Brimmer Financial

WE MAY NEVER SEE PRICES SO LOW AGAIN
October 10, 2008

This Bear Market is my seventh Bear Market. I met my first Bear during the 1973 to 1976 slump and recovery. During '73 and '74 the S&P 500 Index dropped 43% over 21 months according to data compiled by Standard & Poor's and the Federal Reserve Bank of St. Louis. The recovery lasted 27 months. The gain was 86%. The October, 1987, Financial Shock lasted 4 months during which time the S&P 500 lost 24%. We lived through the 2000 to 2002 Bear Market which fell 43% over 30 months. After each of these Bears, the Bulls returned to reclaim the Market.

I've watched this Bear feast on: 1) Chunks of bad mortgage debt, 2) Backpacks full of common stock thrown away by hedge fund and mutual fund investors, and 3) Shares of companies given up by those who just couldn't hold on. Big Bear Markets are usually similar. People sell irrationally just to get out. During Powerful Bull Markets people bid up prices irrationally just to get in. I believe wise investors BUY AND HOLD logically, not emotionally. Bull markets go back up without prior notification. It's smart to be on board when the Bull Market train leaves the station.

In this, the 21st Century, everything seems to be moving faster. Our markets move up and down quickly. Electronic communication is global. New inventions are coming to market soon after they are conceived. Medical research brings us new life-saving treatments. Our national life expectancy has increased by over 20 years since 1900 according to the U.S. Census Bureau. Americans are problem solvers. Where ever there's a mess Americans find ways to clean it up. The late Sir John Templeton said that the best time to buy was at the point of MAXIMUM PESSIMISM. I see pessimism everywhere.

After the last of the discouraged sellers unload their shares I anticipate a strong buying surge. I believe it will arrive quickly and fairly soon. The current Dow Jones 30 Industrial and S&P 500 Averages are at price levels last seen about five years ago. These bargain prices are just too attractive to keep buyers away for much longer, in my opinion. When cans of tuna fish go on sale buy more tuna. When peanut butter goes on sale buy more peanut butter. When shares of the world's great companies go on sale, buy as many as you can. This is the lesson of history.

We may never see stock prices this low again. I believe that this is a once in a lifetime buying opportunity.

Robert W. Brimmer, CFP™
President of Brimmer Financial Group, Inc., Orleans, MA - Manager of the Orleans Branch of National Securities Corp., Seattle, WA Member FINRA/SIPC 508-240-0320 (800)-237-9322

Lions and Tigers and Bear Markets, Oh my!

Bears "bear down" when attacking. Bear markets are downward markets. Bulls toss their adversaries up with their head and horns. An upward market is a bull market.

Twenty years ago, on Monday, October 19, 1987, the Dow Jones Industrial Average fell 508 points, a loss of some 22% in one day. A shiny new technology, computerized portfolio insurance, had been created with the goal of protecting portfolios of stocks from falling too far during a sell-off. The idea was that this computerized portfolio protector would sell shares when they fell to a certain level, much like the stoploss orders an individual investor might use. But these computer programs sold millions of shares at a clip. When share prices started down in the morning, multiple computer-driven SELL orders hit the floor of the Exchange in rapid fire, creating a cascade of downward spiraling price points as each new computer-generated sell order met with fewer and fewer off-setting buy orders. The Exchange probably should have been shut down, but the NYSE let the prices fall until, mercifully, trading stopped, as it does every day, at 4:00 PM.

In the twenty years following the great stock market crash of 1987, the Dow Jones Industrial Average has increased by a factor of more than seven times, from 1738 at the close on 10/19/87 to 13522 at the close on 10/19/07. The difference from low to high is 11784 Dow Points. Source: Dow Jones Industrial Average price history.

So, if you, like so many before you, sold out that day, never to return, you missed the last 11784 points. One dollar invested in the Dow Jones Industrial Average twenty years ago would be worth about seven dollars now. A hypothetical investment of $100,000 in that index bought in 1987 would be worth about $700,000 now, and that's without reinvesting any dividends. Did you get scared out of your stocks? There's a saying about bear markets: It's when stocks go back to their rightful owners.

We are currently in a housing bear market. Should you sell your home and move just because your home might be worth less today than two or three years ago? The lesson of the bear stock market and the bear real estate market is this: Don't be overleveraged (be too much in debt); stay diversified; don't panic. The stock and real estate markets have gone down before many times. They never have stayed down. Of course, past performance will never guarantee future results. Diversification does not guarantee gain. And there is always risk and reward in any investment strategy. There is no one investment solution for everyone.

Future Stock

"Predictions are hard to make, especially about the future." Yogi Berra, philosophical baseball legend. Here's a prediction we can all agree on: It will cost more to live every year. It's called inflation, caused largely by an increase in the supply of money in circulation. Governments often print more currency than is needed to keep their economies stable. When the amount of money circulating is more than what's needed to buy available goods and services prices have nowhere to go but up. Buyers bid up prices to whatever the market will bear. In the Free Market buyers and sellers are free to make their own deals. Socialism and Communism seek to manipulate the immutable Law of Supply and Demand. What a lovely ideal. There's only one problem in trying to bend Supply and Demand to human will. Supply and Demand won't obey. Communism doesn't work. Only free markets work.

Sir John Templeton, founder of the Templeton mutual fund family, took a trip around the world when he was a young man. Fifty years later he took the same trip, visiting the same countries and cities. He said that there was improvement in the standard of living in the countries which had embraced freedom. But where he found repression, people lived under the same grinding poverty he had seen half a century before. Many in the world are living in freedom. The Americas, Europe, former Eastern Bloc nations, India, Japan, and Hong Kong, among others, are relatively or very free countries experiencing growing economies and increasing prosperity.

America is the leading Free Market democratic republic. Our great success is due to the genius of our people. As long as we protect our liberties I believe we will continue to flourish. One need only know one thing about a country: Are people trying to get in or get out? We all know the answer to that one.

Americans are 5% of the world population. Today our domestic stock market represents less than 40% of the total value of the world stock market. In 1970 our stock market was equal to about 66% of the global equity market. The American stock market didn't shrink. Instead, many foreign economies and stock markets grew faster than our own. The U.S. economy is expanding by about 3% annually. Our inflation rate has averaged 3% per year over the past 80 years. A certain group of large American stocks approximating the S&P 500 gained over 10% per year since 1925. This includes the years of the Great Depression, when money almost went out of circulation.

It makes sense to own assets that can grow at a rate that exceeds the expected rate of inflation. Real estate and stock markets have, over many decades, produced inflation-beating results. To take advantage of rapid global economic growth I've advised my clients to consider investments in other Free Market nations for over twenty years. I believe investing in the broader world market, which includes America, lowers risk and increases opportunity for success. Owning assets which typically out-perform inflation is a time-tested approach to long-term investing. I rely on the talents and experience of a number of the world's largest financial institutions when recommending global securities. If you are looking into your future, stocks from the global Free Market shopping mall deserve a look.

What do you do when bananas go On Sale? Go Bananas?!

Every so often there is a sale at the supermarket. Maybe bananas are on sale. Assuming you like bananas, what should you do? Rummage around the kitchen, call your neighbors and try to sell them your uneaten bananas? Or, do you go to the market and buy a few sale-priced bananas? The second is widely considered the saner option. Then why aren't we surprised when rational people scurry to sell their securities when they go on sale?

Whenever Wall Street's inventory goes on sale investors can get a case of the shivers. Thoughts of 1929 are awakened. Fear of destitution, ever haunting the deepest recesses of our communal subconscious, emerges as a bear from hibernation. Not knowing why others are selling, some believe that the others know something the rest of us don't know. After all, they're the professionals. Aren't they?

For a moment consider the housing market. We all acknowledge that home prices go up and down. We all know that owning a home has been one of the best investments millions of us have made. Why don't we panic when there's a slowing in the real estate market? Why don't we sell our homes to whomever will buy them at the lower prices? Why? Selling makes no sense. Sell and do what? Move into a tent in woods? Unless one is forced to sell when real estate is down, one need not sell. So what if the price is down! We'll don't plan on moving just now. We have to live somewhere. We stay put.

Back to stocks. For over two hundred years America has had a stock market. At first only banks were represented. Later, the railroads joined the market. Then the industrials were added, followed by diverse companies in manufacturing and services. Today an investor can buy shares in tens of thousands of publicly traded companies, both foreign and domestic. Prices of company shares move up and down, undulating as the push and pull of supply and demand dictate. When the prices of stocks go on sale it does not portend the End Times. There is no eschatological significance that is attributable to a market course correction. Lower prices mean just that- lower prices. A market, any market, is made up of buyers and sellers, each trying to sell at the highest price and buy at the lowest price. Prices change.

The Law of Large Numbers, first described by Jacob Bernoulli in Ars Conjectandi (The Art of Conjecturing) in 1713, helps to explain how events in a large sample are likely to result in a sort of statistical average. Because the stock market is an auction that allows prices to move up and down, any price that is set is the result of the actions of multiple buyers and sellers coming to some price agreement. These agreements change minute by minute as each new trade is executed in the open market. Unlike a traditional auction, where prices only go up until no one is willing to pay more than the last bid, stock market prices bounce up and down until the gavel comes down at the end of the trading day. When the New York Stock Exchange closes trading on the floor at 4 PM the final (closing) price for the day for each of the stocks listed on the NYSE is recorded. On some days stocks look like bargains. On other days they seem expensive. Lower prices present a buying opportunity. Investors are in for years. Traders are in and out daily. The last best time to buy was in October, 2002. Don't go bananas. The recent drop in stock prices creates opportunity, assuming the End Times aren't just around the corner.

Aesop. (Sixth century B.C.) Fables. The Harvard Classics. 1909-1914
The Ant and the Grasshopper

IN a field one summers's day a Grasshopper was hopping about, chirping and singing to its heart's content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest. "Why not come and chat with me," said the Grasshopper, "instead of toiling and moiling in that way?" "I am helping to lay up food for the winter," said the Ant, "and recommend you to do the same." "Why bother about winter?" said the Grasshopper, "we have got plenty of food at present." But the Ant went on its way and continued its toil. When the winter came the Grasshopper had no food, and found itself dying of hunger, while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew:

"IT IS BEST TO PREPARE FOR THE DAYS OF NECESSITY."

Aesop understood the need for preparation by observing nature. Our lives are surrounded by more complexity today, but our basic needs remain the same- air, water, food, shelter, clothing and an environment conducive to personal fulfillment. Such an environment will guarantee the freedom to make our own choices, be they good or otherwise. An income earner might choose to spend all of his or her money or save some for the future. A person who DID NOT invest $1,000 at a steady hypothetical rate of 8%* compounded over twenty five years would NOT have the $6,848 it would have become during those years. More dramatically, a person who DID NOT invest $1,000 every year at the same 8%* hypothetical rate over twenty five years would NOT have the $78,954 it would have become. The Ant worked with his group to prepare for the days of necessity. Today one name for this type of preparedness is FINANCIAL PLANNING.

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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Securities offered through National Securities Corporation, Member FINRA/SIPC.
Investment Advisory Services offered through National Asset management, Inc., a Registered Investment Adviser and affiliate of National Securities Corporation.
Accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments Company.

WE MAY NEVER SEE PRICES SO LOW AGAIN October 10, 2008