November 2010

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.

 

November 2010

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.

 

October 2010

Market Commentary

Posted November 29, 2010

The laws for capital gains taxes are changing, including changes to cost basis reporting requirements. Currently, realized gains on stocks, bonds, and mutual funds held over one year are taxed at a maximum long‐term capital gains rate of 15%. Short‐term gains (on investments held one year or less) are subject to ordinary income tax rates. Next year's rates remain uncertain.

 

There is speculation that rates could increase to 20% for long‐term gains, that all gains could be subject to ordinary income tax rates, and that rates will remain the same. While the uncertainty continues, your CPA can help you evaluate your options: whether to accelerate income, if gains should be taken this year, which deductible expenses to defer, or other tax planning opportunities.

 

When it comes to investments, the taxable gain is the sale price minus your cost basis, or what you paid for the investment. Calculating your cost basis can be complex, and the accounting method used to report it can have a big impact on your tax bill. If it is calculated incorrectly, your gain might be overstated and you could pay more tax than necessary.

 

Currently, when you sell an investment, your financial institution reports the proceeds to the IRS on a 1099‐B or Broker Proceeds filing. You or your CPA compute the cost basis for the investment and report it on Schedule D. New legislation passed by Congress in 2008 requires all financial institutions (brokers, banks, and custodians such as Charles Schwab) to report cost basis information for taxable accounts to the IRS starting with tax year 2011. This change represents a shift in the way financial institutions will approach cost basis as they are now responsible for the reporting.

 

Beginning in the next tax year, custodians will begin to take accountability for reporting both the proceeds and the cost basis to the IRS. The new legislation will roll out in three phases over the next three years, with each year adding more responsibility to the custodian.

 

 

Securities acquired prior to the above effective dates are considered "uncovered securities." Taxpayers will remain responsible for reporting the cost basis of uncovered securities when gains or losses are realized. It is still a good idea to save your purchase and sale documentation, including records of any automatic reinvestments. Periodically make sure your information matches the information that financial institutions will report to the IRS. You should also make sure your financial institution is reporting using the accounting method of your choice.

 

For detailed information on cost basis reporting, see IRS Publication 550, Investment Income and Expenses, available at http://www.irs.gov/publications/index.html.

 

For LBA Wealth Management Clients

 

To assist our clients and their CPAs, LBA Wealth Management will continue to provide cost basis data and gain/loss information for all securities.

 

We have been working diligently for the past 18 months to ensure that our clients' custodians' records reflect the cost basis data we have compiled over the course of our relationship.

 

We have evaluated the various cost basis accounting methods used to calculate gains or losses and have decided to continue reporting cost basis for individual securities using the High Cost method and report mutual funds using the Average Cost method.

 

Our clients only need to do one thing... check the cost basis reported on your monthly custodian statement against any records you may have. If you have a holding showing missing cost basis or are concerned about a reported cost basis, please review your personal files and let us know of any discrepancies you may find.

 

September 2010

Market Commentary

Posted September 14, 2010

The markets were generally volatile and down for the month of August. The S&P 500 was down 4.51% for the month, leaving it down 4.62% for the year. Through August, the other major equity averages were also down. However, in the first week of September the markets rallied and the S&P 500 is now in positive territory; a very nice recovery.

 

Other market averages have also improved since the end of the month. The Dow Jones Industrial Average is now ahead at 1.83% for the year, Mid Cap is up 5.82%, Small Cap is up 2.31%, Developed International is down 3.07% (cutting its decline in half), and Emerging Markets are up 3.81%.

 

Fixed income rates have declined to historic levels. This decline is indicative of continued weakness in the economy, fear of a double dip recession, and worries that we might have a Japan-like period of deflation. Prices on US Treasuries have reached bubble territory but may rise some more on the intermediate to long-term end of the yield curve.

 

CONTINUED UNCERTAINTY…

The current state of the economy and the markets continues to confound most investment strategists, including me. Economic data and market sentiment continues to fluctuate weekly. One week we are heading into another recession, a so-called "double dip", and the next week there is evidence of some economic growth with a glimpse of a recovery.

 

Our investment team has come up with some probabilities to address this unusually uncertain market. Our expectations for a double dip recession are very low while our expectations for robust growth are also very low. The most likely scenario is for a period of subdued economic growth, modest market returns and earnings, BUT not a big bear market or another recession (remember our projections for a square root recovery 12 months ago?).

 

On the equity side, the US and International Large Cap stock markets are still in a bull market cycle but within a secular bear market, hence the very modest returns for the market this past decade. The US market is normally or fairly valued – not cheap but not overvalued either. Because of the uncertainty and the very small probability of a double dip, we are favoring defensive industries and stocks, focusing on those with a decent dividend yield.

We are also favoring Emerging Markets that represent a small but growing percentage of the world’s equity markets, as measured by market capitalization. In contrast to the equity markets of developed countries, these markets are mostly in secular bull markets. Countries and equity market share are as follows; China 2.47%, Canada 4.43%, Australia 3.3%, Brazil 2.14%. These countries and other emerging markets have increased market share by 11.16% since 2003, reaching 19.65% currently. Market share for the US and Europe has declined 11.89% during the same period, shrinking to 68.13%.

 

We think the outcome of the November mid-term elections will be a turning point for the US market. Without change, businesses will be choked by regulation and individuals’ purchasing power will be diminished by higher taxes. So far the polls indicate change is coming but the outcome is not certain.

 

FIXED INCOME RISKS

The fixed income market has become a difficult and dangerous place to invest. Investors have lost patience with the paltry yield from money market funds and CDs and are chasing yield by increasing maturities or reducing credit quality. The flow out of money market funds since April, 2009 has surpassed $1 Trillion. Of that, $450 Billion has flowed into bond funds while $42 Billion has flowed out of equity funds.

 

The risk of extending maturities in order to pick up an additional 1-2 percentage points dramatically increases the risk of principal loss should the bubble in bond prices pop and interest rate increase. In our portfolios, we may be giving up a point in yield over the short term, but we are ultimately keeping risk low.

 

In summary, stocks are more attractive than bonds on a risk adjusted basis. Emerging Markets are more interesting than Developed Markets. Defensive industries (goods and services that consumers have to purchase) may represent the safest area of the equity market.

 

Should you have any questions, please do not hesitate to contact our team. As always, we are available to discuss our market outlook, portfolio positioning, personal financial situations, and planning goals.

 

Best regards,

 

David T. Albaneze, CFA

Chief Investment Strategist

 

July 2010

Jacksonville-Based LBA Ranked Among Nation’s Top Wealth Management Firms

Posted July 28, 2010

LBA Wealth Management One of Only Fifteen Wealth Management Firms in Florida and the Only Firm in Jacksonville to Make the List

 

Jacksonville, FL – LBA Wealth Management was recently recognized as an industry leader in the U.S. by Wealth Manager magazine. Based on Wealth Manager’s comprehensive survey on wealth management firms, LBA Wealth Management is ranked among only fifteen other firms across the State of Florida and is the only Jacksonville firm on the list of highly regarded wealth managers.

“We are proud to be recognized, for the second year in a row, as an industry leader among the most successful and respected wealth management firms in the nation,” said David Albaneze, Chief Investment Strategist for LBA Wealth Management. “We continuously strive to nurture the personal relationships we have built with our clients, as it is our firm belief that these relationships solidify the trust and confidence they have in our team.”

 

The tenth annual Top Wealth Manager Survey focuses on the nation’s largest independent wealth management firms and this year received 348 surveys on a variety of topics, including client relationships, services offered, and assets under management (AUM). LBA Wealth Management’s national ranking is supported by its AUM averaging over $1.2 million per client for a total of more than $207 million at the end of last year. The firm’s ability to meet the expectations of all types of clients, to maintain a team of talented professionals and to continually improve operations and technology have secured LBA’s position as an industry leader.

 

Established in 2008, LBA Wealth Management includes financial planning services and investment portfolio management to high net worth individuals, small businesses, trusts and families. For more information on LBA Wealth Management, please visit www.LBAWealth.com.