March 2013 Client Letter

The anxiety-ridden days of the financial crisis get pushed further back in the minds of investors as the Dow and S&P 500 hover around all-time highs. Fear is no longer the dominant theme on Wall Street. Greed is back in favor. Investors appear convinced the next major move in the stock market will be up rather than down.

The strong performance from stocks over the recent years can seem puzzling. Economic growth is weak, unemployment is still nearly 8%, and private-sector real incomes remain below pre-crisis levels. How have stocks managed such an impressive recovery in the face of a slow economy?

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February 2013 Client Letter

It’s hard to believe the S&P 500 has not kept pace with inflation during the past 15 years. Since year-end 1999, the index had an average annual return of just 2%. Even with an impressive rally since 2009, the broad-based index has been unable to recover significantly from two vicious bear markets during this period. And looking ahead does not inspire total confidence among investors, who see a lack of fiscal discipline from politicians and a Fed willing to continue with a monetary policy punitive to savers and potentially inflating another asset bubble.

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January 2013 Client Letter

Are you familiar with the U-6 unemployment rate? The “U-6” rate is one of many different unemployment numbers released by The Bureau of Labor Statistics each month. However, the unemployment number referenced by the government and the media is known as “U-3”. The differences between the two numbers are significant.

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November 2012 Client Letter

This month I had lunch with retired BB&T Chairman and CEO, John Allison. Speaking with John was a special privilege given his unique background in the financial industry. John was the longest-serving CEO of a top-25 financial institution, serving BB&T from 1989 through 2008. During his 20-year term, BB&T grew from $4.5 billion to $152 billion in assets, becoming the 10^th-largest financial services holding company headquartered in the United States.

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October 2012 Client Letter

For some time, we have been disillusioned with much of the mutual fund industry. Aggressive sales tactics, front-end sales loads, 12b-1 marketing fees, and high expense ratios practiced by many fund groups seem far from investor friendly. The sad reality is most mutual funds are not bought by investors, they are sold to investors. And the most popular funds are too often those that offer the greatest payout to brokers.

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September 2012 Client Letter

Few would accuse Sweden of being a free-market utopia. Not with a top marginal rate of 57% for personal income tax and government spending equal to 56% of GDP. However, during the last two decades, Sweden cut its public debt to 33% of GDP from a high of nearly 80%. Last year, Sweden eliminated its deficit. And for good measure, the Prime Minister, Fredrik Reinfeldt, recently announced his intention to cut the corporate tax rate from 26.3% to 22% (The U.S. corporate tax rate is 35%).

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July 2012 Client Letter

One lesson reaffirmed to us from the dot-com bust is this: Prudent investors do not rely solely on capital appreciation for stock market gains. During the latter part of the 1990s many investors overloaded on technology and growth-oriented shares. When the collapse hit, they were not only left with a decimated portfolio, but one that produced little annual income.

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May 2012 Client Letter

As a trustee for the City of Naples Firefighter Pension Fund, I am particularly interested in observing how government retirement benefits are disrupting state and municipal finances. Across the country, state and local governments have accumulated trillions of dollars in unfunded retirement promises. To fund these costs, expect taxes to rise, services to be reduced, or a combination of both.

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April 2012 Client Letter

What should stock market investors expect for the rest of the year? While we cannot predict the future, we continue to see a generally pleasing environment for stocks in 2012. Ultra-low interest rates on treasury bonds offer little competition for stocks, which have the powerful tailwind of election-year fiscal and monetary stimulus working in their favor.

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March 2012 Client Letter

Monetary policy has been one of the most influential forces in financial markets over recent years. The Fed has shifted policy from the conventional (changing the fed funds rate) to the unconventional (money printing and communications). Unconventional policy maneuvers have proven to be a potent force in financial markets. This is especially true for the bond market, where Fed action has the most immediate and direct impact.

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