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Happy New Year

Happy New Year

December 23, 2010 by Lesjak Planning

Coming off of what will most likely go down as a historic mid-term election; Congress and the President have a bipartisan agreement on taxes. While the agreement does keep the current tax structure in place, the issue will have to be taken up again in two years.

The real question is “Will this measure take away enough of the overhanging uncertainty resulting in Corporate America beginning to spend some of its cash hoard?” Technology companies are reporting that even prior to this tax agreement, sales have been picking up gradually. Along with renewing the current tax structure, this bill extends unemployment benefits for 13 more months. Many are calling this “Stimulus II” which should also help consumer spending. Many issues will need to be addressed in this next session of Congress including the deficit, the implementation of financial reform and the health care mandates. The good news is that in spite of all these issues on the table, the economy continues to gradually strengthen.

This strengthening has contributed to measurable gains in various sectors of the equity markets. Diversifying amongst these sectors while using experienced managers and analysts have once again provided positive results over unmanaged indices. The past decade was quite similar to the lackluster performance of the 1970’s in which the indices struggled overall while managed equities performed much better. Recent case in point – The S&P 500 index topped out at 1,565 in October of 2007. Currently the index stands at 1,247 or 20% below its old high. In contrast, our selected “best of the best” managers have fared much better, with over half of them fully recovered from the decline and at all-time highs. This result is consistent with past major market declines.

As we look forward into the New Year, there is optimism about the economy and that the cycle will continue with the business world starting to spend its cash on new equipment, new projects and most importantly on new people. In this environment, it continues to be a prudent strategy to diversify amongst various sectors with experienced management, selected with your individual needs and goals in mind.

Wish you health & happiness in the New Year!
The Lesjak Planning Team

Dave Lesjak CFP®, Mike Lesjak CFP®, John Lesjak CFP®, Marc Thomas CFP®, Nathan Gist CFP®, Karen Grabinski, Kathy Bruckner & Dan Lesjak

Market shocks and declines are caused by ever changing debacles and their respective recoveries are never quite the same, never-the-less, they are recoveries.

To that end, diversifying amongst equity sectors along with fixed income sectors and staying invested through the temporary market upheavals leads to consistent long-term results. Trying to guess market directions or time market movements based on emotion is inconsistent and stressful.

In our last letter we detailed the mass exodus from equities to the bonds over the past two years. This buying spree into bonds has continued into this fourth quarter even as equities have continued their climb. It remains to be seen if once again the masses have used poor judgment. Interest rates have moved higher over the past couple of months and have caused some damage to bondholders to the tune of about 3% to 5% losses. If this trend continues and if inflation comes back, as expected with the economy heating up, those taking a beating in bonds will be looking for a new place to invest. The municipal bond market is having its own troubles. Local and state governments are feeling the strain of massive budget deficits and some are struggling to pay the bills. This, along with rating agencies reducing their rating, does not bode well for some municipal bond holders.

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