Weekly Commentary

Weekly Commentary

Welcome to our weekly commentary. As always, feel free to call our office with any questions or comments that you may have.

If you have family, friends, or colleagues that might enjoy receiving our weekly commentary, please reply to this email with their email address and we will ask for their permission to be added.
 

Contact Us

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2100 Lake Eustis Drive, Tavares, FL 32778
Office (352) 343-2700
Fax (352) 742-2607

www.ruggiewealth.com
 

Around the Water Cooler

Please join us in our support of the Haven of Lake & Sumter County Donation drop off during the months of January, February and March.

We will be accepting items for both women and children to include clothing, toiletries and baby items. Our office hours for the donation drop off are as follows: Monday through Thursday, 8:00 am until 5:00 pm and on Friday, 8:00 am until 4:00 pm. We appreciate your participation in this worthy cause.
 

Portfolio Changes

This week the changes to our Portfolio are affected by the sells listed below.
 

Sells

KOHL’S CORPORATION (KSS): Due to the company’s meager revenue and earnings per share growth, there are no fundamental drivers to positively impact the stock in the near future. We felt it was time to take any profits off the table.

JP MORGAN CHASE (JPM) With an unimpressive growth ratio over the past three years and deteriorating valuation, we felt it was time to move out of this holding. Part of our daily tracking of individual holdings is to detect companies we feel will not meet earnings expectations in advance of their release and JP Morgan was one such call as we sold this holding in advance of negative performance numbers released on Friday January 15th.

SIRIUS XM RADIO INC (SIRI) This was a tough call between cashing in at such a low price to potentially prevent losing everything due to a possible bankruptcy or hold the position at it's relatively low price and hope things improve. We chose to sell at this point.

GLAXO SMITH KLINE PLS (GSK) Although the company’s current capital structure seems adequate to service its debt, it is failing to beat quarterly estimates and exhibits unjustified valuation.

INTERNATIONAL BUSINESS MACHINES CORP (IBM) IBM’s poor growth record over both the short and long term is evidence of a troubled and uncertain business model. While management has done a decent job with the company's earnings per share growth, a lack of top line growth poses a near term threat to sustaining these earnings per share.

EXPRESS SCRIPTS INC (ESRX) Recent top and bottom line growth seems to be slowing down considerably. The stock trades at 57.66 times tangible book value per share which means any further price gains will have to come from increased earnings from operations.
 

Buys

No changes outside our portfolios.
 

Fund Highlight

JAMES BALANCED GOLDEN RAINBOW (GLRBX) has been a key position in our Moderate Portfolio since the third quarter of 2008. With Morningstar ratings of 4 and above and a stock turnover rate less than its peers, we feel this is a strong candidate for a longer term hold in our Moderate Portfolio.

GLRBX seeks to provide total return in excess of the rate of inflation over the long term. The fund seeks to provide this total return through a combination of growth and income along with preservation of capital in declining markets. They invest primarily in common stocks and/or debt that the managers believe are undervalued with 40-60% of the fund invested in common stocks. Some, or all, of the equity portion of the portfolio may be invested in small and/or micro cap companies. This creates a certain volatility but less so than its peers.

The fixed income portion of the Fund consist primarily of US government securities or high grade corporate bonds. The fund managers try to limit non-government fixed debt purchases to issues rated A- or better. The managers will either extend maturities, when they believe rates will fall, in anticipation of capital appreciation or they will shorten the maturities if they believe rates will rise, seeking capital preservation.

Since its inception in 1992 the fund has been managed, led by Dr. Frank James, Ph D, by the James Investment Research Group. This group collectively has over 100 years of investment experience. They are highly disciplined in their investment philosophy and process; monitoring their results to assure timely research. Their self proclaimed “slow and steady wins the race” philosophy has proven to be profitable for its investors.
 

The Markets

Former Federal Reserve Chairman Paul Volker was back in the news last week as he warned that the financial system needs broad reform or else we run the risk of another financial crisis.

You may remember Volker as the cigar-chomping Fed Chairman from 1979 to 1987 who raised interest rates dramatically to try and break the back of inflation in the early 1980s. He succeeded, but the price for success was a major recession.

During his speech last week to the Economic Club of New York, Volker argued that the Federal Reserve should be a key player in overseeing the financial system and that they, “should have the power to dismantle big banks that pose a systemic risk to the economy,” according to CNN Money.com.

Volker worries that as the economy continues to heal, the urgency for reform will fade and that will set the stage for the next crisis. While we will likely get some type of financial reform in coming months, we hope that it will preserve the principles that have made our country so great.

Ironically, on the day Volker spoke, the S&P 500 index hit a fresh 52-week high, according to Briefing.com.
 

 Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

BACK IN EARLY MARCH 2009, there was palpable fear in the markets. Our banking system was on the verge of collapse, unemployment was skyrocketing, and the stock market was touching 12-year lows. But on March 10, the collective psychology changed, the market turned around, and since then we’ve witnessed one of the greatest short-term bull markets in history.

What do we do for an encore in 2010?

Before we figure out 2010, we need to understand what drove the 2009 bull market. While it may be a little early to write the history of 2009, we can make some observations that provide a framework and context for the great reflection.

With the benefit of hindsight, here are some reasonable conclusions on what drove the 2009 bull market:

1. The Federal Reserve flooded the economy with easy money. This money had to go somewhere and some of it found its way to the financial markets.

2. With short-term savings rates near zero, investors had to move out on the risk spectrum (e.g., stocks, commodities, high-yield bonds) in order to have a chance at higher returns.

3. China implemented a massive stimulus program that kept their economic engine running and that helped goose other countries’ economies.

4. There was a one-time re-pricing of risk as investors realized the world was not coming to an end, so they snapped up stocks that were perceived as “generational” bargains.

One of the tenets of investing is that there is “no free lunch.” In this case, it means the government cannot endlessly flood the economy with stimulus. If they try, there may be repercussions such as unacceptable inflation, a crashing currency, and soaring deficits.

Here’s the key question as 2010 unfolds: Can the economy get on a self-sustaining growth path without further government stimulus?

If we are over the hump and the economy is self-sustaining, that may bode well for the markets in 2010. Conversely, if the economy still needs substantial government help, investors may get nervous again. The tug-of-war between investors who believe the former versus the latter may be the defining dynamic in the 2010 market. Regardless of which comes to fruition, we’ll continue to do our best to help you meet your long-term goals.
 

Weekly Focus – Think About It

“Our thoughts and prayers are with the people of Haiti and the relief workers who are trying to help them.

Best regards,

Thomas H Ruggie, ChFC, CFP

* The Standard & Poor's 500 (S&P 500) is an unman-aged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.