Media Mention

Here is a link to a story in one of our local papers where Jim is quoted. He highlights a number of attractively valued businesses we see in today's market.

http://www.dailylocal.com/articles/2008/12/08/business/srv0000004231644.txt

Recoveries

I saw this interesting blog from Disciplined Investing. It explains that much of the positive returns following a bear market, come in the first year. This helps to reinforce our point that it is important to stick with your asset allocation and keep money in the equity markets. In order to participate in the next uptrend in stocks, you need to be there. If you wait too long to get back in, your returns will diminish. This study is very timely given that we have come off a sizable upward move in the stock market. We are not sure whether the bear market is over, but we do know that we want to be there when the next bull market begins.

http://disciplinedinvesting.blogspot.com/2008/11/bear-market-recoveries-returns-occur.html

The Obama Economic Team

President-elect Obama announced his economic team last week. While it is too early to assess the strength of the team (like a football team, let’s see what they do on the field), we can make a few observations:

1) It is a mix of old and new faces:
A. Tim Geithner is a relatively new name on the national scene. He has been the head of the New York Federal Reserve and has been actively involved in the current financial crisis. That experience should be helpful as it provides some continuity. It also gives the Obama team a seat at the table prior to his taking officer on January 20th.
B. Larry Summers will head the National Economic Council. He was Treasury Secretary during the Clinton administration and he may well become Obama’s closest economic advisor. There was some belief that he would be given a second term at Treasury, but given his ill-conceived remarks made about woman while President of Harvard, a confirmation hearing in front of the senate may have been difficult.
C. Paul Volker will head the newly formed President’s Economic Recovery Advisory Board . I like this choice. Volker is experienced (having been the head of the Federal Reserve during the Carter and Reagan administrations) and seems willing to do the right thing, not always the politically expedient thing. His decision to raise interest rates in the late 70s and put the country through a tough recession was crucial in reducing inflation. At the press conference announcing the appointment, Obama said of Volker “He pulls no punches. He seems to be fairly opinionated.” I am confident that Volker will provide Obama with his uncensored opinion.
D. Christina Romer will head the Council of Economic Advisors. She is a well regarded economist, who has some supply side economic beliefs.

2) The new team does not appear to be full of ideologues and even Karl Rove generally liked the choices. It strikes me as a centrist group who will seek to combat the current financial crisis and deal with the recession. They will eventually deal with making broader changes to the tax code, but that is not the primary concern today.

3) While a tremendous amount has been spent and will be spent on “bailouts”, it does not appear that there will be a blank check. The Big 3 auto executives, which represent one of the most populist of groups to ask for money, were sent back to Detroit to craft a plan that will show how the companies can remain solvent if they receive government help. It was clear that Obama was disappointed with the auto executives.


One other thing that is important to note is that investors do not like uncertainty. Now that we know the group who will be overseeing economic policy (and it seems like a solid team), it is not a surprise that the markets have been stronger.

Roth Idea

For those of you who are married, actively participating in a company sponsored retirement plan and making over $169,000 in adjusted gross income in 2008 ( $116,000 if you are a single filer), consider making non-deductible IRA contributions in 2008 and 2009. The goal would be to convert the balance to a Roth IRA in 2010. In 2010, the income limit for Roth conversions (currently $100,000 in adjusted gross income) goes away and you can pay the tax due on the conversion over two years. Given the expectation that marginal tax rates will be going up, it may be a way to give higher earners an opportunity to get some money into Roth accounts.

There are several other aspects to consider such as will the income limit really go away in 2010, how much you can set aside and where the dollars will come from to pay the tax due. So send us an email at planting@harvestfinancialpartners.com for more information and to discuss your specific situation.

Dividend Aristocrats

I was doing some research this morning and came across this chart on the Dividend Growth Investor website (http://www.dividendgrowthinvestor.com/). It shows the performance of the S&P 500 versus the S&P Dividend Aristocrats index. It also makes pretty clear why we like companies that pay dividends.

Dividend Aristocrats are companies which have paid and increased their dividends for the last 25 years. These are the types of companies that we look at when researching stock ideas. Some examples of Dividend Aristocrats are General Electric, Johnson & Johnson, Pfizer and Procter & Gamble.

This chart may not mean much today given the turbulent market environment, but it should help to provide some comfort that buying quality dividend paying companies is an attractive long term strategy.

Gift of Knowledge

I saw this story about mothers talking to daughters about financial matters on NBC News last night. The basic premise was that a subset of moms consider themselves the CFOs of their households and make it a point to discuss finances with their daughters. That is great, but the story does point out another very important reason why women in particular should be financially literate. You live longer than us men do and given that difference in life expectancy, as the piece says, 90% of women will be alone at some point in their lives. So by all means teach away about the timeless tenets of personal finance – how to make money, spend less than you make and put the difference someplace safe – but include sons too. It’s knowledge they won’t get at school so you are the only, or at least the best source. And it’s knowledge that will pay dividends over their lifetime. If you know it's important to discuss but don't know where to begin send Jim or I an email; we have some ideas about how to get the conversation started.

President-elect Obama

So we now have settled on who will be the next president. Congratulations Mr. Obama! He certainly will have a full plate when he assumes the presidency on January 20th.

But what does this mean for our clients. In two words, not much. Please don’t take this to imply that we are oblivious to the fact there will be changes under an Obama administration. Of course we know there will be winners and losers. What we do mean is that we will continue to search for high quality companies that pay a dividend and are inexpensively valued.

Some investors may respond to the election of Barack Obama and sell off certain stocks or sectors. We hope to take advantage of some of these overreactions and add new names to the portfolio. We believe the type of companies that we like and the managements we want to partner with can operate effectively in any political environment. We also are confident that strong balance sheets have no political allegiance. The new president and his policies may have some impact on how we value a company, but even that will be relatively minor.

Bottom line, the agenda of President Obama will be one of many factors that may have a modest influence on how we construct a portfolio, but it will not lead to a fundamental change in our approach.