My Comments and Opinions
Third Quarter, 2009

Summary

The Third Quarter of 2009 was good for the stock and bond markets but continued to be bad for our unemployed. The Dow Jones Industrial Average moved up from 8504 on July 1, 2009 to 9712 at the close September 30, 2009, an increase of 1208 Dow points for the quarter. In contrast to the improving markets, the official U.S. unemployment rate hit 10.2%. American businesses large and small continued to shed jobs. Why would the stock and commodities markets turn sharply up during a recession? Among the explanations for the dramatic increases: The current growth in Asia; anticipated future improvements in America; a weak U.S. Dollar. Our Dollar tends to act counter to oil, gold and the many other physical assets for which there's a public market. Here's why. As the Dollar drops, investors seek other, more tangible assets because they want to hold investments which will maintain purchasing power against a falling currency. Commodities also tend to rise when there is fear of inflation in the air.

Real Estate

The Mortgage Bankers Association, reporting on this, the longest recession in decades, stated that over 4% of mortgage holders are in foreclosure and one in ten is at least one payment behind on their mortgage. The Wall Street Journal noted that many home owners owe more than the market value of their houses. Fortunately, housing markets are improving in many parts of the country, albeit slowly. Extreme low interest rates and some government programs have been encouraging first-time home buyers and others to buy now 'before prices go back up.'

Government Actions

The Stimulus Bill has had little effect to date. Most of the money hasn't even been spent. The only sector of the economy gaining jobs is the public sector (government jobs). It will still be some time before private sector companies feel optimistic enough to re-hire laid-off employees. The good news is that over 85 percent of us have jobs and are taking home a paycheck.

Credit

A persistent problem has been tight money. Banks are reluctant to lend to small businesses, the very group that creates most of the jobs in America. This reminds me of the old saw: "Banks only lend money to people who don't need it." The National Federation of Independent Business (NFIB), of which I'm a member, announced in October that the U.S. Treasury Dept. will launch a small business lending program soon.

Economic History

The future is always a guessing game. Nobody knows what's around the corner. We don't even know how long this metaphoric city block is. We might hear the traffic, but if we can't see down the street, we can't know what kind of vehicle is heading our way. So, in the spirit of guessing the future, consider this overly simplified look at the last sixty years. This really is a high altitude scan of the historic landscape. The 1950s and 1960s were two very good decades in America (post-WWII growth, the Baby Boom, low interest rates, easy credit, the G.I. Bill). The 1970s were not very good (stagflation, oil shock, very high interest rates).

The 1980s and 1990s were two quite prosperous decades (tax cuts, lower interest rates, steady economic growth, technology gains). The decade from 2000 to 2009 has been less than glorious (9/11, debt bubble and bust, long recession,). So, if we had 20 good years, 10 bad years, 20 more good years and another 10 bad years, what will the decades 2010 through 2030 be? As history tends to repeat itself, let's make a wild guess and say that it will indeed continue to repeat itself. If that's the case maybe there's a place for some serious optimism here. The market went up for twenty years (1950-1970). It was flat for over ten years (the 1970s). It went up for the next twenty years (1980 through 2000). The market, as measured by the S&P 500 is not much higher now than it was in 2000. If an investor stayed with his/her stocks or mutual funds and reinvested the dividends during this past decade, the results, depending on the investment(s) selected, would likely be better than the up and down volatility of the market's performance. In other words, staying with your investments, following the Time in the Market discipline beats the Timing the Market approach because precise timing is almost impossible. "The average investor underperforms his/her own investments by jumping in and out." (Dalbar-Quantitative Analysis, 2008).

Optimistic Signs

There is some good news. We didn't sink into the abyss. The U.S. Economy actually grew by 2.8% last quarter according to the Commerce Dept. The Federal Reserve, our central bank, did the job it was supposed to do. The Fed kept the country liquid and credit-worthy. It came to the rescue, preventing a catastrophe when credit froze in the last quarter of 2008. Our trading partners did likewise. Central bankers around the world also moved to support liquidity and confidence in banking and investing. Slowly the financial machinery of our international system of debits and credits is humming back to life. Due to the uncertainty this long recession has created, our domestic savings rate has increased for the first time in recent memory. Americans have cut back a little on spending and are saving for the next rainy day. This last rainy day took almost everyone by surprise. The recent surge in stock prices has been global just as the earlier collapse in prices was global. Clearly we are in an interdependent international market place. We all count on each other's trade for our prosperity. Remember the sign over the lunch counter? "If you guys don't eat - we both starve." That's what globalization is all about. America tried to shut the doors on international trade after the 1929 stock market crash. Congress passed the Smoot Hawley Tariff Act and contributed to a global depression. Isolationism didn't work.

Inflation, Interest and the National Debt

Interest rates are very low. America's $12 Trillion federal debt cost us $200 Billion in interest payments this year and by 2019 will soar to over $700 Billion per year. That's just the interest to carry the debt. (New York Times, 11/23/09 -Edmund L. Andrews). Eventually, if We the People do not insist that spending be reduced, the debt will get so large that our creditors (China, Japan, our own investors, etc.) will demand higher interest payments for the bonds (debt) they hold. That puts us, the taxpayers, in a spot. In order to pay higher interest on our national debt we create more debt. We have a mortgage on our country and we're only paying the interest and none of the principal. This is a formula for future inflation. With higher inflation, interest rates could very likely increase.

This can't last. If federal spending goes unchecked, Congress will likely vote to increase our income taxes and estate (death) taxes. Americans now pay the lowest capital gains taxes in decades. They'll probably go up too. Note to Congress: There aren't enough wealthy people to pay for all of this borrowing and spending. Something has to give.

Congress

Whenever Congress is in session, anything can happen. How about this one? For the first time ever, Congress will not allow an increase in the Social Security COLA (Cost of Living Adjustment). In fact, the Henry J. Kaiser Family Foundation predicts there may not be any COLA for the next three years. Please note: Congress gave itself a pay raise this year. What a bunch! My new mantra is "Re-elect no one!"

Tax Advantaged Investing

As ordinary citizens, not Members of Congress, who enjoy numerous un-taxed benefits such as travel, fabulous health and retirement benefits, etc., we are limited to only a few types of tax-deductible plans. (During the past twenty-five years or so most tax-advantaged investments have been eliminated). Wage earners might be able to participate in one or more of the various types of Individual Retirement Accounts such as Traditional IRAs, Simple IRAs and SEP IRAs for small businesses, 401(k) Plans and Pension and Profit Sharing Plans also for businesses. There are limitations on how much can be invested based on income and type of plan. Contact me for additional information if you are not taking advantage of one or more of these plans.

Retirement Income

Have you "maxed out" on your retirement contributions? If so you may want to consider a tax-deferred annuity. They come in two basic types - fixed and variable. Both offer the opportunity to accumulate money on a tax-favored basis. They don't have the limitations of qualified retirement plans as to how much can be invested. The gains within the annuity contract grow tax-deferred. Fixed annuities, which are interest-only plans, are guaranteed by the assets of the insurer. Variable annuities, which are funded by securities, can fluctuate in value. Over the years I've recommended tax-deferred annuities to my clients primarily for the tax advantages. I continue to recommend annuities. In addition to the tax advantages, these insurance company contracts pay income you can never outlive once they are "annuitized." Social Security is a government program without a pool of invested assets. Current workers contribute to current retirees. Life insurance companies must comply with very strict federal and state laws regarding the investment of assets for the payments of benefits to beneficiaries. Their plans must be actuarially sound, meaning that the companies must have the financial strength to pay all life insurance and annuity claims when due. Life insurance companies and property/casualty insurance companies insure different types of risk. Property insurance companies can cancel your coverage even if you are up to date on your payments. Life insurance and annuity contracts cannot be cancelled unless the premiums are not paid. They are referred to as unilateral contracts because they can only be cancelled by the policy (contract) owner, not the insurance company.

Financial Planning

Despite increasing pressure to slash debt and rebuild retirement funds, nearly two-thirds of consumers do not have a written financial plan, according to the 2009 National Consumer Survey on Personal Finance. The survey, released by the Certified Financial Planner Board of Standards, found that 64% of respondents do not have a written financial plan in place. I can't stress this enough: The world is changing and changing fast. No football coach would ever think of sending the team out onto the field without a game plan. In my opinion every individual, family and business needs a financial game plan, not a guessing game plan. A formal, written financial plan is needed more than ever today. National debt increasing, taxes increasing, inflation on the way? This is the time to do your financial and estate planning. There's lots of uncertainty circulating in the news media. They offer many opinions and no personal attention to your individual circumstances. Financial planning is not only for the very wealthy who can afford many advisors. I'm recommending that you not remain one of those without a financial plan.

My goal is to help my clients achieve their financial goals.

Robert W. Brimmer, Certified Financial Planner™ practitioner

IMPORTANT PUBLIC SERVICE MEETING

FRAUD PREVENTION

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ROBERT W. BRIMMER, Certified Financial Planner™

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HOW TO AVOID BECOMMING A VICTIM OF FINANCIAL AND CONSUMER FRAUD, PROPERTY AND IDENTITY THEFT, SCAMS AND SCHEMES.

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DISCLOSURES

The views expressed contain certain forward-looking statements. Although they are forecasts, actual results may be meaningfully different. This material represents an assessment of the market and conditions at a particular time and is not a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any security in particular. The opinions expressed here are the author's and do not reflect any opinion of National Securities Corporation, my Broker/Dealer, or any of its Affiliates. Dow Jones price history, The Wall Street Journal, The New York Times, The Mortgage Bankers Association, The National Federation of Small Business, Sources from the Financial Planning Association, Dalbar Quantitative Analysis, 2008, and Henry J. Kaiser Family Foundation were used as source material for this letter.

BRIMMER FINANCIAL
rbrimmer@nationalsecurities.com
59 Finlay Road - P.O. Box 2806 - Orleans, MA 02653
tel. 508-240-0320 fax 508-240-2309 toll free 800-237-9322
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