Issue 01 - September 2012

Labor Day Updates

Hello All,

We hope you enjoyed your summer and had a great Labor Day. It has been a busy time here getting settled in the new office, but we are (finally) about there. If you haven’t had a chance to come by and see it, we hope to see you soon. We want to provide you with a market update as well as tell you about an upcoming event.

First things first: We would like you to SAVE THE DATE of either Tuesday October 9th at 6 PM or Wednesday October 10th at 11:30 AM for an informative dinner/luncheon event. Please plan to join us for one of these (client-only) events – details to follow. And now for the update…

In late July, Mario Draghi who is the president of the European Central Bank (ECB) made some strong statements that seem to have stabilized the European bond and stock markets, at least for now.  Draghi stated that they would do whatever it takes to save the Euro and inferred that they have come up with a plan to buy bonds of the troubled Euro countries.  So far, however, the details of the plan have been scarce, but just the promise has helped.

The idea is that by purchasing the bonds, the ECB can help to stabilize bond interest rates, or even lower them which will help these countries by lowering their borrowing costs.  The problem is that the ECB cannot make these purchases directly due to the original treaty that set up the Euro and the ECB.  So the current leadership in the Eurozone is spending a lot of time thinking of ways around this in order to keep the borrowing costs from getting out of control.  These new developments should help, but there will still be uncertainty in Europe due to the austerity measures being implemented that will likely continue to hurt their economies.

Here in the US, corporate earnings for the second quarter were a bit weaker than they were in the first quarter (though still not too bad).  Earnings estimates for 2013 have been coming down and the unemployment numbers have been mixed, but overall worse than they were at the beginning of the year.  As a result, Ben Bernanke and the Fed have been hinting that they may take more measures to help support the economy.

Many are labeling this Fed action as “QE” (quantitative easing), which would essentially be the Fed buying bonds – US government bonds or possibly mortgage bonds.  And though the Fed has not done anything new in recent months, the stock market has responded favorably in anticipation that the Fed might do something.   The Fed has been doing this for the past few years, so this is nothing new.  Really, it is just an extension of what they have been doing, though there may be some kind of new wrinkle, so it will be interesting to see what they come up with.

For our part, we don’t see any compelling reason to get significantly more aggressive or more conservative.  We want to continue to look for opportunities in good dividend paying traded and non-traded investments.  We’d like to see each of our clients have an average portfolio dividend rate of around 6 to 7%.  Right now, bond rates are very low and the average dividend of the S&P 500 stocks is about 2%.  So it’s really not likely that we could average 6 to 7% without sacrificing quality on the traded side in the stock market.  Which is why our strategy of buying non-traded REITs on the secondary market is so valuable.  We are slowly but steadily getting enough non-traded assets to help boost our portfolio dividend yields without sacrificing quality.  Our recent purchases of non-traded REITs have had yields in the 8 to 9.5% range.

We look forward to talking to you soon. Please do not hesitate to call and schedule a review if we don’t have one on the books already, or to have any questions or concerns answered. As always, we appreciate your business and we hope to see you at the upcoming event.

Sincerely,

Brian and Abby