually a very small part of a much larger article entitled "Bear Market Opportunities." The article's supposed purpose was to offer suggestions for investments in light of the major stock market indexes having crossed into bear market territory in July of this year. The part about market timing came in a discussion about whether investors should get out of the market, where Dreman said:

"In these circumstances, I wouldn't try to be too clever [as in get out of the market now]. You don't see market timers who own yachts. If you pack up now, chances are you'll miss a good part of the next bull market."

I will probably be among the first to agree with Mr. Dreman in regard to individual investors, since most have lousy timing (myself included). However, he paints all market timers with the same brush, and that's unfair because there are some professionals who have done very well over the years, as I will discuss in more detail later on.

But here's the rub with Dreman for me: I perceive an air of arrogance where he talks about market timers not owning yachts. How does he know if any market timers own yachts or not? Obviously, he doesn't! But he would have Forbes readers assume he knows this, nonetheless.

Dreman's questionable assertion about market timers and yachts may well be a reference to an old Wall Street story from the turn of the 20th century. According to Barry Popik, a contributor-consultant to the Oxford English Dictionary and various other reference works, the story can be traced back to an 1885 issue of the old Forest and Stream, as follows:

THE BROKERS' YACHTS. -- When Mr. W. R. Travers was at Newport last summer, a great many fine yachts lay in the harbor. "Wh-who-who-whose yacht is th-th-tha that?" he asked, pointing to one of them. "That belongs to Mr. Jones, the well-known broker." Mr. Travers raised his dexter finger slowly and brought into line another yacht. "Wh-wh-wh-whose yacht is that?" he asked with some difficulty. "Oh, that's Mr. Smith's the broker." "Wh-wh-whose is that?" pointing out still another. "That belongs to Mr. White, another broker." "W-w-well, wh-wh-where's the customers' yachts?" inquired the great Wall street joker. -- Chicago Mail.
(Source: http://www.barrypopik.com)

The above-noted passage is a story that is rarely discussed in Wall Street insider circles, for obvious reasons, but it is a story I heard about early-on in my investment career over 30 years ago. It is as valid a question today as it was over a hundred years ago.

Now back to David Dreman's latest article in Forbes. When you Google Dreman's name and the word "yacht," it seems that one of his most prolific postings is an interview that he gave in 1998…from HIS YACHT…named surprisingly, the "Contrarian." A yacht named Contrarian owned by a buy-and-hold advocate? Honest folks, you can't make this stuff up!

The implication is clear – investors who follow buy-and-hold investment strategies such as Mr. Dreman promotes can afford yachts, while those who opt for market timing in an effort to manage risk cannot. On a more basic level, it's as if he is saying that buy-and-hold strategies are successful, and all market timing strategies are not.

Another thing that those promoting buy-and-hold strategies know is that the longer investors remain invested, the longer the Advisors continue to receive management fees. As a general rule, selling a fund or otherwise moving to cash stops these management fees, and thus the Advisor's revenue stream. In other words, capital preservation for you may cause revenue cessation for them, so it's no big surprise that they are against market timing.

The bottom line is that while a buy-and-hold scenario may or may not work best for investors over any given time frame, it most certainly benefits fund managers who get paid only if assets remain invested. In our position as a "manager of managers," I often explain to clients that few, if any, fund managers will ever tell you to fire them, since doing so would wreak havoc on their revenue. Think about this next time you're out on your yacht or wherever.

Market Timing 101

As I noted above, having Wall Street bigwigs and the financial press criticize traditional market timing is nothing new. As far back as I can remember, Wall Street has pushed buy-and-hold strategies, especially after the explosion in the number of mutual funds in the 1990s.

They even present misleading and downright inaccurate arguments against market timing in an effort to dissuade clients from choosing such strategies. I discuss these articles in detail on Page 9 of my Absolute Return Special Report. Thus, I think it's a good idea to take a step back and explain exactly what a traditional market timing strategy does.

As I mentioned in my August 12 E-Letter, traditional market timing is nothing more than simply seeking to "take you out of the market and into the safety of cash, or hedge long positions, during major market downturns." Obviously, it takes a lot of sophistication to know when to exit the market as well as when to get back in. In fact, I often tell my clients that the real value of a market timer is not knowing when to get out of the market, but knowing when to get back into a fully invested position again.

To be fair to David Dreman, it's the getting back into the market that is probably the meat of his argument against market timing on the part of individual investors, and even many professionals who try their hand at the strategy. I'm sure he sees lots of investors, as we do, that try to time the markets on their own and end up sitting in cash for extended periods of time. Then, after the market goes up for a period of time, they jump back in about the time the market does an about-face, and they lose even more money.

A traditional market timing strategy has the potential to not only provide steady returns, but also to limit drawdowns, and smooth out the path to your financial goals. It just makes sense that limiting losses can help to control the emotions that might otherwise compel you to exit the market when losses get too high. Contrast this with Wall Street's buy-and-hold mantra of staying invested at all times, including bear markets.

Mr. Dreman's strategy has only a slightly different twist. His bear market strategy is to ride the market down, and then look for opportunities to buy the stocks of good companies upon a dip in price caused by negative news. He says:

When that happens, you should sell less-promising stocks to raise cash to buy the companies the market has panicked on.

While I'm not a yacht-owning billionaire, what Mr. Dreman describes above sounds a lot like market timing, except that he apparently wants to wait to sell the bad stuff (losers) until he finds more promising stocks. It just seems to make sense to me that if you have losing stocks, shouldn't you sell them before the market takes them down further. That way, you would theoretically have more cash to buy the promising stocks later on.

I think it's also important to note that there are a number of mutual funds that are breaking with the fully invested mindset and are now choosing to hold significant cash positions rather than holding on to stocks that are likely to decline in price during down markets. Most will not come out and call it market timing, but that's exactly what it is.

Pros & Cons of Market Timing

While I have been promoting market timing strategies to my clients for well over 10 years, I have to admit that these programs have both advantages and disadvantages just like any other money management strategies. Here are some of the pros and cons associated with most market timing strategies. Here are some of the potential advantages:

Superior Risk-Adjusted Returns – Most successful market timers use strategies that seek to exit the market and move to the safety of money market funds, or "hedge" long positions, during market downturns. As such, the drawdowns during significant market downturns can be reduced, thus leading to superior risk-adjusted returns.

Professional Management – Most investors are not equipped to handle trading in today's very volatile stock markets. By using successful market timers, one can rely on proven strategies that have delivered "absolute returns" over time. Absolute returns refers to an investment strategy that seeks to provide consistent positive returns with minimal losses in both up and down markets. While you should never enter into a market timing strategy thinking that you will never incur a loss, the overall goal of this strategy is to keep losses to a minimum while also maximizing absolute returns.

Use of Leverage & Short Selling – Market timing strategies often use leverage, which involves the use of various financial instruments and techniques to increase the potential return of an investment. Many index mutual funds now offer "2X" leverage, meaning that they reflect 200% of the daily return of the underlying index. By employing leverage, a market timing strategy can get more "bang for the buck" on those days in which it is in the market.

Short selling is another strategy often used by market timers that involves investing in such a way that a drop in a specified equity security produces a portfolio gain. There are numerous specialized mutual funds that provide returns that are the inverse of a wide variety of market indexes – so called "short" or "inverse" mutual funds that have the potential to make money in falling markets. However, they can also lose money in up markets if they make the wrong call, so just remember that there are no guarantees.

It is important to note that the use of leverage and/or short selling strategies can also increase the risk of a market timing strategy, just as in other investment strategies.

Here are some of the potential disadvantages of most market timing strategies.

No Market Timing Strategy Is Perfect – I'll be the first to admit that market timing strategies sometimes stop working in certain market environments, in some cases after performing well for many years. Using an Advisor who employs a market timing strategy is not a "set it and forget it" investment. It is important to continue to monitor the performance and trading of the program to see how its current performance compares to its historical norms. For clients of Halbert Wealth Management, we do this monitoring for them on a daily basis.

Higher Fees – As a general rule, management fees associated with market timing strategies are higher than those for most buy-and-hold investment options. Market timers and other active managers typically charge management fees of 2-2½% annually. Skeptics of market timing often focus on the higher management fees, but market timers who can consistently produce superior risk-adjusted returns above and beyond their fees are worth consideration. The key is to compare market timing performance net of fees to other alternatives. FYI, all of the performance information that I produce for the Advisors I recommend is net of fees.

Tax Efficiency – Another disadvantage of many market timing programs is that they trade frequently and produce short-term gains and losses. This disadvantage may be offset by investing IRA or other tax-qualified money rather than taxable assets, or by investing in low-cost variable annuity contracts which also defer taxation until the gains are withdrawn.

The above list of advantages and disadvantages is not exhaustive, but it does provide a list of idea of things to be aware of when evaluating market timing programs. My company tries to maximize the potential advantages for our clients while minimizing the potential downsides. We do this by subjecting any potential market timing Advisor to a strict due diligence review, which includes either an on-site visit to their offices or a face-to-face meeting here in Austin.

The Bottom Line On Market Timing

Many Wall Street types, investment professionals and financial planners have advocated for years that "market timing" does not work. When it comes to most individual investors doing their own thing, I would have to agree. Most investors are simply too emotional to effectively know when to get in or out of the markets.

So what about professional market timers? We have examined hundreds of professional money managers over the years who practice various types of market timing. Frankly, most have not been successful, or at least did not deliver results that were measurably better than buy-and-hold returns. So does this mean that market timing doesn't work, as Mr. Dreman concludes?

Certainly not.

While most market timers have either not been successful, or have not added value above and beyond their higher management fees, there are some professional market timers that have been very successful over time. The key is how to find them.

We look at hundreds of professional money managers each and every year. We spend hundreds of thousands of dollars each year in doing so. We go to conventions where they gather. We make due diligence trips to their offices around the country to investigate, ask the tough questions and dissect their past performance records.

The point is, most market timers and active money managers fail our rigorous due diligence tests. Does this mean that market timing does not work, as Mr. Dreman concludes? NO. It merely means that you have to do a lot of searching to find those market timing programs that have been successful. They are out there, if you have the know-how and the budget to find them. That is what we do. For example…

A Market Timer That Works

As I noted above, most individuals fail at trying to time the market. I can also attest to the fact that most professionals who try to time the market also fail. We constantly monitor databases containing hundreds of money managers, many of whom employ market timing strategies. Most are mediocre, some are terrible, and a very few rise to the top of the list. One such top manager is Cliff Montgomery of Scotia Partners, LLC.

Since early June, I have mentioned Scotia several times in this E-Letter. That's because Cliff's proprietary strategy has been able to navigate a difficult market that has not only put all major stock market indexes under water (both the Dow Jones Industrial Average and the S&P 500 Index are down over 15% YTD as this is written), but has also proved difficult for even many active money managers. While Scotia's past accomplishments cannot guarantee favorable future results, I do think the way Cliff approaches the market merits your consideration.

The Scotia program getting the most attention at the present time is the Growth S&P Plus Strategy. As of the end of August, the Growth S&P Plus program has a year-to-date gain of 73.30%. (Past results are not necessarily indicative of future performance.) Needless to say, this compares very favorably to the major stock market indexes, which are nursing double-digit losses for the year. Additional performance information on the Growth S&P Strategy is presented below. Also be sure to read all of the Important Notes and disclosures that follow my signature at the end of this E-Letter:

Performance Statistics
(Net of all fees and expenses)

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Please see Important Notes at the end of this E-Letter.

A Scotia Program For Less Aggressive Investors

I recently introduced another program traded by Scotia Partners that is more suitable for less aggressive investors. However, I made this introduction in my annual discussion of the Johnson O'Connor Research Center for those needing assistance in finding their life's calling. Since many of you have read this in past years, you may not have seen the information about Scotia's S&P Moderate Growth Strategy, so I'll repeat the introduction below.

When I introduced Scotia's Growth S&P Plus Strategy in June, I noted how Cliff's proprietary strategies seemed to have actually benefited from the high level of volatility we have seen in the markets since the onset of the subprime mortgage debacle and the resulting housing slump and credit crunch. Accordingly, the strategy employed in the Scotia Growth S&P Plus Strategy makes it an aggressive investment.

Some of the investors who expressed an interest in Scotia's S&P Plus program later decided not to invest because they were not comfortable with the aggressive nature of that program. However, I have good news for investors who want a more moderate-risk program that still has a leveraged, long/short exposure.

The Scotia S&P Moderate Growth Strategy uses the same basic trading model as the Growth S&P Plus program, but does not include the overbought/oversold overlay that helps to make the S&P Plus program more aggressive. As a result, the Moderate Growth program trades less often than the S&P Plus, and limits initial trades to 50% of the account balance. While allocations can reach 100% of the account balance in the Moderate Growth program if Scotia's model continues to indicate a high probability of success, the average historical allocation has been in the 61% range, indicating that 100% allocations are likely to be relatively infrequent.

Another benefit of the S&P Moderate Growth Strategy is that Scotia actually began trading this program before the Growth S&P Plus began trading, so the Moderate program has an additional year of track record. In fact, the Moderate Growth program reached its five-year track record milestone at the end of July. Over that period of time, the Moderate Growth program has turned in a solid, risk-adjusted performance.

From its inception through August 2008, the S&P Moderate Growth Strategy has produced an annualized return of 14.81%, with a worst-ever month-end drawdown of only -4.76%. The Moderate Growth program has done even better during the recent bear market, producing a gain of 15.05% in 2007, a year-to-date gain of 28.87% as of August 31, 2008, and a 12-month gain of 39.98%, also as of the end of August.

Again, these are actual results net of all fees and expenses. As always, past performance is not necessarily indicative of future results. Additional detailed performance information on the S&P Moderate Growth program is as follows:

Performance Statistics
(Net of all fees and expenses)

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Please see Important Notes at the end of this E-Letter.

Please be sure to read the Important Notes and disclosures that follow my signature below.

I personally feel that the increased volatility and uncertainty in the stock markets that we've seen over the last year and a half will likely continue well into next year. Scotia seems to be one of the few professional money managers with a system that actually thrives on volatility.

Conclusions

Though my review of David Dreman's recent Forbes article has been a bit tongue-in-cheek, I hope that it has helped you to understand that money managers whose livelihoods depend upon your staying invested in their funds will likely never recommend market timing as a valid money management strategy.

Likewise, the financial press is not likely to embrace the idea of market timing because they don't have the foggiest notion of how to find a successful professional market timer, and they are so hung up on management fees they are convinced (right or wrong) that market timing will never be able to compete with low-cost index funds and exchange-traded funds (ETFs).

However, you now know that there are market timing money managers who do have long-term successful track records that showcase their ability to manage the risks of being in the market. And more importantly, when to exit the market or hedge long positions during downturns.

These types of successful active money managers are out there. But you will likely never hear about them from the traditional investment outlets, and you are unlikely to find them on your own. That's where we come in.

If you are tired of the volatile ups and downs of index investing or asset allocation strategies, or if you would like to learn more about Scotia's market timing investment programs for a portion of your portfolio, I urge you to contact one of our Investment Consultants at 800-348-3601, via e-mail at info@halbertwealth.com, or complete one of our Scotia Partners online request forms.

Very best regards,

Gary D. Halbert

IMPORTANT NOTES & DISCLOSURES

Halbert Wealth Management, Inc. (HWM), Scotia Partners, Ltd. (SPL), and Purcell Advisory Services, LLC (PAS) are Investment Advisors registered with the SEC and/or their respective states. Information in this report is taken from sources believed reliable but its accuracy cannot be guaranteed. Any opinions stated are intended as general observations, not specific or personal investment advice. Please consult a competent professional and the appropriate disclosure documents before making any investment decisions. There is no foolproof way of selecting an Investment Advisor. Investments mentioned involve risk, and not all investments mentioned herein are appropriate for all investors. HWM receives compensation from PAS in exchange for introducing client accounts. For more information on HWM or PAS, please consult Form ADV Part II, available at no charge upon request. Any offer or solicitation can only be made by way of the Form ADV Part II. Officers, employees, and affiliates of HWM may have investments managed by the Advisors discussed herein or others.

As benchmarks for comparison, the Standard & Poor's 500 Stock Index (which includes dividends), and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these benchmarks may differ materially (more or less) from that of the Advisor. The performance of the S & P 500 Stock Index and the NASDAQ Composite Index is not meant to imply that investors should consider an investment in the Scotia Partners Growth S & P Plus or the Scotia Partners S&P Moderate Growth trading programs as comparable to an investment in the "blue chip" stocks that comprise the S&P 500 Stock Index or the stocks that comprise the NASDAQ Composite Index. Historical performance data represents actual accounts in programs named Scotia Partners Growth S&P Plus and Scotia Partners S&P Moderate Growth, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in these programs. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for "Worst Drawdown" are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

Greatest Gift For Your Kids Or Grandkids (Or Even Yourself)

GaryHalbert — Tue, 22 Jul 2008 18:30:52 GMT

IN THIS ISSUE:

The JOHNSON O'CONNOR Research Foundation
Helping People Find The Best Careers For 85 Years
Scientific Testing To Determine One's Natural Aptitudes
Matching Aptitudes & Careers For Success & Happiness
Scotia Partners Continues To Impress Despite Market Woes

Introduction

This week we will revisit the Johnson O'Connor Research Foundation, which I have written about in the past. This update is timely in that we recently took my daughter in for testing. At the end, I will also give you an update on the most recent money manager I have recommended to you – Scotia Partners, Ltd. I think you're going to want to see how Scotia has been doing in this bear market.

A visit to the Johnson O'Connor Research Foundation can be one of the greatest gifts you can ever give your children, grandchildren or others who are dear to you (or maybe even yourself). What I am about to describe is something that has literally changed the lives of dozens of my friends and relatives over the last 30+ years. Some of you may have heard of Johnson O'Connor, but most of you probably have not.

Don't jump to any conclusions: this is not my favorite charity; in fact, it's not a charity at all; and I am not going to ask you to donate any money. What I am going to do is tell you how Johnson O'Connor helps people decide which career fields they are most naturally suited for, based upon scientific testing of their unique set of individual aptitudes.

I have published articles on Johnson O'Connor ("J-O") in the past in this E-Letter, but this year it has a special meaning to me since we took our 16 year-old daughter to J-O in late June to have her aptitudes tested. She will be a Junior in high school this fall, and we are preparing to get into the college hunt early next year. As I will discuss below, having her Johnson O'Connor evaluation will be a godsend to us in selecting the right college and the right field in which to major. That information is worth a lot more than J-O charges for it!

So, I urge you to read the following article, especially if you have any loved ones who are struggling to find a career path. Ideally, Johnson O'Connor is geared toward high school students who are trying to decide what to do when they grow up, and more specifically, which direction to go in college. But it can be equally helpful to those who are already on a career path but aren't happy or successful.

And finally, I will update you on the recent performance of the most recent money manager I recommended in these pages – Scotia Partners, Ltd. – which I wrote about in detail in my June 10 E-Letter. Scotia has continued to deliver outstanding results (see pages 7-8 below) this year, despite the severe decline in the stock market.

If you looked at Scotia recently but determined that it may be too aggressive for you, I have good news. This week, I will introduce you to a less aggressive program that Scotia manages that has also been very successful over the last five years.

How I Learned Of Johnson O'Connor

Before I discuss the specifics about Johnson O'Connor and how they change lives, let me tell you how I found out about this unique organization. Even before I got out of college and graduate school, I knew exactly what I wanted do. Yet most college students are unsure of what they want to do after school and end up taking the best (or only) job offer they get. All too often, that first job (or series of jobs) doesn't work out, for various reasons. The problem is, bouncing around the job market for a year or two or more right after college can leave people way behind their peers who get on the right career path to begin with.

I had a friend I went to college and graduate school with who had trouble with her initial jobs after grad school. She had been a science major in college (as was I), and then shifted to business in graduate school. We both got our Masters Degrees in 1976. She landed a good job in Houston after grad school but was just never comfortable in the corporate world.

I was working in Dallas in the investment business in 1978 when I first learned about Johnson O'Connor, which has an office in Dallas. I requested information on their testing service and subsequently recommended that my friend go there. She went, and to her surprise, she learned that her natural aptitudes were not at all suited for either the corporate world or the science field.

Based on the assessment of her aptitude tests, Johnson O'Connor recommended she consider the field of interior design. While shocked at first, she ended up changing careers and was quite successful. I haven't kept up with her in recent years, but the last time I did, she had bought and renovated several old buildings into bed and breakfasts, and was happy and successful.

I Had To Try It Myself

Given my friend's results, I referred several other friends (and my younger brother) who were struggling or unhappy in their careers to Johnson O'Connor. In every case, the result was the same: a seemingly radical change in career path that led to a happy and successful end.

While I was very happy and enjoying early success in my career in the investment field, I couldn't help but go to Johnson O'Connor myself. Actually, I was a little nervous about what I might learn. As it turned out, my test results of my natural aptitudes showed that I was well suited for several fields. Here were Johnson O'Connor's recommendations for me, in order:

1. Stock Broker
2. Investment Banker
3. Journalist
4. Fortune 500 CEO
5. Real Estate/Land Developer

[Before you jump to any conclusions, let me tell you that Johnson O'Connor does not allow you to tell them anything about what you may already be doing, career-wise, prior to the testing and analysis afterwards. Only after they have given you the test results and career recommendations do they allow participants to divulge their current occupation – or desired occupation if a student.]

Obviously, I was pleased with my results and somewhat relieved that I was already working in the investment field, as suggested by Johnson O'Connor's #1 and #2 recommendations. At first, I couldn't figure out where the "Journalism" aptitude fit in. But then, in my final exit interview, I happened to mention my weekly client newsletter, which I had begun in 1977. "There you go," the analyst replied, "your newsletter is where your journalistic aptitudes are coming out."

As for the Fortune 500 CEO option, the analyst noted that while I tested to have the aptitudes to be a big-time CEO, he also stressed that I would never make it that far up the corporate ladder, because my aptitudes also showed that I was (am) too impatient and needed to be in control of my own destiny. As for the real estate part, years later I became involved in several real estate developments.

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.

An Invaluable Store Of Personal Information

As noted above, I have referred dozens of people to Johnson O'Connor over the years. In every case but my own, the results have suggested a change in career path, sometimes a dramatic change. While I haven't kept up closely with every person I referred to Johnson O'Connor over the years, I can tell you that everyone benefited significantly from the experience.

The information gleaned from the Johnson O'Connor aptitude tests and analysis is tremendously helpful. Not only does it help greatly with career selection, but it also helps to understand one's personality, the reasons for one's desires and all sorts of little "quirks" we all have. It is a unique learning experience that can help throughout one's lifetime.

Tremendous Help In Selecting The Right College

As noted in the Introduction above, we took our daughter to Johnson O'Connor in Dallas last month at the age of 16. Interestingly, her test results were quite different from her older brother who tested at J-O in 2006. My son who graduated from high school this year is quite the math whiz, so we were not surprised that he scored very high in the math-related tests at J-O when he was tested two years ago. But what we did not expect was that he also scored very high in the tests related to "spatial visualization" – an aptitude that is very important to engineers, architects, medical researchers, etc.

For example, when I look at a building, I just see walls (one dimensional), whereas for my son and others with high spatial visualization, they envision the same building in three dimensions in their mind. Likewise, they can look at a blueprint and easily envision what the completed structure will look like. In retrospect, I shouldn't have been surprised since my son has been one of those take it apart and put it back together kids since he was very young.

Based on my son's scores, Johnson O'Connor recommended that he consider a career in engineering, medicine/medical research, scientific research or architecture. He will major in engineering when he starts college next month. I could easily see him in a career as a biomedical engineer, aerospace engineer or computer engineer.

When you consider how much money it costs to go to college today, it is extremely valuable to know that you are sending your son or daughter or grandchild to a school that offers degrees in those areas they are naturally suited for, and where they'll have a much better chance of succeeding.

The "Personality" Test At Johnson O'Connor

Johnson O'Connor believes that all of us fit into one of two broad personality characterizations: "objective" or "subjective." Generally speaking, people with 'objective' personalities are those who enjoy working with groups, enjoy working with different people, and are what we often refer to as "people people." Over two-thirds of those tested at Johnson O'Connor are objective personalities (as am I).

'Subjective' personalities, on the other hand, generally prefer to work as individuals rather than in large, fluid groups. They like to advance in their careers based on their own individual work, or that of a small group or team headed by them. Subjective personalities can usually work alone for long periods of time and do not need as much recognition or encouragement as their objective counterparts.

My son tested solidly subjective, and quite frankly, that explained more to me about my son and his personality than I had learned in the 16 years of raising him! While my son gets along well with his school friends, and plays football, basketball and baseball, when it comes to his studies or school projects, he usually prefers to work alone – which is typical of subjective personalities. While he has lots of friends, he is not the "social butterfly" like his younger sister, who tested objective in her recent visit to J-O.

So, What Is The Johnson O'Connor Research Foundation?

The Foundation is a non-profit scientific research and educational organization that was founded in 1922. They have two primary commitments: 1) to study human abilities; and 2) to provide people with specific knowledge of and about their aptitudes that will help them in making decisions regarding which colleges to select and which careers to pursue.

Each of us has a unique combination of personal aptitudes. Some of our aptitudes are stronger than others. Johnson O'Connor (as well as others) believes that unless we are able to "exercise" (use) at least our stronger aptitudes in our work or elsewhere, we are very likely to be frustrated.

Hundreds of thousands of people have been to Johnson O'Connor and used their service to learn more about themselves and to derive more satisfaction from their lives and careers. Johnson O'Connor's unparalleled specialty is testing and identifying one's natural, inborn APTITUDES. In their own words:

"Aptitudes are natural talents, special abilities for doing, or learning to do, certain kinds of things. Manual dexterity, musical ability, spatial visualization, and memory for numbers are examples of such aptitudes. In a comprehensive battery of tests available only through the Foundation, these and many other aptitudes are measured. These measured traits are highly stable [always present] over long-term periods.

Every occupation -- whether it is engineering, medicine, law or management -- uses certain aptitudes. The work you are most likely to enjoy and be successful in is work that uses your aptitudes. For example, if you are an engineer but you possess strong aptitudes that are NOT used in engineering, your work might seem unrewarding, difficult and unpleasant.

Aptitude testing is one tool for career selection. It can help you find where your aptitudes lie, what type of work uses those aptitudes, and why certain occupations may be more rewarding for you than others… What the Foundation does is give you an inventory of your aptitudes and examples of types of work suggested by the combination of these aptitudes… The Foundation, however, does not provide employment counseling services."

Why Johnson O'Connor Is So Different

As noted above, Johnson O'Connor has been doing aptitude testing continuously since 1922. Over the years, they have pioneered (and continually improved upon) aptitude testing. Participants who take the tests will wonder, I assure you, how certain of the tests can be so revealing. Some are very simple tests, while others are more difficult for certain people. My brother, for example, breezed through all of the engineering tests that I could not begin to complete. That explains why he is a successful engineer and I am an Investment Advisor.

The tests are just one critical part; the analysis of the test results is equally important. The experts at Johnson O'Connor have the benefit of over 85 years experience in evaluating the test results and making career recommendations accordingly. While they do not recommend only one career path (usually they include at least three or more), each recommendation is suited for the participant's unique set of aptitudes and abilities.

There are times, especially among older participants who are already entrenched in the workforce, when it is simply impossible to make a career change as suggested by the test results and analysis. In these cases, Johnson O'Connor often suggests certain hobbies or other non-work related activities that may help exercise one's stronger aptitudes which are not used in the workplace.

Johnson O'Connor's time-tested theory is that if one has strong aptitudes (and most people do), they need to be used and challenged on a regular basis, preferably in the workplace where we all spend a great deal of time during our lives.

Not An IQ Test, But Does Test Vocabulary

It is important to understand that Johnson O'Connor's aptitude tests are NOT designed to measure or determine IQ. There are various organizations that offer IQ tests (beware: not all IQ tests are accurate or valid). Most experts agree that IQ tests are not inherently helpful when trying to decide on a career path. Two people can have identical IQ scores but very different aptitudes.

Also, Johnson O'Connor's tests do not consist of written or oral questions. They maintain that it is too easy to answer a written question as one feels inclined at the moment, or as they feel it "ought" to be answered. So, J-O does not administer question/answer tests. Again, some of their tests may seem unusual, but they are time-tested and extremely effective.

Johnson O'Connor's battery of tests does include a vocabulary test. It is widely accepted that one's vocabulary is an indication of his/her general knowledge. Most experts, including Johnson O'Connor, agree that one's vocabulary level is one of the best predictors of overall success in school and of performance on the SAT-Verbal and other similar tests. A good vocabulary is also a common characteristic of successful people in many occupations.

Vocabulary knowledge is not an aptitude, however, in that anyone can learn new words and increase their vocabulary. Thus, as part of Johnson O'Connor's program, they teach participants the importance of increasing their vocabulary and provide some specific study materials that are very helpful in doing so. Parents, you will love this!

Time Involved, Cost & Locations

Normally, the process involves two half-day testing sessions, followed by a third half-day when the results and analysis are provided. It is also possible to accelerate this to one full day of testing and a half-day of analysis.

In the last appointment, participants are given a "transcript" of their scores, including charts and graphs, as well as a book and other explanatory materials. All test results are strictly confidential. A staff member explains in detail each of the scores and what they mean. And they explain each of the career recommendations and why they were selected.

If participants have questions at any time (before, during or after testing), Johnson O'Connor is happy to answer them. One of the best features is the option of follow-up meetings and discussions after testing and evaluation, which are free in the first year after testing (afterward only $100 per follow-up session). I have several friends who went back for follow-up discussions regarding jobs they were considering and how those opportunities might fit their aptitudes and/or what adjustments they would likely have to make in that particular job. This is an excellent opportunity!

The cost for the Johnson O'Connor testing and evaluation is currently $600. While this might seem pricey at first glance, I can't tell you how many times I have seen this testing pay off in spades. This is especially true for high school students who don't know what they want to do. It can save years of expensive college costs if the student knows in advance what he/she wants to pursue.

Just as important, it can change the life of an adult child, loved one or close friend that is stuck in an unhappy or unsatisfying job situation. Johnson O'Connor tests many adults who are in their thirties, forties and even fifties. Actually, this information on your aptitudes is very useful and very interesting to know at any age. With older people, naturally, they should have a real willingness to make a change.

Johnson O'Connor has testing centers in major cities around the country. The locations and phone numbers are listed at the end of this E-Letter.

Conclusions

I could not recommend Johnson O'Connor more highly! Whether you are a parent, a grandparent or whatever, you can give a young person a big advantage by having them tested at Johnson O'Connor. Even if you are not related, you can "gift" the testing fee to the minor, generally with no tax implications, or just pay it directly.

With the kids out of school for the summer, now may be a great time to plan to have your high-schooler tested. You'll be glad you did. Likewise, if there is an adult person that is close to you (spouse, relative, in-law, friend, etc.) who is struggling in his/her occupation, this is a chance to possibly rescue their career.

Even if you are happy and successful in your career, you will find it very helpful to know what your natural aptitudes are and are not. You will understand a lot more about yourself.

I encourage you to learn more about Johnson O'Connor Research Foundation at: http://www.jocrf.org.

In closing, let me remind you that I am not associated with Johnson O'Connor in any way. I receive no compensation or anything else for recommending them. I am merely one of hundreds of thousands of grateful folks who have been through their program over the years.

Johnson O'Connor Locations:

Atlanta	404-261-8013	Los Angeles	213-380-1947
Boston	617-536-0409	New York	212-269-0550
Chicago	312-787-9141	San Francisco	415-772-9030
Dallas	972-991-8378	Seattle	206-623-4070
Denver	303-388-5600	Washington, DC	202-828-8378
Houston	713-462-5562

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.

Scotia Partners Continues To Impress Despite Market Woes

In my June 10 E-Letter, I introduced you to Scotia Partners, Ltd. and its founder, Cliff Montgomery, CFA. At a time when all of the major stock market indexes were down, Scotia's Growth S&P Plus Strategy was not only in positive territory, but had a year-to-date gain of over 30% and a 12-month gain of over 90% as of May 31. To say that readers of this E-Letter have expressed a great deal of interest in this program would be a vast understatement.

And Scotia has continued to shine since I wrote about them in early June, even though the major market indexes have continued to languish in a downtrend.

Since the end of May, Scotia's S&P Plus Strategy has continued to do well, posting a gain of 16.21% for the month of June, and is up over 9% as of July 15. Year-to-date, the S&P Plus program is up over 69%, and has gained over 127% for the past 12 months. Keep in mind that these are real results after all fees and expenses.

Obviously, Scotia's performance blows the major market indexes out of the water, since they all have double-digit losses for the year as of mid-July. Keep in mind, of course, that past performance is not necessarily indicative of future results.

Click HERE to get more detailed information and up-to-date performance on Scotia's Growth S&P Plus Strategy.

As noted above, we have had a lot of interest in Scotia from clients and readers of this E-Letter. Some, however, have postponed investing fearing that Scotia's big gain was ripe for a pullback. It is only human nature to fear that outsized returns may snap back to more reasonable levels, and such fears might be a real concern in a discretionary trading model, since a trader could allow emotions to affect his or her trading methodology.

Fortunately, Scotia does not employ discretion in its trading model. Instead, Cliff Montgomery uses a 100% mechanical system that has no way to factor in recent performance. We explain this to clients and prospective clients this way: "Scotia's proprietary trading model doesn't know how much it is up over the past month or year, it just looks at the market one day at a time." Of course, we can't guarantee that Scotia's S&P Plus Strategy won't experience a downward correction in the near future, but if it does it will be due to current market action and not related to past performance.

Introducing A Moderate-Risk Scotia Strategy

When I introduced Scotia's Growth S&P Plus Strategy in June, I noted that we feel that Cliff's proprietary strategies have actually benefited from the high level of volatility we have seen in the markets since the onset of the subprime mortgage debacle and the resulting housing slump and credit crunch. Accordingly, employing leverage and long/short trading during periods of high volatility makes the Growth S&P Plus Strategy an aggressive investment.

Some prospective clients that have expressed an interest in Scotia's S&P Plus program have decided not to invest because they are not comfortable with the aggressive nature of that program. However, I have good news for investors who want a more moderate-risk program that still has a somewhat leveraged, long/short exposure.

The Scotia S&P Moderate Growth Strategy uses the same basic trading model as the Growth S&P Plus program, but does not include the overbought/oversold overlay. Thus, the Moderate Growth program trades less often than the S&P Plus, and limits initial trades to 50% of the account balance. While allocations can reach 100% of the account balance if Scotia's model continues to indicate a high probability of success, the average historical allocation has been in the 61% range, indicating that 100% allocations are relatively infrequent.

Scotia actually began trading the S&P Moderate Growth Strategy before the Growth S&P Plus began trading, so the Moderate program has an additional year of track record, and reached its five-year track record milestone last month. Over that period of time, the Moderate Growth program has turned in a solid, risk-adjusted performance.

From its inception through July 15, 2008, Scotia's S&P Moderate Growth Strategy has produced an annualized return of 15.62%, with a worst-ever month-end drawdown of -4.76%.

The Moderate Growth program has done even better during the recent increased market volatility and bear market, producing a gain of 15.05% in 2007, a year-to-date gain of 32.00% as of July 15, 2008, and a 12-month gain of 46.09%, also as of mid-July.

Again, these are actual results net of all fees and expenses. As always, past performance is not necessarily indicative of future results.

Click HERE to access more detailed information about Scotia's S&P Moderate Growth Strategy, including up-to-date performance.

If you agree and would like to check out one or both of these programs from Scotia Partners, click on the following link to complete our online request form. You can also learn more about these programs by talking to one of our experienced Investment Consultants at 800-348-3601, or via e-mail at info@halbertwealth.com.

Please be sure to read the Important Notes and disclosures that follow.

Wishing you profits in a tough market,

Gary D. Halbert

As benchmarks for comparison, the Standard & Poor's 500 Stock Index (which includes dividends), and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these benchmarks may differ materially (more or less) from that of the Advisor. The performance of the S & P 500 Stock Index and the NASDAQ Composite Index is not meant to imply that investors should consider an investment in the Scotia Partners Growth S & P Plus or the Scotia Partners S&P Moderate Growth trading programs as comparable to an investment in the "blue chip" stocks that comprise the S&P 500 Stock Index or the stocks that comprise the NASDAQ Composite Index. Historical performance data represents actual accounts in programs named Scotia Partners Growth S&P Plus and Scotia Partners Moderate S&P Timing, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in these programs. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for "Worst Drawdown" are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund's prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

A Shocking New Morningstar Study!

GaryHalbert — Tue, 24 Jun 2008 19:06:00 GMT

IN THIS ISSUE:

A Shocking (To Some) Morningstar Report
What’s The Big Deal?
Other Important Questions To Ask
Do It Yourself Or Let Us Help You

Introduction

There is little doubt that the Morningstar organization has been very good to the mutual fund industry. Morningstar is by far the most widely followed mutual fund performance reporting database. Since 1984, Morningstar has offered data collection and analysis tools to aid investors ranging from industry professionals to do-it-yourselfers. However, some in the mutual fund industry may now be thinking that Morningstar has stopped helping and started meddling.

Why? Morningstar released a study last week showing that many mutual fund managers have little or none of their own money in the very funds they manage. Russel Kinnel, director of fund research at Morningstar, noted that the new study “…was the first comprehensive look at fund ownership among the some 6,000 funds in the firm’s database.” And what they found wasn’t pretty.

I’ll get into the details of the new Morningstar report later on in the E-Letter, but suffice it to say that there’s a very good chance that your mutual fund managers aren’t depending upon their own skills for financial success, though they expect you to do so. The Investment News called it an indication that many fund managers live by a philosophy of “invest as I say, not as I do.”

While there is certainly no legal requirement that mutual fund managers invest in their own funds, I think investors have a right to expect money managers to be invested right alongside them. I certainly do! I think this is especially true in light of some of the black eyes Wall Street has been given over the last decade or so.

This week, I’m going to delve deeper into the recently released Morningstar study, and provide some figures that may shock you. Plus, I will tell you why I think it’s very important that your money manager be invested alongside you, with his/her own money on the line – and not just a token investment. Plus, I’ll highlight other information that you may not know about a money manager unless you ask the right questions. This information is important for you to know, no matter what kind of investor you are.

Finally, be sure to read the “P.S.” at the end wherein I address a good question that many of you have raised about Scotia Partners and their red-hot performance record.

The Surprising Morningstar Study

On June 16, Morningstar, Inc. released a new study that evaluated how much money mutual fund managers have invested in the funds they manage. Since 2005, the Securities and Exchange Commission (SEC) has required mutual fund companies to disclose how much money fund managers have in the funds they manage.

Accessing manager investment information is not difficult. As a general rule, you can find it in the fund’s “Statement of Additional Information” (SAI), which is usually available either in printed form accompanying a fund’s prospectus or on a fund’s website. If you can’t locate the information in either of these two places, ask the fund’s sponsor to provide it to you.

I would think most investors assume that their mutual fund manager had a sizable amount of his/her own money in the fund(s) they manage. I certainly do; in fact, I have the bulk of my non-cash assets invested in the products I recommend.

Yet the new Morningstar study shows that about half of the mutual fund managers they track have NONE of their own money in the funds they manage. ZERO.

Morningstar found that 47% of US stock funds and 61% of foreign stock funds have no investment of the manager’s own money. Bond funds fare even worse with 66% of taxable bond funds, 71% of balanced funds and 80% of municipal bond funds having no manager investment.

Morningstar’s report offers only a few legitimate excuses for fund managers not to invest in their own funds. These might include “index” funds, “target-date” funds that do not meet the manager’s time horizon, single-state municipal bond funds where the fund manager lives in another state and situations where the manager is a foreign national from a country that bars investment in US funds. Those possible exceptions aside, I find it hard to imagine a mutual fund objective that couldn’t merit at least a small allocation of the fund manager’s own money, many of whom earn millions of dollars per year in management fees.

Perhaps the most interesting part of the study was Morningstar’s analysis of its own “Picks and Pans.” This is a service provided by Morningstar where they select funds that may be good long-term investments (the “Picks”) as well as mutual funds to avoid (the “Pans”). When analyzing management investment in these two groups, Morningstar found that the Picks had a median manager investment of $430,000, whereas the median investment by the fund managers in the Pan category was $0. On average, the Picks had seven times the manager investment than the Pans. Get the message?

While Morningstar is quick to point out that the lack of a manager’s investment does not necessarily doom a fund to poor performance, it certainly doesn’t do anything to help an investor’s confidence in the fund. I think this is especially true in light of recent shenanigans in the financial services industry such as last year’s subprime crisis and the mutual fund scandals just five years ago. Sadly, each of these crises highlighted events where personal self-interest outweighed the duty to put clients’ interests first.

Let me be quick to clarify that I’m not trying to equate managers who don’t invest in their own funds to those responsible for the subprime debacle and mutual fund scandals, but I do think it shows a sense of arrogance on the part of many mutual fund insiders that they expect investors to put money into funds that they won’t even invest in themselves.

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.

The Importance of Personal Investment

Some in the investment world and financial press were shocked at the revelations of the Morningstar study, but not me. After evaluating money managers for over 30 years, it’s hard to be shocked by anything I might uncover. It has not been uncommon for me to come across professional money managers who do not invest in their own programs. Fortunately, I can also attest to the fact that there are many money managers who do put their clients first and do invest alongside them in the funds and programs they manage.

As noted above, I invest my own money in all of the programs my company recommends, which I feel is important. You should also know that I require the money managers that we recommend to “eat their own cooking.” The way I see it, if a money manager’s program isn’t good enough for his/her own money, then it’s certainly not good enough for you or me.

Simply put, if I am going to entrust my clients’ money, and my own money, to an Advisor, I want to know they have a significant percentage of their own money in their programs. If an Advisor doesn’t have his own money in his program, I consider that to be a major red flag.

Interestingly, most of the successful Advisors I have met do have a huge amount of their own money invested in their programs – sometimes even more than they should. When you read over some of the bios of our recommended Advisors, you will find that several of them got into the money management business primarily to manage their own money after retiring from another profession or selling a business.

Upon receiving large payouts, they could not find acceptable money managers for their nest eggs, so they decided to do it themselves. Thus, some of the managers I recommend only started managing money for outside investors after they devised a successful system for managing their own money.

On a more basic level, having both the Advisor and myself investing significant portions of our net worth alongside our clients shows our confidence in the programs we offer. The last question I always ask myself when considering a new Advisor is whether I want to invest my own money in his or her program. If the answer is yes, then we move ahead. If not, then you’ll never see that program on our list of recommended Advisors.

Conclusions

The recent Morningstar study revelations come as just more bad news about the actions and attitude of some players at the highest levels in the financial services industry. I suspect that the publication of this report will cause many fund managers to invest in their own funds, but for the wrong reason. I’d rather have a manager invest because he has confidence in his or her own abilities, rather than just to get off of Morningstar’s list.

Though the issue of whether or not money managers invest in their own programs is important, it’s not the only issue that needs to be addressed when evaluating professional money managers. The additional due diligence considerations I discussed above should give you a pretty good idea of what it takes to evaluate mutual fund managers, RIAs, managed account Advisors and hedge fund managers. Now all you have to do is apply these principles to the various investment alternatives you may be considering.

Unfortunately, most investors never take the time to ask even a fraction of the questions necessary to get the information discussed in this article. Most also have no desire to travel all over the country and conduct this type of intense due diligence. Even if they did, most investors are not equipped to evaluate the answers given to many of the questions discussed above or the operations of funds and Advisors.

The good news is that my company already has the staff, expertise, experience and the annual budget necessary to search for successful money managers and engage in the due diligence process on behalf of our clients. We also have the necessary hardware, software and database applications to be able to monitor performance on a daily basis as well as identify new prospective Advisors.

And remember that I have my own money invested with every Advisor and program we recommend. That’s how we monitor them on a daily basis.

If you are interested in the programs I recommend, give one of our Investment Consultants a call at 800-348-3601. You may also contact us via e-mail at info@halbertwealth.com. You can also visit our website at www.halbertwealth.com to learn about the kinds of investment programs we offer.

Wishing you profits,

Gary D. Halbert

P.S. – Two weeks ago, I told you about an exciting new investment program from Scotia Partners, Ltd. that has shown the ability to thrive in the market’s recent high volatility. Many of you have called or completed our online information request to get more information about this impressive program. Some of our clients, however, have expressed a concern about investing after a 90%+ run-up in performance over the past 12 months, thinking that the program may be ripe for a retreat.

Actually, this is a very legitimate concern and one that we have considered as well. However, it is important to remember that Scotia’s trading model only seeks to be in the market on those days with the highest probability of success, and has historically been in the money market account apprx. 65% of the time. While there’s no guarantee that the Growth S&P Plus Strategy won’t pull back after this period of impressive performance, we think the more likely scenario is that the model may spend more time in the money market fund.

The Scotia Growth S&P Plus Strategy has gained apprx. 9.8% so far in June as of yesterday’s (June 21) market close. When this monthly gain is factored in with its May 31 year-to-date gain of 32.56%, the program is now up over 45% for the year. While past performance may not be indicative of future results, I think the Growth S&P Plus program deserves consideration as an aggressive part of your overall portfolio. Before making a decision to invest, be sure to read the Important Notes following the Special Articles. Click HERE to read my June 10 E-Letter introducing Scotia Partners.

IMPORTANT NOTES:

Historical performance data represents an actual account in a program named Scotia Partners Growth S&P Plus, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Estimate for mid-June 2008 is from the Theta tracking account. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in the Scotia Partners Growth S&P Plus. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

In addition, you should be aware that (i) the Scotia Partners Growth S&P Plus program is speculative and involves a high degree of risk; (ii) the Scotia Partners trading program’s performance may be volatile; (iii) an investor could lose all or a substantial amount of his or her investment in the program; (iv) Purcell Advisory Services will have trading authority over an investor’s account and the use of a single advisor could mean lack of diversification and consequently higher risk; and (v) the Purcell Advisory Services trading program’s fees and expenses (if any) will reduce an investor’s trading profits, or increase any trading losses.

Who's Making Money In This Crazy Stock Market?

GaryHalbert — Tue, 10 Jun 2008 18:42:52 GMT

IN THIS ISSUE:

Recent Market Volatility Difficult To Navigate
Scotia Partners, Ltd. – Our Latest Find
A Leveraged Long & Short Equity Strategy, With A Twist
Impressive Results In Recent Volatile Market Environment
Hedge Fund-Like Strategy For Only $25,000

Introduction

Over the last year or so, we have experienced an increase in market volatility that has proven to be difficult for many investors and investments to weather. A Wall Street Journal article from earlier this year documented how from 2004 through 2006, the Dow Jones Industrial Average had only one day with a gain or loss of over 2%. In 2007, amid concerns over the subprime mortgage bust, the bursting of the housing bubble and the credit crisis, this number rose to 14!

In fact, last Thursday and Friday were good examples of this volatility. After an impressive gain of 1.9% in Thursday’s trading, the S&P 500 Index reversed course and lost over 3% percent the very next day. However, as the WSJ article noted, this level of volatility is nothing new. And in fact, the current market volatility is relatively tame compared to the bear market of 2000 – 2002.

Such recurring market uncertainty is one reason that I decided over 10 years ago to seek out professional money managers who have established successful historical track records using active management strategies. In volatile markets, investors are often hit with conflicting messages from the gloom-and-doom crowd who says “the end is near,” and the buy-and-hold crowd who counsels “this, too, shall pass.” I continue to believe that active management strategies can offer investors an effective option for dealing with virtually any kind of market environment.

That’s why I am especially pleased this week to be able to introduce you to an Advisor who has not only posted an enviable track record over the past 3½ years, but has also shown the ability to not only survive the market’s recent volatility, but to thrive in it. The Advisor is Cliff Montgomery, CFA, founder of Scotia Partners, LTD. and its Growth S&P Plus Strategy has now been added to our list of recommended actively managed investments.

While past performance cannot predict future results, Scotia’s 12-month gain of over 90%, and year-to-date gain of 32.56% is a testament to a trading strategy that has been able to tame the market’s recent volatility. These are real numbers for real accounts and are net of all fees and expenses. Scotia’s trading model is different than any I have ever analyzed, and I’ve seen a lot of trading systems in my 30+ year career.

As we review Scotia’s Partners’ strategy and performance this week, you will see numbers that will likely look better than those of any other investment alternative you may have seen. Keep in mind that Scotia’s money management system is an aggressive program which uses leverage with both long and short positions. It is therefore not suitable for all investors. Past performance is not necessarily indicative of future returns.

Volatility And Your Investments

It is now quite clear that the stock markets have moved to a higher level of volatility since the beginning of the subprime crisis last year and the subsequent bursting of the housing bubble. And, it remains to be seen how long this period will last. Unfortunately, few sources of financial and investment information take the time and effort to discuss just what volatility is, and why it can be bad, or good, for your portfolio.

“Volatility” means the measure of the uncertainty of the returns on any particular investment, or even in regard to the market as a whole. This uncertainty about the direction and magnitude of market returns moves higher and lower over time. In periods of low volatility, the markets may move up or down in a seemingly orderly fashion, without many unexpected events. But in periods of high volatility, as we have seen over the last 12-18 months, the markets can experience very large moves in one direction one day, and reverse course the next.

While there are a variety of ways to calculate, evaluate and try to predict volatility, it still comes down to trying to “know the unknowable.” Even so, the financial services industry has come up with ways to measure market volatility, with the best-known of these indicators being the Chicago Board Options Exchange (CBOE) Volatility Index, or “VIX” for short. This index seeks to measure the expectations of near-term volatility based on the prices of S&P 500 index options. The thought is that, since options represent an expectation of future price movements, then measuring the magnitude of such expectations can shed light on possible future volatility.

The following chart shows the movement in the VIX since 1990:

As you can see in the above chart, volatility is a regular, recurring feature in the stock markets. More importantly, we see that periods of high volatility can last for several years, as was the case from 1998 to 2003. While we do not know how high volatility may get in the near future, or how long it may persist, a growing number of analysts I respect believe this period could last for several more years.

One interesting thing about the market’s most recent bout of volatility is that it has proven to be very difficult to trade, even for some seasoned active managers that fared well during the 2000–2002 bear market’s even higher level of volatility. Space does not permit me to go into some of the various theories for why the markets have been so difficult to navigate over the last couple of years. Suffice it to say that many previously very successful money managers are scratching their heads as to why their systems have not worked over the last 12-24 months.

As a result, my staff and I have combed through the various money management databases, looking for active money managers who have shown the ability to invest successfully in this very tricky market environment. Specifically, we looked for managers that have shown the ability to manage money in both high and low volatility markets. As you will read below, Scotia Partners is one of the few success stories, and that is putting it mildly!

Scotia Partners, Ltd.

Scotia Partners, Ltd. was founded in 2006 by Clifford J. Montgomery, CFA. Cliff graduated from Messiah College in Grantham, PA with dual degrees in Environmental Science and Accounting but has spent most of his working career in the financial services industry.

Early in his career, Cliff worked as a mutual fund trader for a medium-sized SEC Registered Investment Advisor. After that, he became a research analyst at Theta Investment Research, LLC, a firm that his father, Paul, had established. At Theta, Cliff had the opportunity to witness how different market environments affected the performance of different types of money management strategies. He also began to notice how some active money managers were “whipsawed” by market action, especially during periods of high volatility.

Cliff reasoned that there should be some way to build a trading model that would issue trading signals only on days when there was the greatest probability of success and stay in the safety of a money market account the rest of the time. Ideally, such a system would trade both long and short, and use leverage to enhance returns.

With that in mind, Cliff began researching how markets and trading systems worked with the goal of producing his own active management strategy. In 2003, Cliff finalized his basic trading model and began trading it in real time with real money. He soon found that during periods of low volatility, his program did well. More importantly, in high volatility markets, his model actually did even better. I can tell you, this is very rare. As always, past performance does not guarantee future results.

Over time, Cliff continued to enhance his trading model and in 2004, began actively trading his Growth S&P Plus Strategy. In 2006, Cliff established Scotia Partners, Ltd., as a Registered Investment Advisor with the State of Pennsylvania so that he could offer his programs to investors. Cliff chose the name “Scotia” because it reflects his Scottish heritage. Cliff notes that his family motto, “Garde Bien,” which means “Watch Well,” serves as a reminder of the approach Scotia takes to managing client money.

Ever seeking to increase his investment analysis skills, Cliff received the prestigious Chartered Financial Analyst (CFA) designation in 2005. With so many professional designations available in the financial services business, investors sometimes can’t tell which are meaningful and which are not. I can attest that the CFA certification is one of the most challenging financial professional designations in the investment industry, and is a distinction shared with many successful mutual fund managers and noted market analysts.

The Scotia “Growth S&P Plus” Strategy

Investors familiar with alternative investment strategies, such as hedge funds, often seek out programs that can go both long and short in the market. In such programs, the potential for profit exists no matter what the market’s direction. Some also seek out leveraged programs that offer greater potential gains (or losses) per dollar invested, especially in volatile markets. Unfortunately, many such programs are available only to wealthy investors, but the Scotia Growth S&P Plus Strategy offers both long/short trading and 2X leverage without the barriers to entry found in many hedge funds.

The Growth S&P Plus investment strategy is a combination of Cliff’s basic trading model plus a proprietary overbought/oversold indicator that overlays the basic model. The objective of the strategy is to provide positive returns regardless of market conditions, with significantly reduced risk due to limited market exposure. Of course, there are no guarantees that Scotia can continue to achieve this objective.

Using technical analysis, the basic model begins the process by seeking to determine a long-term market trend (6-12 months) for the S&P 500, which then sets the overall direction for any trades. If the long-term trend is determined to be bullish, only long S&P positions will be taken. If the overall trend is gauged as bearish, the basic model will only take short S&P positions.

Once the long-term trend is identified, the intermediate trend is then determined by plugging S&P 500 Index prices into several different technical indicators over different time intervals within a 2-4 week time period. If the intermediate trend is in agreement with the long-term trend, the basic model is eligible for positioning on either the long or short side of the S&P. If the intermediate trend is not in agreement with the long-term trend, then the model will remain in the safety of a money market account.

With both long-term and intermediate trends identified, the basic model then looks for short-term movements against the trend, to potentially take advantage of the probabilities in favor of “reversion to the mean.” In other words, Cliff’s model views a contra-trend market movement as an opportunity, since future market action should move back in line with the overall trend. Thus, Cliff describes his model as being trend-following in the long term, but contrarian in the short term.

But there is yet one more wrinkle to Scotia’s Growth S&P Plus program. Cliff has also developed a proprietary overbought/oversold indicator that overlays the basic model. This added signal seeks to identify long or short trades that have a high probability of success, without regard to the direction of the long-term trend indicator. Accordingly, this overlay generally results in more trades per year than would be possible under the basic model.

The Growth S&P Plus Strategy is exceptional in that it has historically been in the safety of a money market account over half of the time and trades only on days when Cliff’s proprietary strategy indicates chances are optimal for a gain. Again, this is one of the most interesting trading strategies I have ever seen, and it has certainly done extremely well in a market environment reeling in the wake of the subprime/housing meltdown. Remember, however, that past performance does not guarantee future favorable results.

Cliff’s methodology is 100% mechanical with no discretionary input, and no provision for Cliff to override any trading signal. In addition, the Growth S&P Plus Strategy does not make graduated or partial investments. Instead, the model will be 100% long in the Rydex S&P 500 2X Strategy Fund, 100% short in the Rydex Inverse S&P 500 2X Strategy Fund or 100% neutral (money market), depending upon the signal. These Rydex S&P 500 Index funds seek to provide investment returns equal to 200% of the daily performance of the underlying S&P 500 Index, with the S&P 500 2X Strategy providing a leveraged long exposure and the Inverse S&P 500 2X Strategy providing a leveraged short exposure.

Historically, the strategy has averaged approximately 65 round-trip trades per year, and has been in the safety of a money market fund approximately 65% of the time. Scotia does not employ any formal stop-loss techniques to limit risk other than the relatively short duration of trades. If a trade makes money, the model automatically retreats to cash. If a trade loses on its first day, the model may stay long or short, but if even one indicator disagrees with the others, the model exits the market and goes to cash.

Performance Evaluation

To say that Scotia’s track record is one that attracts a lot of attention would be an under- statement. As of May 30, the Growth S&P Plus Strategy had a 12-month gain of over 90% and a year-to-date increase of 32.56%. While past performance doesn’t guarantee future results, these numbers are hard to ignore. However, we feel that the real story is how Scotia’s trading model has been able to be effective in the volatile markets of 2007–2008, when many other previously successful trading systems failed miserably.

You will note that the Scotia growth chart below shows a more modestly sloping growth line from its inception to apprx. June of 2007, at which time the growth line took a much steeper upward angle. When comparing this chart to the VIX chart above, we see that the higher level of growth coincided with an increase in the market’s volatility, brought on by the subprime fiasco and subsequent bursting of the housing bubble.

As a result, we essentially split Scotia’s track record into two parts and scrutinized each using our various investment analysis software. As noted above, Scotia’s performance during the market volatility that began around June of 2007 has been spectacular. As I noted in the Introduction, Cliff’s cautious approach to money management not only survived, it thrived.

Since we know that the market goes through cycles of high and low volatility, we also analyzed Scotia’s performance prior to June of 2007 to see how Growth S&P Plus might perform in more “normal” market conditions. We were pleased to find that, between its inception in August of 2004 and May of 2007, the Growth S&P Plus Strategy produced an annualized gain of 12.84% with a maximum month-end drawdown of only -7.36%.

Since any long-term investment horizon is likely to include periods of both high and low volatility, Scotia's strategy would appear to give investors the potential to do well in either type of market environment. However, if you believe as I do that the stock market will continue to be volatile over the next few months or even longer, the Growth S&P Plus Strategy may be exactly what your portfolio needs now.

Though the worst month-end drawdown is a relatively tame -7.36%, Cliff says that potential drawdowns in the Growth S&P Plus program can be -20% or more based on his analysis and testing. This, again, confirms that this program should only be considered by investors with an aggressive risk tolerance.

Since its inception in August of 2004, the Scotia Growth S&P Plus Strategy has proven its ability to navigate past periods of both high and low market volatility by posting an annualized return of 29.35% through May 30, 2008, net of all fees and expenses, with a worst-ever month-end losing period (or “drawdown”) of –7.36%. See the actual performance history in the tables below for more comparisons and detailed monthly returns. Also note that there are no guarantees of favorable future performance.

In short, dear readers, I have not seen a real performance record like this in a long time!

Performance Statistics
(Net of all fees and expenses)

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Please see Important Notes at the end of this E-Letter.

While Scotia’s performance is very impressive by itself, it’s even more so when compared to the S&P 500 Index’s annualized return of 8.43% and the Nasdaq 100 Index’s annualized return of 7.86% over the same period of time. While past performance is not necessarily indicative of future results, it’s clear that Cliff’s high-probability approach to money management has been effective in the past, especially when faced with highly volatile market conditions.

Since Scotia’s Growth S&P Plus Strategy has numbers that are sure to attract attention, it is important to note that this investment may be most suitable for aggressive investors who are comfortable with using leverage and a long/short exposure to the S&P 500 Index. You should only consider this program if you have a three-to-five-year investment horizon and are comfortable possibly spending a large amount of time in a money market account, awaiting the next high-probability trading opportunity.

Even though Scotia’s Growth S&P Plus Strategy has been in the market less that half the time and has delivered outstanding results with limited losing periods, this is an aggressive investment and should only be considered by investors who are comfortable with taking on significant investment risk. Cliff counsels his direct clients to invest no more than 20% of their portfolios into this program, as he feels the recent big run-up in performance may not be sustainable.

The Trading Platform

Cliff has outsourced administrative tasks to Purcell Advisory Services, a Registered Investment Advisor in Tacoma, Washington that we also work with. Purcell provides back-office support for his trading activities, allowing him to concentrate on market analysis and the generation of a trading signal. Cliff communicates his trading signals daily to Purcell, and they execute the trades and maintain client accounts. Purcell is highly experienced when it comes to providing back-office operations for professional money managers, and currently does so for a number of Investment Advisors nationwide.

Because of this outsourcing, the Halbert Wealth Management due diligence team has also subjected Purcell Advisory Services to a full review of their administrative capabilities and internal controls, including an on-site visit to their offices in Tacoma, Washington. We are happy to report that they passed our due diligence review with flying colors.

Cliff shares offices with his father, Paul, and Theta Investment Research. As a result, Paul is very familiar with the trading strategy, and provides an ample level of backup should Cliff be unable to trade for any reason. Purcell also serves as an extra measure of backup so that trades could be unwound if both Cliff and Paul were to become incapacitated, or in the case of a regional disaster, power outage or Internet disruption.

All accounts are held in individual accounts at Rydex Funds, and clients have online access to their accounts via the Rydex website. Both Rydex and Purcell issue quarterly statements, and Rydex provides year-end tax reporting for those investing through non-retirement accounts.

Since this program has the potential to trade frequently, investors in taxable accounts may have to deal with “wash sales” and short-term gains. Given the actual performance numbers of late, it may be well worth any tax disadvantages. Even so, it may be most suitable for IRAs and other tax-qualified retirement accounts. The Growth S&P Plus program may also be managed within no-load, low-cost variable annuity products available through Purcell that can help to address the negative tax consequences of frequent short-term trading in a non-retirement account.

Scotia’s minimum account size is $25,000. Management fees are billed quarterly in advance, based on the following schedule:

First $100,000	2.50%
$100,001 to $1 million	2.25% (entire account)
Over $1 million	2.00% (entire account)

Conclusions

The Scotia Growth S&P Plus Strategy can be a very attractive option for investors who understand the risks and want to diversify their portfolios by adding an investment that has both leverage and a long and short exposure in the market. As noted above, the program has an annualized return of 29.35%, net of all fees and expenses, with a worst-ever month-end drawdown of only –7.36%.

Yet the most impressive thing about this program is that it has shown outstanding results during the last 12 months, gaining over 90% during a time when other money managers found it difficult to stay above water. Keep in mind that past results are not necessarily indicative of future performance, and you should not expect the same return over the next 12 months.

And you can access Scotia’s Growth S&P Plus Strategy for a minimum investment of only $25,000, which is important for investors with smaller portfolios who want access to an investment option that uses both leverage and a long/short trading strategies.

Our analysis has also shown that Scotia’s historical returns show little or no correlation to the major stock market indexes, or to other Advisors I have written about in this E-Letter. Thus, the Growth S&P Plus Strategy may be an ideal complement to the other actively managed investments offered under the Halbert Wealth Management AdvisorLink® Program. For more information on the Growth S&P Plus Strategy, visit our website at www.halbertwealth.com.

If you believe, as I do, that market volatility could continue to be high, or go even higher, and that the equity markets will face some tough times in the next several years, then I suggest that you take a serious look at Scotia’s very successful program. Having the potential to make money in a very volatile market may prove extremely important over the next few years.

If you have any questions or would like to talk to one of our experienced Investment Consultants about whether this program may be suitable for a portion of your portfolio, please give us a call at 1-800-348-3601, or e-mail us at info@halbertwealth.com. You can also request additional information, including paperwork to establish an account, by going to our online request form. Also be sure to read the Important Notes about this investment program following my signature below.

Very best regards,

Gary D. Halbert

As benchmarks for comparison, the Standard & Poor’s 500 Stock Index (which includes dividends), and the NASDAQ Composite Index represent unmanaged, passive buy-and-hold approaches. The volatility and investment characteristics of these benchmarks may differ materially (more or less) from that of the Advisor. The performance of the S & P 500 Stock Index and the NASDAQ Composite Index is not meant to imply that investors should consider an investment in the Scotia Partners Growth S & P Plus trading program as comparable to an investment in the “blue chip” stocks that comprise the S&P 500 Stock Index or the stocks that comprise the NASDAQ Composite Index. Historical performance data represents an actual account in a program named Scotia Partners Growth S&P Plus, custodied at Rydex Series Trust, and verified by Theta Investment Research, LLC. Since all accounts in the program are managed similarly, the results shown are representative of the majority of participants in the Scotia Partners Growth S&P Plus. The signals are generated by the use of a proprietary model developed by Scotia Partners. Statistics for “Worst Drawdown” are calculated as of month-end. Drawdowns within a month may have been greater. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mutual funds carry their own expenses which are outlined in the fund’s prospectus. An account with any Advisor is not a bank account and is not guaranteed by FDIC or any other governmental agency.

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