Market Commentary

Posted November 29, 2010

The markets have had a substantial recovery since July of this year. They have reached two‐year highs, levels not seen since before the collapse of Lehman Brothers. All major market indices are now positive year to date. The S&P 500 is now ahead over 9% and U.S. Mid and Small Cap are up over 17%. Globally, International Large Cap is up 6% and Emerging Markets are up 17.1% (as of the November 4th close). Until this week, this surge in equity prices has been related to relief that the European financial markets are not collapsing, less fear of a double dip recession, good earnings reports, expectations of a positive election outcome, and discounting of quantitative easing round two. This week the markets responded very positively to the election results and the Federal Reserve's commitment to a second round of quantitative easing (QE II).

 

It is important to rebalance your equity exposure after such a big move. Disciplined rebalancing is a cornerstone of our investment philosophy. This will help your relative performance should the markets pull back. If you are over your target in equities we would lighten up on International Large Cap and U.S. Small Cap. The weak dollar continues to help U.S. Large Cap multi‐national companies. We are overweighted Materials, Industrials, and Consumer Staples. We are underweighted Health Care and Telecommunications.

 

The world equity markets, as measured by the MSCI World Index, have now gone over 49 days without a pullback of 2% or more. This is pretty unusual, in that the norm since 1972 is to have a pullback of 2% or more every 17 trading sessions. So we are a little overdue for higher market volatility and some kind of mild correction. Investors have become very optimistic about future equity prices. If we do have a correction it should be mild because of good earnings reports, low valuations, and a more certain political outlook.

 

The economy continues to grow at a slow rate. Second quarter GDP growth came in at 2% right in line with expectations of 2.1%. A good portion of this growth was due to expansion of inventorieswhich increased $115.5 billion. The report also suggested that domestic demand is picking up. Manufacturing activity has pickedup in all eight regions. There still appears to be very modest COREinflation (excludes food and energy prices, which have been rising). There is no wage inflation and Social Security recipients will not receive a cost of living increase for the second year in a row. Consumers continue to improve their balance sheets by paying down debt. This and other data continues to indicate that the recovery will continue well into 2011.

 

Developed economies all want to grow their way out of this recessionary environment by exporting their goods and services. The best way to increase exports is to allow your currency to be weak against your trading partners. That makes your goods and services less expensive in your trading partners' markets. At the recent G‐20 meeting an agreement was reached not to debase currencies.

 

The Federal Reserve announced on Wednesday they are committed to low interest rates for the foreseeable future (12 months). This is being accomplished by the second round of quantitative easing or QE II. Essentially, they are creating liquidity by purchasing bonds in the open market. I don't really understand the need to create more liquidity when corporate America is stockpiling cash. The real issue is to loosen credit requirements so small businesses can gain access to capital for expansion and job creation.
I believe that the Federal Reserve has an unstated policy to keep the dollar weak (contrary to the public agreement announced after the G‐20 meeting). Low interest rates make our currency less attractive and that is a major reason it is weak. The likely objective is to create job growth by helping U.S. Large multi‐national corporations that export goods and services. Again, the weak dollar makes these corporations' goods and services less expensive and more competitive in overseas markets.

 

Interest rates are at historical lows and are likely to remain there for the next six to twelve months. The bond market has been on an incredible bull run. Our biggest concern is that the bond market has formed a bubble. While we expect interest rates to remain low at some point rates will go higher. When they do it will be very hard on bond prices, especially long term maturities. We continue to recommend low duration, high quality bonds for our clients' portfolios.

 

As always, should you have any questions about your portfolio, please do not hesitate to call or email our team. We are ready to help in any way we can.

 

LBA Wealth Manager & COO Earns Certified Financial Planner Credential

Posted November 21, 2010

Carrie Beasley Jones adds the CFP designation to her credentials

Carrie Beasley Jones, CFP®, Wealth Manager and Chief Operating & Compliance Officer at LBA Wealth Management in Jacksonville, FL has been authorized by the Certified Financial Planner Board of Standards (CFP Board) to use the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ in accordance with CFP Board certification and renewal requirements.

 

These marks identify those individuals who have met the rigorous experience and ethical requirements of the CFP Board, have successfully completed financial planning coursework and have passed the CFP® Certification Examination covering the following areas: the financial planning process, risk management, investments, tax planning and management, retirement and employee benefits, and estate planning. CFP® certificants also agree to meet ongoing continuing education requirements and to uphold CFP Board's Code of Ethics and Professional Responsibility, Rules of Conduct and Financial Planning Practice Standards.

 

In addition to serving her clients, Ms. Jones is also responsible for the overall management of the firm as Chief Operating and Compliance Officer. She began her financial services career 20 years ago and joined LBA Wealth Management in October 2008. Ms. Jones graduated from Jacksonville University with a BA in Business Administration.

 

IRS Announces 2011 Limits for Retirement Plans

Posted Nov. 15, 2010

Dollar limitations on benefits and contributions for retirement plans remain unchanged.

On October 28, 2010, the IRS announced the 2011 cost-of-living adjustments applicable to dollar limitations for retirement plans and other items. The limits remain the same as they were in 2010. Retirement plans are subject to annually adjusted dollar limitations by the IRS for cost-of-living increases, and are normally determined based on inflation data provided by the Bureau of Labor Statistics' release of the Consumer Price Index. Effective January 1, 2011, the following limitations apply (comparison to previous years also shown):