and wine social denver, co / newport beach, ca / naples, fl

And wine social

Denver, CO / Newport Beach, CA / Naples, FL

Source: Florida State University

By owning a well-diversified portfolio, you can:

Answer: D

Let’s Warm Up Your Brain

a) Reduce both systematic and non-systematic risk.

b) Reduce systematic, but not non-systematic risk.

c) Reduce neither systematic nor non-systematic risk.

d) Reduce non-systematic risk, but not systematic risk.

Source: www.stockmarkettrivia.com

What were the first publicly traded securities in the U.S.?

Answer: $80 million in U.S. Government bonds that were issued in 1790 to refinance Revolutionary

War debt.

Let’s Warm Up Your Brain

Source: www.stockmarkettrivia.com

What has been the longest-listed company on the NYSE?

Answer: Con Edison, which was listed in 1824 as the New York Gas

Light Company

Let’s Warm Up Your Brain

Source: Business Week Past performance is no guarantee of future results.  Indexes are unmanaged and cannot be invested into directly.

Dow Jones % ChangeYear-End From

Pundit – Stock Predictions Close 2007

Average 14,060 6.0%

Elaine Garzarelli - Garzarelli Capital 16,000 20.6%

Laszlo Birinyi- Birinyi Associates 15,000 13.1%

Ralph Acampora 13,800 4.0NY Institute of Finance

Ben Inker 13,000 -2.0%GMO

Robert Arnott 12,500 -5.8%Research Affiliates

What Did the Pundits Predict for Stocks in 2008?

Where Are We So Far in

2008?The Dow Jones Industrial Average closed

at 11,350 on June 30

which represents a decline of 14.4%

for the first 6 months of 2008Source: MarketWatch

The EconomyIn 2008?

BusinessWeek Magazine End-2008 Consensus Forecast

BusinessWeek Magazine End-2008 Consensus Forecast

Real GDP Growth 2.1%Operating Profits 3.9%CPI Inflation 2.4%Fed Funds Rate 3.9%10-Yr. Treasury Yield 4.5%Jobless Rates 5.1%Home Price Change (7.1%)

Source: BusinessWeek, Past performance is no guarantee of future results.  Indexes are unmanaged and cannot be invested into directly.

What Did the Pundits Predict For…

Where Are We So Far in

2008?The nation’s real GDP

grew 1% in the first quarter, which is below

the forecast of a 2.1% for full-year 2008 from the BusinessWeek survey

Source: MarketWatch

Where Are We So Far in

2008?Earnings growth is

projected to come in

at 4.0% for 2008, inline with the BusinessWeek

projection

Source: Zacks Investment Research

Where Are We So Far in

2008?CPI Inflation rose 4.2%

for the 12 months ending May 2008,

which is above the full-year 2008 2.4%

BusinessWeek forecast

Source: Bureau of Labor Statistics

Where Are We So Far in

2008?The Fed Funds rate

was 2.0% on June 30, which is below the

BusinessWeek forecast of 3.9% for yearend

2008

Source: Federal Reserve

Where Are We So Far in

2008?The 10-year Treasury

yield was 4.0% on June 30, which is below the

BusinessWeek forecast of 4.5% for yearend

2008

Source: Yahoo! Finance

Where Are We So Far in

2008?The jobless rate was 5.5% for the month of June, which is above

the BusinessWeek forecast of 5.1% for

yearend 2008

Source: MarketWatch

Where Are We So Far in

2008?The one-year home

price change as of May 2008 was -15.3%,

which is worse than the BusinessWeek forecast

of -7.1% for yearend 2008

Source: Standard & Poors

Sources: WSJ Markets Data Group, MarketWatch, MSN Money, Federal Reserve Past performance is no guarantee of future results.  Indexes are unmanaged and cannot be invested into directly.

YTD June 30,2007 Return 2008 Return

Stocks:Dow Jones Industrial Average 6.4% -14.4%Standard & Poor’s 500 3.5% -12.9%Nasdaq Composite 9.8% -13.6%Japan Nikkei-225 -11.1% -11.9%Britain FTSE 100 3.8% -12.9%

Bonds:Fed Funds Rate decreased by… 19.0% 52.9%10-Year Treasury yield decreased by . . . 14.3% 1.4%

Commodities:Nymex Oil 57.2% 45.9%

Comex Gold 31.3% 10.8%

Currencies: U.S. Dollar Index -8.6% -5.1%

Where Are We So Far in

2008?

Factors Affecting 2008 Financial

MarketsSoaring Oil

and Gas Prices

• Oil prices up nearly 46% in 2008 through June 30

• Nationwide average for gallon of gas was $4.086 on June 30, up 40% from one year ago

Why?Supply/demand issuesGeopolitical concerns

Weak dollarSpeculation

Source: MarketWatch

Factors Affecting 2008 Financial

MarketsSoaring Precious Metal Prices

• Gold, silver, copper and platinum are up about 11%, 17%, 27% and 35% respectively in 2008 through June 30

Why?Supply/demand issuesHedge against inflationGeopolitical concerns

Weak dollarSpeculation

Source: MarketWatch

Food costs and transportation costs in particular are on the rise

Food riots in some parts of the world

Corn prices up 60% in 2008 through June 30

Overall food prices have risen 75% since 2000, according to World Bank and DECPG

Workers protest high fuel prices all across Europe

Factors Affecting 2008 Financial

MarketsRising Inflation

• Some companies dramatically raising prices, e.g., Dow Chemical announced two price increases totaling more than 40% this year

• Partially driven by rising oil prices

Sources: Bureau of Labor Statistics, World Bank, International Herald Tribune, MarketWatch

Subprime problems caused lenders to curtail some of their lending

In the second quarter, total bank loans, leases and securities holdings have fallen at an annual rate of 9.1 percent, its fastest decline since 1973

Lending standards have also tightened

Factors Affecting 2008 Financial

MarketsTight Credit Conditions

Source: MarketWatch, New York Times

Banks, brokers and other financial institutions took write downs of about $400 billion dollars due to credit-related issues

Raised billions in new capital to shore up their balance sheets but raising new capital is getting more expensive

Factors Affecting 2008 Financial

MarketsFinancial

Companies Are Hurting

Source: MarketWatch, New York Times

Job losses in first 6 months of 2008 totaled 438,000

Unemployment rate at 5.5% in June, a 4-year high

Factors Affecting 2008 Financial

MarketsRising

Unemployment

Source: MarketWatch

Bear Stearns sale to JP Morgan averts potential market disruption

Financial stocks recover on the news only to fall again later in the quarter

Fed allows broker dealers to borrow from them to help shore up the markets—unprecedented action

Factors Affecting 2008 Financial

MarketsBear Sterns

Collapses & Fed Opens Lending to

Broker Dealers

Source: MarketWatch

• 20-City Composite index published by S&P/Case-Shiller shows 15.3% year-over-year decline as of April 2008

• Inventory of unsold homes on the market translates to a very high 10.8 month supply based on May 2008 sales rate

• Weak housing ripples through several other industries, thus causing a domino effect

Factors Affecting 2008 Financial

MarketsHousing Prices Continue Declining

Source: Standard & Poors, MarketWatch

Thomson Reuters expects Q2 earnings to fall by 13 percent -- compared with expectations of a 2 percent fall at the beginning of April.

Looking at big drops in financials and consumer discretionaries

However, 7 out of 10 S&P 500 sectors are still expected to show earnings gains – led by energy and technology

Global economy slowing down too which may affect U.S. companies earnings

Factors Affecting 2008 Financial

MarketsUncertain Corporate Profits

Sources: Reuters, Bespoke Investment Group, Bloomberg, Wall Street Journal

Bruising primary campaign between Obama and Clinton

Talk about raising taxes may have spooked the markets

Factors Affecting 2008 Financial

MarketsPolitical Drama

Source: CNN

U.S. Dollar index dropped 5.1% for the first 6 months of 2008

Good for exports

Bad for imports

Good for multi-national companies

Bad for oil prices

May contribute to inflation

Factors Affecting 2008 Financial

MarketsContinued Dollar

Weakness

Source: MSN MoneyCentral

Putting the Market’s Ups and

Downs in PerspectiveSince 1926…

The S&P 500 had 59 up years and 23 down yearsThe 59 up years averaged +21.95%

The 23 down years averaged -12.60%

Overall, the S&P 500 has averaged 10.36% per year

including reinvested dividends

Source: Invesco AIM

Putting the Market’s Ups and

Downs in PerspectiveOf the 23 down

years since 1926

5 had a loss of up to 5%

8 had a loss between 5 – 10%

7 had a loss between 10 – 25%

3 had a loss more than 25%

Source: Invesco AIM

Of the 59 up years since

192613 had a gain up to 10%

16 had a gain between 10 – 21%

17 had a gain between 21 – 32%

13 had a gain greater than to 32%

Putting the Market’s Ups and

Downs in Perspective

Source: Invesco AIM

Source: Vanguard Investments

Bear Market Refresher

Looking at the Last 10 Bear MarketsShortest duration – 2.9 months from July 1990 to October 1990

Longest duration – 30.5 months from March 2000 to October 2002

Average duration – 14.1 months

Smallest decline – 19.9 percent from July 1990 to October 1990 (while this is less than 20 percent, Vanguard included it in the list)

Largest decline – 49.1 percent from March 2000 to October 2002

Average decline – 30.4 percent

Since this bear market started on October 10, 2007, the S&P 500 is down __% as of

___________

Bear Market Refresher

Source: MarketWatch

Here’s What We’re Doing in Light of the

Current Market Situation

1.Reaffirmed our commitment to Modern Portfolio Theory and actively managed asset allocated accounts.

2.Moved 30 to 40 % of stock and bond portfolios to low leverage, short-term commercial real estate.

3. Reduced exposure to the energy sector.4. Moved 10 to 20% of stock and bond portfolios

to oil and gas drilling.

4. Increased emerging market stock and bond allocation.

5. Thinking about over-weighting portfolios in value stock.

6.Took small positions in natural resources.

7. Tax harvesting In December 2008.

Thinking that the price of gas will stay high, the credit crunch will continue until mid 2009, the Fed will start to raise interest rates in early 2009.

Joseph SchumpeterCapitalism, Socialism and Democracy, 1942

“Economic progress, in capitalist society, means turmoil.”

John Kenneth GalbraithThe Affluent Society, 1958

“Nothing so weakens government as

persistent inflation.”

Benjamin Graham

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed.”

“You get recessions, you have stock market declines. If you don't understand

that's going to happen, then you're not ready, you won't do well in the markets.”

Peter Lynch

“If you took our top fifteen decisions out, we’d have a pretty average

record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to

your principles and when opportunities came along, you pounced on them with vigor.”Charlie Munger

“This too shall pass.”

Parting Thought…

Denver, CO / Newport Beach, CA / Naples, FL