Third Quarter 2006 Review
If you want to take the trip, be on board the train when it leaves the station.
Fortune smiled on patient investors in the third quarter of 2006. From the beginning of July to the end of September the Dow Jones Industrial Average gained 589 Dow points, moving up from 11090 to 11679. The long boom-bust-recover cycle in U.S. stocks that began in the mid 1990s has finally rewarded those who held on and even added to their portfolios while prices were lower. A combination of lower energy costs, stable interest rates, very healthy corporate profits, resilient consumer confidence, gobs of cash in circulation and a slowdown in speculative real estate transactions contributed to an improving stock market and happier equity investors. Money always goes where it's best treated. The recent drop in the price of a tank of gas has certainly helped. Lest any of my friends share the delusion with some 42% of Americans that, according to a recent Gallop Poll, there is a monster conspiracy perpetrated by President Bush and "Big Oil" to drop oil prices just in time for the elections, please let me explain how this is not the case. First of all, there is no way any individual or group in the world (except perhaps the members of oil cartel OPEC, who are usually too busy cheating on their stated output numbers to agree on much of anything) could possibly control the world price of petroleum. The actual forces at work are the usual suspects: the duo of Supply and Demand and billions of dollars of "bets" which are placed every day in the futures markets around the world. The prices of many world-traded commodities (oil, metals, coffee, wheat, etc.) are set in the Futures Markets, such as the Chicago Board of Trade, London Metal Exchange, Multi Commodity Exchange (India), the Tokyo Commodity Exchange and a number of others. There is no real or imagined way to manipulate these markets. To our 42% I say this: our schools have failed to teach the citizens of the world's mightiest capitalist nation much about capitalism, economics or finance. Not teaching what makes our markets and economy work is like not teaching a sailor how to sail. Only an informed citizenry can make informed decisions.
Data from the U.S. Labor Dept. Bureau of Labor Statistics reflect a bright picture for the overall U.S. economy. There are always patches of weeds in our national economic lawn, even some bald spots, but from a distance the grass is green. The civilian labor force was reported to be 151,799,000 in September. That gives us an unemployment rate of 4.6 %, considered almost full employment by many economists. The hurricane season was mercifully mild. Interest rates have not been hiked by the Federal Reserve Board lately. This respite in rate increases may give homeowners who have Adjustable Rate Mortgages a chance to consider refinancing to a fixed mortgage.
Corporate profits, the ultimate driver of higher stock prices, have been healthy. Institutional investors, those who run bank trust departments, mutual funds and pension funds have been buying stocks. Individual investors have begun to follow their lead. Capital flows (money that moves in and out of investments) has been positive for U.S. mutual funds according to news from the Investment Company Institute. As of August, 2006, American mutual funds held over $9.5 Trillion. If every one of our 300,000,000 Americans held an equal slice of this pie, we would each have over $31,000 in fund shares. I for one would love to see the wealth shared by all. Unfortunately, not everyone is able or willing to participate. Continue to encourage your friends and family members to begin saving and investing as soon as possible. For the last few years my third quarter letter has included a financial check list. This year, more than ever, I feel that you should take some time to review this to-do list. Let me know if there is anything on the list that you would like to discuss. If you haven't taken a look at your legal documents or checked to be sure the correct beneficiaries are on your retirement plans, life insurance and annuities, this is the time to do it. Lack of planning can be very costly. "An ounce of prevention is worth a pound of cure" is the old saw.
Annual Financial Check List
As we enter the fourth quarter of the year, I'd like to remind you to take inventory of the components of your financial plan. Here's a checklist for your review. Please call me if there's anything that needs attention.
_________ Up-to-Date Will
_________ Up-to-Date Trust
_________ Current Durable Powers of Attorney
_________ Health Proxy or Living Will
_________ Adequate Health Insurance: Hospitalization/ Major Medical
_________ Adequate Long-Term Disability Insurance
_________ Adequate Long-Term Care Insurance
_________ Adequate Property/Casualty Insurance: home, car, umbrella coverage
_________ Adequate Professional Practice/Business Owner Insurance
_________ Adequate Life Insurance
_________ Review Beneficiary Designations on IRAs, Retirement Plans, Annuities, and Life Insurance Policies.
_________ Annual Charitable Contributions Made Before Year-End
_________ Annual Gifts Made to Family Before Year-End
_________ Collect Cost Basis Information on Sold Securities/ Real Estate for Income Tax Filing
_________ Portfolio Review
_________ Portfolio Adjustments to Minimize Taxes
_________ Timely Contributions Made to Retirement Plans
_________ Required Minimum Distributions from IRAs for clients over 70.5 years of age.
Distributions should be taken well before the December 31st annual deadline.
_________ Tax Planning with Your Tax Advisor Before Year-End
_________ All Those "Other" Things You Meant To Do Before Year-End
I work for people who need and want help with their financial planning. If you know of others who need help, have them call me. I'll be happy to meet with them in person or on the phone to answer questions or make referrals to other professionals as appropriate.
I usually wait until more quarterly data has been published before sending out my letter. This quarter I hope my letter arrives before election day.
In this season of political contests I'd like to share with you some selected quotes from American Presidents' Wit and Wisdom, A Book of Quotations, edited by Joslyn Pine, published by Dover Publications. I received this from my thoughtful wife, Pamela. I recommend it to you. Space limited me to a few of the wisdom sayings from our first seven presidents, several who served in the Nineteenth and early Twentieth centuries, and all of our chief executives from Franklin D. Roosevelt to George W. Bush. The introductory thematic headings are mine. The wisdom is theirs.
Financial Discipline:"To contract new debts is not the way to pay old ones." George Washington.
Morals:"Public virtue cannot exist without private virtue." John Adams.
Government Aggrandizement: "The natural progress of things is for liberty to yield and government to gain ground." Thomas Jefferson.
Education: "The diffusion of knowledge is the only guardian of true liberty." James Madison.
Conflict: "The history of all ages proves that...at least one half of every century, in ancient as well as modern times, has been consumed in wars, and often of the most general and desolating character." James Monroe.
Voting: "Always vote for a principle, though you vote alone, and you may cherish the sweet reflection that your vote is never lost." John Quincy Adams.
Taxation: "The wisdom of man never yet contrived a system of taxation that would operate with perfect equality." Andrew Jackson.
Freedom: "As I would not be a slave, so I would not be a master. This expresses my idea of democracy." Abraham Lincoln.
Democracy: "All free governments are managed by the combined wisdom and folly of the people." James Abram Garfield.
Divided Government: "Congress does from a third to a half of what I think is the minimum that it ought to do, and I am profoundly grateful that I get that much." Theodore Roosevelt.
Economic Interdependency: "You are not here merely to make a living. You are here in order to enable the world to live more amply, with greater vision, with a finer spirit of hope and achievement. You are here to enrich the world, and you impoverish yourself if you forget the errand." Woodrow Wilson.
Budgeting: "There is no dignity quite so impressive, and no independence quite so important, as living within your means." Calvin Coolidge.
National Debt: "Blessed are the young, for they shall inherit the national debt." Herbert Clark Hoover.
National Defense: "Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety." Also: "There is a mysterious cycle in human events. To some generations much is given. Of others much is expected. This generation of Americans has a rendezvous with destiny." Franklin Delano Roosevelt.
Liberty and Prosperity:"Liberty does not make all men perfect nor all society secure. But it has provided more solid progress and happiness and decency for more people than any other philosophy of government in history." Harry S. Truman.
Elected Office Holders: "The opportunist thinks of me and today. The statesman thinks of us and tomorrow." And: "The search for a scapegoat is the easiest of all hunting expeditions." Dwight David Eisenhower.
National Idealism:"And so, my fellow Americans, ask not what your country can do for you-ask what you can do for your country." John Fitzgerald Kennedy.
World View: "The world is engaged in a race between education and chaos." Lyndon Baines Johnson.
Controversy: "If any individual wants to be a leader and isn't controversial, that means he never stood for anything." Richard Milhous Nixon.
Social Programs: "A government big enough to give you everything you want is a government big enough to take from you everything you have." Gerald Rudolph Ford.
Human Rights:"America did not invent human rights. In a very real sense...human rights invented America." James Earl Carter.
The American Dream: "America is too great for small dreams." Ronald Wilson Reagan.
Future:"If anyone tells you that America's best days are behind her, they're looking the wrong way." George Herbert Walker Bush.
Employment: "The best social program is a good job." William Jefferson Clinton.
The Clash Against Civilization: "Freedom and fear are at war. The advance of human freedom-the great achievement of our time, and the great hope of every time-now depends on us. Our nation-this generation-will lift a dark threat of violence from our people and our future. We will rally the world to this cause by our efforts, by our courage. We will not tire, we will not falter, and we will not fail." George Walker Bush.
Wishing you success,
Robert W. Brimmer, CFP™
BRIMMER FINANCIAL
rbrimmer@nationalsecurities.com
P.O. Box 2806 - 19 Brewster Cross Road - Orleans, MA 02653
tel. 508-240-0320 fax 508-240-2309 toll free 800-237-9322
Disclosure · Privacy
Securities offered through National Securities Corporation, Member NASD / SIPC
Investment Advisory Services offered through National Asset management, Inc., a Registered Investment Adviser
Accounts carried by National Financial Services LLC, Member NYSE / SIPC