Even the smartest guy in the room sometimes makes mistakes.

According to our weekly market commentary, Jamie Dimon, CEO of the huge U.S. bank JP Morgan, has been called the smartest guy in the room for his ability to effectively steer the bank through the economic crisis.  And, while most of the other big U.S. banks have tarnished reputations, Dimon’s firm was the one that stood out from the crowd.

Unfortunately, that all changed last week.

In a hastily arranged conference call with investors, Dimon revealed that the bank lost $2 billion in just the past six weeks on “bets aimed at shielding the bank from the market fallout of Europe’s deepening mess,” according to The Wall Street Journal.  These “bets” lost money due to “unusual movements in the relationships between various derivative indexes focused on investment-grade and junk-bond corporate debt, both in the U.S. and Europe,” according to the Journal.

This debacle points to three important investment lessons:

1. Keep it simple.  Trading fancy derivatives or using complex black box trading strategies might give you an air of sophistication, but it may also lead to your downfall.  As Leonardo da Vinci said, “Simplicity is the ultimate sophistication.”
2. Pick and track your investments closely.  In describing the trades that blew up, Dimon said, “The new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored,” according to Bloomberg.  Clearly, in this ever-changing world, a “set it and forget it” investment strategy won’t cut it.
3. Be humble.  Even a smart guy like Dimon can trip up.  One of the biggest errors in investing is self-deception – thinking and acting like you are the smartest guy in the room.  It’s better to worry about what could go wrong – and plan for it – than think you’re invincible.

The investment landscape is littered with formerly sharp investors who forgot these three lessons.  We plan on keeping them front and center.

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.

DOES IT MAKE SENSE that a painting sells for $120 million in this economic environment?

You may have seen the recent headline that Edvard Munch’s painting, “The Scream,” sold for a record-breaking $120 million.  It made us wonder what the implications are of an anonymous bidder forking over that kind of cash for a pastel on canvas just three years out from a horrible economic crisis.  Does this mean happy days are here again?

Placed in broad context, the high sale price for a work of art might be symptomatic of policymakers’ response to the economic crisis, according to The Wall Street Journal.  When the economy began collapsing in 2008, governments around the world responded by cutting interest rates and flooding their economies with monetary stimulus.  All this money sloshing around had to end up somewhere – and some of it might have found its way into hard assets such as commodities, precious metals, collectibles, and, yes, an Edvard Munch painting.

There’s something called the law of unintended consequences, which means solving one problem might inadvertently create a new one.  In this case, the massive stimulus in recent years propped up the economy in the short run, but it may have unintentionally masked the real problem and simply delayed a day of reckoning.

With the following economic and political issues in play, that day of reckoning may be nearing:

• Eleven European countries have experienced two consecutive quarters of economic contraction.
• The unemployment rate across the eurozone has matched a record high.
• Job growth in the U.S. is slowing.
• The Chinese economy is slowing.
• The political situation in Greece is chaotic.
• France has a new Socialist president.

Sources: MarketWatch, The Wall Street Journal

Now, the good news.  In any economic environment, there will be winners and losers.  As the steward of your financial life, we do everything we can to try and help you land on the winning side, regardless of what the economy and markets throw in our way.

Weekly Focus – Think About It

“Nature is pleased with simplicity. And nature is no dummy.”

–Isaac Newton, English physicist, mathematician, astronomer, natural philosopher, alchemist, theologian… yes, a really smart guy!

Best regards,

Ron Dickinson, CPA, CFP^®, MPA-Tax

P.S.  Securities offered through Charles Schwab & Co., Inc., Member FINRA/SIPC.

*  This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with Charles Schwab & Co., Inc.

*  The Standard & Poor’s 500 (S&P 500) is an unmanaged 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.

Sources:

http://www.cnbc.com/id/47406567/

http://articles.marketwatch.com/2012-05-11/commentary/31655422_1_markets-wall-street-financial-crisis

http://online.wsj.com/article/SB10001424052702304070304577398490966089810.html?mod=WSJ_hp_LEFTTopStories

http://www.bloomberg.com/news/2012-05-11/what-jamie-dimon-doesn-t-know-is-plain-scary.html

http://online.wsj.com/article/SB10001424052702304203604577396954063628584.html?mod=WSJ_World_MIDDLENews

http://blogs.wsj.com/economics/2012/05/04/something-to-scream-about-art-auctions-and-the-global-wealth-gap/?KEYWORDS=scream+painting+wealth+gap

http://www.marketwatch.com/story/europe-stocks-rise-after-earnings-spain-off-2012-05-02

http://www.marketwatch.com/story/us-economy-gains-115000-jobs-in-april-2012-05-04?link=MW_pulse

http://thinkexist.com/quotation/simplicity_is_the_ultimate_sophistication/213576.html

http://www.goodreads.com/quotes/show_tag?id=simplicity

http://en.wikipedia.org/wiki/Isaac_Newton

Many retirees are given the option with their company pensions of taking a fixed monthly payment or accepting a single lump sum payment.  Careful consideration should be given to making the proper selection, because once you choose one or the other, your choice is locked in for life.

The monthly payment option typically also comes in an assortment of choices which further add to the complexity of the decision.  The retiree can take a payment for his/her life, a payment for both spouse’s lifetimes, a single payment for life with at least ten years of payments, payment for life with fifty percent to the spouse, etc.  Often these mix-and-match choices can add up to more than a dozen options.  Typically your first prerogative is to protect your spouse.  Thus, the generally preferred alternative is to take a reduced payment so that your spouse will have some income if you die early.  Often this is advisable, but the real answer depends on all the resources you have available and on your retirement goals.

So, how do you decide which choice is the best choice for you?  The only way to know for sure is to know how many years you have left to live.  Fortunately, none of us know this for sure, so certain assumptions need to be made.  I prefer to build a complete retirement plan for each of the primary alternatives.  The planning method I utilize will indicate a projected level of success you will have to receive a steady stream of income or a paycheck for your retirement years, in addition to ending up with a pre-determined amount of net worth at death.  A thousand different simulated retirement projections are run to determine what percentage of time you are successful under a multitude of different outcomes given the dynamics of our economy.

Here are some general guidelines for you to consider as you seek to decide in favor of one option over another.

Monthly Payment Option

Positives:

• Payment is predictable, so one has less worry during negative movements in the market.
• Monthly payment is often higher than would be advisable to draw from a lump sum portfolio.  For example, the monthly payment may be 6-8 percent of the foregone lump sum option versus a recommended safe withdrawal rate from a portfolio of 4-5 percent.
• If you have other retirement assets, you may be able to draw on the predictable payments and allow the rest of your retirement portfolio to grow untouched.
• This option tends to work well in sustainable low inflation environments.
• This option is similar to investing in a permanent bond.

Negatives:

• There is no inflation adjustment to the payment.   What might appear to be a nice cash flow when you first retire might put you into a fixed income squeeze in the long term.   For example, given an average inflation rate of 3%, a $1,000 monthly payment would only buy $473 worth of goods or services after a typical twenty-five year retirement.
• It is normally assumed that the payment is guaranteed and safe, but it is not FDIC insured or government insured.  It is only guaranteed by the company making the payment.  Some retirees have expressed that they no longer trust their company to be wise stewards of their resources after observing the actions of the corporation over the course of their working years.

Lump Sum Option

Positives:

• Flexibility:  You have the choice of building your own retirement portfolio paycheck for the rest of your life, and if you really need to, you can have access to the remaining principal at any time.
• Flexibility:  If you don’t need the monthly cash flow because of other resources, you can suspend the monthly portfolio paycheck and save it for a rainy day.
• The unused portfolio is available to your heirs if you don’t spend the money yourself. 
• This option tends to work better in medium to higher inflationary environments as portfolio assets may be flexible enough to adjust with inflation.

Negatives:

• Portfolios are subject to negative market adjustments.  The portfolio needs to be well diversified and balanced to deal with market volatility. 
• Management of the portfolio increases your administration costs, or this duty needs to be delegated to a professional investment manager.

Your Company’s Position

In the end, the company making the offer is neutral on which option you should choose.  If you take the lump sum, they simply make the payment to you and then have no further responsibility.  If you choose the monthly payment option, they will use today’s low interest rates and purchase an annuity contact to fulfill their future responsibility.   The key question is whether you can on average exceed this rate on your own. 

How do you decide?

My core value for retirees is to not take more risk than is necessary to meet your needs and achieve your dreams in retirement.  At first glance, I typically lean toward the monthly payment option just because of the appearance of safety.    However, if you are projecting a higher inflation rate in the future due to government overspending and additional printing of money, then strong consideration needs to be given toward taking the lump sum and applying strong portfolio management.   Risk taking typically pays off over time, but the volatility of the market can be unsettling for short periods of time.  Sometimes, what appears to be a lower risk option of taking the monthly payment ends up being the higher risk option, since the payment is no longer flexible and becomes worth less and less every month due to inflation.

Taking the lump sum option and rolling the money into a qualified Individual Retirement Account (IRA) avoids taxation until you take out the money.

The right answer comes from building a retirement plan projection under both options to see which one gives you the greater safety and likelihood of achieving your goals.

Remember, at Dickinson Investment Advisors, we provide planning and investment services that are tailored to our clients’ unique needs and life circumstances, with a goal of achieving wise financial stewardship of your resources in retirement.

Sincerely,

Ron Dickinson, CPA, CFP^®, MPA-Tax

We invite you to attend our next client event here at Dickinson Investment Advisors on Thursday, May 31, 7:00-9:00 pm.

Practical resources for widows as they deal with making decisions on their own in today’s financial world.

The evening will include four components:

1.  Practical coping advice:  Tom Sperling will provide an overview of the grief process, as well as share about some practical things you can do to help you feel you are making progress.

2.   A widow’s story:  Jen Carlson will share her own experiences as a widow.  Also, as an attorney with Stuart Tinley Law Firm LLP in Council Bluffs, she will discuss legal perspectives about wills, advance directives, living wills, and medical power of attorney.

3.  Choosing a financial advisor:  Ron Dickinson will address the matter of trust building and will offer valuable perspectives regarding financial planning and tax planning.

4.  Panel discussion:  Ron, Jen, and Tom will then address common questions that widows have.  The panel discussion will offer hope for widows as they enter into a new chapter of their lives with their personal finances and retirement planning.

The client event will be held in the newly remodeled training room at our offices at 533 S. Main St. in downtown Council Bluffs.  You are invited to come and bring along a friend.  Please RSVP to 712-256-4856.

The most important news last week may have actually happened this past weekend.

On Sunday, voters went to the polls in France, Greece, and Germany, and the results could have a major impact on world markets, according to our weekly market commentary.  French voters sent incumbent president Nicholas Sarkozy packing and, instead, elected Socialist Party candidate Francois Hollande.  Hollande “has pledged to shift the burden of economic hardship onto the rich and to resolve the protracted euro sovereign-debt crisis by softening the current prescription of austerity,” according to The Wall Street Journal.  While his strategy is debatable, it will likely cause a rift with Germany and add uncertainty to recent eurozone agreements.

Greek voters also went to the polls and “delivered a stinging rejection of the two incumbent parties, with many people casting ballots for smaller, far-left and far-right parties,” according to the The Wall Street Journal.  This, too, will likely result in more political and economic uncertainty.  And in Germany, incumbent Angela Merkel’s party suffered some setbacks in state elections.

What’s leading to all the angst in Europe?  Here are three things:

1. Recession fears.  Eleven European countries have now experienced two consecutive quarters of economic contraction.
2. Unemployment fears.  The unemployment rate across the eurozone is at a record high.
3. Business confidence fears.  April’s read on the manufacturing PMI for the eurozone – a measure of confidence among businesses – fell to the lowest since June 2009.

Sources: MarketWatch, The Guardian

The bottom line is citizens are voting for change, but “political realities will complicate even more what is an already delicate economic and financial outlook for Europe, the world’s largest economic area,” according to
Mohamed El-Arian, CEO and Co-CIO of PIMCO, as reported by CNBC.

These elections show that the economic crisis that began in 2008 is still rippling throughout the world.

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.

WHAT DO DOTS HAVE TO DO WITH BEING A BETTER INVESTOR?  In his fascinating new book, Imagine: How Creativity Works, author Jonah Lehrer describes the creative process and what steps we can all take to be a little more creative.  One of those steps is to talk to more people and expose yourself to new situations.  By “colliding” more often with people who are not like you and throwing yourself into new environments (like a foreign country), your mind will come up with more new ideas than you could have thought of on your own.

And, while business owners may not like this, Lehrer’s research suggests, “The most important place in every office is not the boardroom, or the lab, or the library.  It’s the coffee machine.”  It’s those casual conversations with colleagues that generate new interactions and spark ideas.

This leads to an important point about investing.

Brian Uzzi, a professor at the Kellog School of Management, studied the instant messages (IM) sent by traders at a large hedge fund over an eighteen-month period.  As reported in Lehrer’s book, these traders sent more than two million messages over that period and the average trader was involved in 16 different IM conversations simultaneously – talk about multitasking!  Essentially, these traders were rapidly communicating with each other and trying to make sense of the latest news so they could profitably trade on it.

As summarized by Lehrer, Uzzi concluded, “The best traders were the most connected, and people who carried on more IM conversations and sent more messages also made more money.”  Further, Uzzi said, “The act of
investing is like solving a difficult puzzle.  These traders are trying to connect the dots.  Because the traders are listening to their network, they manage to accomplish what they could never have done by themselves.”

In essence, successful investing partly relies on “connecting the dots” of information that bombard us.  While we’re not day traders like the people Uzzi studied at the hedge fund, the concept of connecting the dots still applies – albeit on a much longer timeframe.  And, to connect the dots, we have a large network of colleagues who can help us separate the daily noise from what’s truly meaningful.

Weekly Focus – Think About It

“Everyone who has ever taken a shower has had an idea.  It is the person who gets out of the shower, dries off, and does something about it who makes a difference.”

–Nolan Bushnell, founder of Atari, Inc. and Chuck E. Cheese’s Pizza-Time Theaters

Best regards,

Ron Dickinson, CPA, CFP^®, MPA-Tax

P.S.  Securities offered through Charles Schwab & Co., Inc., Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with Charles Schwab & Co., Inc.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged 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.

Sources:

http://online.wsj.com/article/SB10001424052702304363104577387392104042960.html?mod=WSJ_hp_LEFTTopStories

http://www.cnbc.com/id/47314617

http://www.marketwatch.com/story/europe-stocks-rise-after-earnings-spain-off-2012-05-02

http://www.guardian.co.uk/business/2012/may/02/eurozone-unemployment-elections

http://www.kellogg.northwestern.edu/faculty/uzzi/ftp/PNAS-2011-Saavedra-1018462108.pdf

http://www.kellogg.northwestern.edu/faculty/uzzi/ftp/media%20hits/Herds%20on%20the%20Street%20-%20WSJ%20March2011.pdf

http://books.google.com/books?id=X8ucIGZKR2gC&pg=PA155&lpg=PA155&dq=uzzi+compares+these+financial+conversations+to+the+creative+process.&source=bl&ots=CDHXr0FGdu&sig=Ls2yx_rt0lbdw4UJDLJgAHMdpmY&hl=en&sa=X&ei=8TGcT8n9Lsu90QG6xsimDw&ved=0CDIQ6AEwAQ#v=onepage&q=uzzi%20compares%20these%20financial%20conversations%20to%20the%20creative%20process.&f=false

http://www.nytimes.com/2012/04/03/books/imagine-how-creativity-works-by-jonah-lehrer.html?pagewanted=all

http://www.ideachampions.com/weblogs/archives/2011/07/25_awesome_quot.shtml

I am a habitual nap-taker.  I take one almost every day and have for years.  I used to feel a little guilty about it—like I was slacking off or something.  Then, a friend admitted to me he too was a napper.  “Every day after lunch, I lie down on the sofa in my office,” he recounted. “I hold my car keys in my right hand and let my hand hang toward the floor. When the car keys fall out of my hand, I know I’m done.”

Napping Celebrities

Then I discovered many other successful people who were nappers:

• Leonardo da Vinci took multiple naps a day and slept less at night.
• The French Emperor Napoleon was not shy about taking naps. He indulged daily.
• Though Thomas Edison was embarrassed about his napping habit, he also practiced his ritual daily.
• Eleanor Roosevelt, the wife of President Franklin D. Roosevelt, used to boost her energy by napping before speaking engagements.
• Gene Autry, “the Singing Cowboy,” routinely took naps in his dressing room between performances.
• President John F. Kennedy ate his lunch in bed and then settled in for a nap—every day!
• Oil industrialist and philanthropist John D. Rockefeller napped every afternoon in his office.
• Winston Churchill’s afternoon nap was a non-negotiable. He believed it helped him get twice as much done each day.
• President Lyndon B. Johnson took a nap every afternoon at 3:30 p.m. in order to break his day up into “two shifts.”
• Though criticized for it, President Ronald Reagan famously took naps as well.

Could these successful leaders know something you don’t?

Napping Benefits

I suggest you seriously consider taking a daily nap for the following five reasons:

1. A nap restores alertness.  The National Sleep Foundation recommends a short nap of 20–30 minutes “for improved alertness and performance without leaving you feeling groggy or interfering with nighttime sleep.”
2. A nap prevents burnout.  In our always-on culture, we go, go, go.  However, we were not meant to race without rest.  Doing so leads to stress, frustration, and burnout.  Taking a nap is like a system reboot.  It relieves stress and gives you a fresh start.
3. A nap heightens sensory perception.  According to Dr. Sandra C. Mednick, author of Take a Nap, Change Your Life, napping can restore the sensitivity of sight, hearing, and taste.  Napping also improves your creativity by relaxing your mind and allowing new associations to form in it.
4. A nap reduces the risk of heart disease.  Did you know those who take a midday siesta at least three times a week are 37 percent less likely to die of heart disease?  Working men are 64 percent less likely!  It’s true, according to a 2007 study published in the “Archives of Internal Medicine.  Dimitrios Trichopoulos, of the Harvard School of Public Health in Boston, who led the study said, “Taking a nap could turn
   out to be an important weapon in the fight against coronary mortality.”
5. A nap makes you more productive.  Numerous medical studies have shown workers becoming increasingly unproductive as the day wears on.  But a 2002 Harvard University  study demonstrated a
   30-minute nap boosted the performance of workers, returning their productivity to beginning-of-the-day levels.

Napping Tips

I typically take a 20-minute right after lunch.  If I can’t do it then, I try to squeeze it in before 4:00 p.m.

Here are a few practices I have found helpful.

1. Be consistent.  Try to nap at the same time every day.  This helps stabilize your circadian rhythms and maximize the benefits.
2. Keep it short.  Avoid “sleep inertia,” that feeling of grogginess and disorientation that can come from awakening from a deep sleep.  Long naps can also negatively impact nighttime sleep.  I recommend 20–30
   minutes. Set an alarm on your phone to avoid oversleeping.
3. Turn off the lights.  Light acts as a cue for our bodies.  Darkness communicates it is time to shut down—or go into standby mode.  If you can’t turn off the lights, use a simple eye mask.  I bought mine at Walgreens.  Turn the lights back up to full brightness when you wake up.
4. Use a blanket.  When you sleep, your metabolism falls, your breathing rate slows, and your body temperature drops slightly.  Though not imperative, you will usually be more comfortable if you use a light blanket when you nap.
5. Be discreet.  Getting caught napping at your desk is not a good way to earn respect.  In some old-school environments, it might even get you fired!  But most people get an hour for lunch.  Eat in half that time and then go snooze in your car, an unused conference room, or even a closet.

Finally, shift your own thinking about naps.  People who take them are not lazy.  They might just be the smartest, most productive people you know.

[This article was written by Michael Hyatt on March 29, 2012 and can be viewed on his website at http://.michaelhyatt.com.]

The first quarter of 2012 produced excellent stock market returns.  All of the gains were achieved in the first two months of the year, with March only producing a flat result.

It was an interesting quarter.  In the beginning, emotions were running high again.  I had numerous clients desire to sell out of the market at the end of 2011 and in January 2012.   Evidently, this was not merely based on an irrational emotion.  Yale University ran a survey that indicated that pessimism was as high in January 2012 as it was when the market hit its bottom in March 2009.  However, I was perplexed by this as I had anticipated a strong rally for at least the past six months.  I continued to watch corporate profits and cash on balance sheets continue to improve, and was hoping for the rally to occur in 2011 so the year would produce positive results.  However, the outcome was delayed.  In the end, the market surprised many investors – which is typical.  It’s extremely difficult to outguess the market in the short run.

Now once again, there are opinions that the market has moved so fast in such a short period of time that it is once again over-valued.  Personally, I think the past ten years have been so dramatic that the investing public gives too much weight to negative potential and gives not enough consideration to any positive outcomes.  In my opinion, I think the recent stock market improvements were long overdue, but the European issues hung over and suppressed valuations.  As the European debt crisis moved off the front pages of the news, the market has been
allowed to move toward a valuation supported by the actual strength of corporations.

Referencing the Price-Earnings Ratio as an indication of the fairness of stock prices, we see a couple of interesting features.  Today the P/E ratio of 14 is slightly lower than the long-term average of 15.  Some analysts think the risks today are higher and still suggest stock prices are too high.  In my opinion, today’s extremely low interest rates would suggest stock prices could go higher even without improvement in corporate earnings.  When you add in the fact that corporate earnings have been improving steadily, this would all suggest that stocks represent an excellent value relative to other alternative places to invest your retirement funds.  The market has not run up to a valuation that is too high but has simply made up for lost ground, and still has room for more positive movement in the future.

The bull market for bonds of the past ten years is over, in my opinion.  Yields on investment quality bonds continue to fall and now float in the two to three percent range.  Bonds still have a purpose in a portfolio – that is, risk reduction.  However, the stellar and sometimes double-digit bond returns are over.

As we all know, improvement never takes place in a straight line.  Sometimes, investors get a bit too enthusiastic and push prices up, only to have the market settle in for a time.  Here are a few issues that could cause turmoil:

• Issues in European countries will continue to pop up in the news from time to time and will cool off market prices every time.
• China is a powerful economic force worldwide and has been experiencing growth in the high eight percent per annum range.  Every time growth appears to be slowing in China, our market takes a step back.
• If Israel and Iran would break out into war, our markets would be shaken.

Overall, the first two of these would only be temporary and thus should not be part of our long- term investment plans.  Israel and Iran are another story.  I believe at some point fighting will occur on some level between the two countries.  However, I don’t plan to sit around and run and hide every time a news flash comes across my desk.  Trying to outguess this outcome could easily give you the same result that investors who sold out in early January received; that is to miss a huge rally.

My outlook is that our economy should continue to make progress but, like always, with multiple bumps along the way.  As the economy improves, the unemployment numbers should likewise continue to fall.  However, there is some disconnect between improvements and hiring.  I was recently reading a story that said the number of job openings as compared to the number of employed individuals is at an all-time high.  There are several pockets in the economy where the number of qualified workers is in short supply.  Available workers with technical skills are noticeably absent.  Computer technicians, medical workers, engineers, and even welders all have shortages.

Even in my own CPA firm, we have had difficulties hiring.   Five years ago, we ran an ad seeking a CPA with five to eight years of experience, and we were flooded with resumes.  This past summer, we ran an ad and had only a handful of resumes, and many of them did not match the qualifications for which we were looking.  We employed
three agencies to help and ended up not being able to hire anyone.  Unfortunately, there are an abundance of young graduates who are upset that they have run up large school loans with degrees that are only general in nature.  (Given these trends, as a father I am thankful that my own son is going into engineering.)  Today’s companies are looking for real skills that are usable immediately.  Eventually, supply and demand will sort out
these issues.

As we move forward through 2012, I believe the end result will be positive.  We will not make as fast of gains as we had in the first two months of this year, and we might stall from time to time.  But we should be OK.  Things are getting better.

We have recently undertaken several steps to improve our service.  I have always been blessed with my main assistant, Amy Miller, but rapid growth has put stress on our ability to keep up.  So last year I began the process of doing some strategic planning to address these needs.

1. I was able to hire additional help last summer.  Tom Sperling is helping me with client development, and can assist in portfolio construction and investment selection.
2. We set up a client advisory council, so that real clients can sit down like a board of directors and give us feedback on how we are doing in meeting our clients’ needs.
3. We leased additional space in the building next door, so we now have additional offices and a new training/seminar area.
4. I plan to present a mid-year seminar called “The Halftime Report” so as to review 2012 and give an outlook for the remainder of the year.  Look for this in mid-July.
5. I will have more availability to meet one-on-one to update your financial plans and answer your questions.

Finally, we have been blessed by a number of new clients recently, and I want to thank everyone for their referrals and continuing trust and confidence in our services.

Sincerely,

Ron Dickinson, CPA, CFP^®, MPA-Tax

What is the costliest fruit?  How about an apple, as in Apple, Inc.?

This weekly market commentary provides insight about the impact of Apple stock on the markets, as well as an analysis of the continuing blues in the housing market.

With more than $500 billion in market capitalization, Apple is the world’s most valuable company, according to Reuters, April 29.  Last week, the company reported quarterly earnings that easily trumped analyst forecasts and this helped propel the S&P 500 to a 1.8 percent weekly gain.  But, it’s not just Apple that’s doing well.  According to FactSet on April 27, a robust 78 percent of the S&P 500 companies that have reported earnings so far this quarter have beaten analysts’ forecasts.

Last week’s gains came despite some disappointing economic news which included the following:

• A weaker than expected reading on U.S. gross domestic product (GDP), the broadest measure of all goods and services produced in our country.
• A downgrade of Spain’s government debt – perhaps not surprising since the country now has a debilitating unemployment rate of 24.4 percent.
• A second consecutive quarter of negative economic growth in the U.K., indicating they have slid back into
  recession.

Sources: The Wall Street Journal, April 28, 2012; Yahoo! Finance, April 27, 2012; Bloomberg, April 27, 2012

With Apple garnering so much press coverage these days, CNBC ran an interesting story on April 18 that coincided with the cable channel’s 23^rd anniversary on April 17.  CNBC asked this question: Which would have been the better investment – buying Apple or Dell stock on the debut of CNBC 23 years ago and holding it the entire time?

While both companies have performed phenomenally over the past 23 years, it turns out that Dell dramatically outperformed Apple over that period.  Dell returned 20,375 percent while Apple was up 6,009 percent, according to CNBC, April 18.  By comparison, the S&P 500 index rose 360 percent during that period.

Now, this is not a buy or sell recommendation on either stock; it’s merely for illustrative purposes only.  And, before we get too excited, remember that for every Apple or Dell, there are other one-time top companies that go bust like Enron and General Motors.

With “apple” already taken, will there be another “fruity” company that rises to the top?

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.

THE HOUSING MARKET STILL HAS THE BLUES, according to a widely followed barometer of home prices in the U.S., as reported by MarketWatch, April 24. The S&P/Case-Shiller Index is designed to show how home prices are performing in the twenty largest cities and last week’s report showed the index is at its lowest point since October 2002.

Since the peak of the index in 2007 through February of this year, home prices have lost one-third of their value – and that’s even with record low interest rates on mortgages. Unfortunately, tough employment conditions have kept many potential homeowners on the sidelines. Adding to that, obtaining a loan from a bank remains difficult without very good credit.

Even though home prices continue to decline, a silver lining might be emerging. According to the National Association of Realtors, an index that measures the number of agreements signed to buy previously owned homes
rose in March to its highest level in two years (The Wall Street Journal, April 27, 2012).

The increase in interested home buyers is coming at a time when supply is declining. Inventory levels in many markets are at their lowest level in years. For example, according to The Wall Street Journal on April 27, at the current pace of sales, it would take only 1.5 months to sell all the homes in Sacramento, CA. Considering pickings are pretty slim, home builders have also benefitted. New home sales in the U.S. are up 16 percent so far this year.

Unfortunately, this recent decline in available homes for sale may prove to be temporary because Fannie Mae, Freddie Mac, and other banks have been slow to list for sale hundreds of thousands of foreclosed homes, according to The Wall Street Journal, April 27. In fact, banks and other investors are believed to hold 450,000
foreclosed homes while an additional 2 million are currently in the process of being foreclosed.

Ultimately, the solution to the housing blues may be strong economic growth.  And, as last week’s GDP numbers show, that strong growth hasn’t started yet.

Weekly Focus – Think About It

“In order to get a loan, you must first prove you don’t need it.”

–Murphy’s Law, Bankers Axiom

Best regards,

Ron Dickinson, CPA, CFP^®, MPA-Tax

P.S.  Securities offered through Charles Schwab & Co., Inc., Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance.  Peak Advisor Alliance is not affiliated with Charles Schwab & Co., Inc.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged 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/AIG 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.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.  {Due to ongoing market volatility, current performance may be more or less than the results shown in this white paper.}

* Consult your financial professional before making any investment decision.

* Compliance Number: 201404-160311

Sources:

http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_4.27.12

http://www.reuters.com/article/2012/04/29/dow-barrons-idUSL1E8FT3GJ20120429

http://www.cnbc.com/id/47086804/

http://www.bloomberg.com/news/2012-04-27/spain-s-unemployment-rate-rises-to-highest-in-18-years.html

http://www.marketwatch.com/Story/story/print?guid=8C76B1F2-8E0A-11E1-BCCD-002128049AD6

http://online.wsj.com/article/SB10001424052702304723304577365511056677458.html?mod=WSJ_hp_LEFT…

http://online.wsj.com/article/SB10001424052702304723304577366294046658820.html?mod=ITP_pageone_0…

http://online.wsj.com/article/SB10001424052702304811304577369640809969900.html?mod=WSJ_hp_LEFT…

http://finance.yahoo.com/news/home-sales-sends-stocks-higher-180640550.html

http://www.finance.yahoo.com/news/upturn-homes-sales-sends-stocks-151714135.html

http://www.finance.yahoo.com/news/stock-index-futures-signal-mixed-092819864.html

http://online.wsj.com/article/SB10001424052702304723304577365301140802744.html

http://online.wsj.com/article/SB10001424052702304811304577368412310140748.html

http://murphyslaws.net/edition.htm

Move over European debt headlines, corporate earnings have something to say.

Our weekly market commentary notes that even though troubles are brewing again across the pond in Europe, corporate earnings season in the U.S. is stealing the spotlight.  Why?  According to CNBC, more than 100 companies in the S&P 500 have reported earnings, and eight out of ten have delivered better than expected results – and that has grabbed investors’ attention.

Each quarter, publically traded companies update investors on how their businesses fared over the previous three months.  And, according to the updates we’re seeing, business is still looking okay.  The news helped push the S&P 500 higher by 0.6 percent on the week.

Now, like all statistics, there is more than one way to interpret the earnings numbers.  While eight out of ten companies have beaten expectations, the “expectation” was pretty low.  In fact, earnings increased only 3.7 percent from the year ago quarter, according to Zacks.  For the remaining S&P 500 companies that are set to report, Zacks expects those companies to report slightly negative earnings growth compared to the year ago quarter.

Over in Europe, Spain and Italy saw the borrowing rate increase on their government debt, which suggests their debt problem is far from over.  And, the International Monetary Fund released a report that stated the obvious – if the European debt crisis can’t be contained, it would negatively impact global economic growth in a severe way.

At the moment, the U.S. markets seem fixated on corporate earnings and have put the European problem on the back burner.  But, in this interconnected world, problems overseas may eventually find their way to our shores.

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.

WHEN $1 TRILLION ISN’T ENOUGH… Earlier this year, the European Central Bank (ECB), Europe’s equivalent of our U.S. Federal Reserve, responded to the fear surrounding the European debt crisis by offering unlimited three-year loans with a 1.0 percent interest rate to European banks.  According to The Wall Street Journal, at least 800 banks across Europe responded to this offer by borrowing over $1.3 trillion.  As planned, the banks then took a good portion of that money and bought government securities that paid a higher interest rate.  It sounds like a great deal to the banks – borrow money at a 1.0 percent rate, then turn around and buy government securities that pay a much higher rate and pocket the difference.

The primary objective of this emergency lending was to indirectly allocate money to European governments who are heavily indebted.  The ECB thought that making cheap money available would help lower interest rates in these troubled countries and “buy” them more time to work out their economic problems.

How’s it working?

Initially, interest rates in troubled countries dropped dramatically as banks bought the high-yielding government securities and fears of a collapse eased.  Unfortunately, The Wall Street Journal says many of the banks who borrowed money from ECB may have already exhausted most of those funds – leaving little money left to keep pushing interest rates down.  As a result of this fear, interest rates are rising again, particularly in Spain and Italy, and, like a leak in a dike, it’s hard to stop a rise once it gets going.

Will the ECB step in again and help European banks and governments avoid a Greek-style default?  It’s too early to tell, but either way, we’ll be closely watching this tug-o-war between positive corporate earnings in the U.S. and negative headlines out of Europe.

Stay tuned…

Weekly Focus – Think About It

“There are no shortcuts to any place worth going.”

–Beverly Sills

 Best regards,

Ron Dickinson, CPA, CFP^®, MPA-Tax

P.S.  Securities offered through Charles Schwab & Co., Inc., Member FINRA/SIPC.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with Charles Schwab & Co., Inc.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged 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.

Sources:

http://www.cnbc.com/id/47120743

http://www.zacks.com/commentary/20670/Q1+Earnings+Season+Off+to+a+Good+Start

http://money.cnn.com/2012/04/19/markets/thebuzz/index.htm

http://online.wsj.com/article/SB10001424052702304432704577347530806018866.html?mod=WSJ_hp_LEFT…

http://online.wsj.com/article/SB10001424052702304299304577349592369627840.html?mod=ITP_pageone_2…

http://online.wsj.com/article/SB10001424052702304331204577352272051744662.html?mod=ITP_moneyandi…

http://finance.yahoo.com/news/stock-futures-signal-slight-gains-113345117.html

http://online.wsj.com/article/SB10001424052702303513404577351560527620108.html?mod=ITP_pageone_3…

http://online.wsj.com/article/SB10001424052702304818404577345900847700424.html?mod=ITP_moneyandi…

http://blogs.wsj.com/eurocrisis/2012/02/29/which-banks-took-up-second-round-of-ltro/

Do you wonder how much you might receive in Social Security?  Use the “Social Security” calculator on our website to help you estimate your Social Security benefits.

Remember, this is only an estimate.  Your actual benefits may vary depending on your actual work history and income.

To access this helpful tool for assisting you in your decision-making, click on the “Tools” tab, then the “Financial Calculators” link.  This page contains a number of other financial calculators as well  with tools related to:

1. Home Financing
2. Retirement Finance
3. Business Finance
4. Personal Finance
5. Savings Finance
6. Tax Estimators

For further resources, you can also go directly to http://www.ssa.gov/retire2/to access the Retirement Planner page of the Social Security Administration.  Then, feel free to give us a call at 712-256-4856.  Ron Dickinson, a Certified Financial Planner®, can sit down with you to provide practical advice regarding your retirement planning.

Social networks are simply the place to go if you want to see more of your grandchildren.  Some 55 percent of teenagers nationwide host pages on social-networking sites, reports the Pew Internet and American Life Project.

After all, isn’t investing for your retirement rooted in your values of investing in relationships with your family?

One grandma reported that when she wants to catch up with her 15-year-old grandson, she logs on to his Facebook page.  Within seconds, she’s browsing his profile, checking out new photos he’s posted — oh, and scanning comments his buddies left about video games and cute girls.  If she’s feeling playful, she’ll “poke” him (i.e. Facebook-ese for sending a hello message).

Is she a nosy nana?  Not quite.  The information he has posted is fair game for the estimated 700 million people online worldwide to peruse.  And she is just one of many tech-savvy grandparents eschewing mundane phone calls and monthly visits, to connect with grandchildren more frequently by sending them messages online.

Still, while many grandparents have warmed up to social-networking sites, others remain skeptical — and are baffled by the amount of personal information kids expose online.  To the relief of grandparents and parents concerned about safety, the aforementioned Pew study also shows that 66 percent of the 935 youths ages 12 to 17 surveyed set their profiles to “private,” making them visible only to viewers previously approved by the child as friends.

Does all this gallivanting online disconnect your grandchild from the outside world?  Not at all, contends one entertainment editor of a magazine for teens.  “These sites give teens the ability to express themselves and relate to their friends in a way they may not be able to in real life.  But they’re no substitute for social interaction… Teens will always hang out at the mall after school. That’s just not the only way to socialize anymore.”

So, are you missing your grandchild?  Go ahead, search out his Facebook page.  We know you’re curious!

[This blog is adapted from an article at www.grandparents.com by Sarah Wassner Flynn, entitled “Are Your Grandchildren on Facebook and MySpace?”]