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From My Point of View | Thoughtful Investor Newsletter

 

FROM MY POINT OF VIEW

August 4, 2008-If you can't stand the heat, go jump into the lake

March 24, 2008-THE GREATEST FIGHT OF THE GENERATION

March 4, 2008 Morning-PROCESS, PATIENCE, AND PERFORMANCE

March 4, 2008 Afternoon-The stock markets are not the only thing changing dramatically on short notice.

January 10, 2008 - CALMING CONCERNS

January 2, 2008 - HAPPY OLD YEAR?  Happy new year?

 

2007 PERSPECTIVES

 

FROM MY POINT OF VIEW, AUGUST 4, 2008

LOOK CLOSELY: Neighbor child playing with raft.
Temperature in mid to high 90’s

INVESTMENT REVIEW.
Here is the understatement: This is a difficult market. But you know the old adage, If you can’t stand the heat, go jump in the lake!. (Twyla and I went swimming yesterday but it was in the pool, not the lake).

The markets are in a period of changing emphasis. The word is “rotation” as areas move in and out of favor. In order to lose less than the markets and have possibility of experiencing gains, a tight control must be kept on what is owned. There are a few opportunities for long term holdings: very few. Here is the current strategy with Timeless Strategies and TS Expanded accounts.

30% of account value is in three funds:
(1). CIHDX, Cullen International Dividend Fund, 10%.
Bought August 27, 2007 it is currently down -2.33%. The broad market index in the same time period is down -10.24%. The fund invests in large to medium size international companies paying above average dividends. It has been gaining more than the markets in upswings and declining less in downturns.

(2). PRPFX, Permanent Portfolio Fund, 10%.
Bought October, 9, 2007 it is currently up +6.41%. The broad market index in the same time period is down -16.08%. The fund invests in gold, silver, Swiss Francs, natural resources, and bonds of the US and Swiss governments. From 10/09/2007 to 04/17/08 the fund did better than the broad market indexes; then until 06/20/08 it did slightly less; and since has again exceeded market averages.

(3). AUTOX, Autopilot Growth Fund, 10%.
Bought first on 02/26/08 with more added 05/02/08. The first purchase is up +1.18% during a time of market loss of -4.52%. The second block bought is up +2.38% while the markets are down -7.24%. The fund invests in US traded companies of any size, with above average potential for gains. It may invest in foreign companies that trade on US markets.

(4). FYI. We are still 35%-40% in money market funds.

RECENT CHANGES.
If all the recent buys and sells had produced gains I would be on my way to “investment sainthood”. Alas, I am still a poor struggling sinner with gains and losses. This is a market where much of what has looked favorable has quickly turned. Clients will see recent changes on confirmation and monthly account statements.

RECENT ANALYSIS.
Ten days ago I began a comprehensive analysis of the markets using 41 country indexes and 236 industry areas. NONE showed favorable trends.

I also investigated 36 sectors in the economy for encouraging investments and found only three: Biotechnology, health care, and pharmaceuticals.

Of the five market capitalizations (Size of companies); microcap, small, middle, large and macrocap; the most favorable was small companies followed by microcap.

And I visually looked at the chart patterns of about 1200 mutual funds, and ETF’s.

Changes in client accounts reflect the results of the study.
No new investment represents more than 5% of the value of an account. I expect to be very prompt with the selling of any fund that begins to decline in value.

LET’S CHANGE TO OTHERS SUBJECTS. The following material is taken from various sources. They are ideas that caught my attention. Now I am passing them along to you.

The Difference Between Women and Men.
A popular relationships book from the early 1990’s suggested that men and women are so different they seem to come from separate planets. That may have stretched their differences a bit, but a recent study from Allianz Life Insurance Company, found than men and women are definitely coming from different places when it comes to financial matters. A U.S. News & World Report story about the study and similar research pointed out that women are much more fearful of ending up in poverty; they place a high value on financial security; many believe that financial ads speak down to women and that financial professionals do not give women enough respect; and they prefer to receive financial information in person rather than from the internet. (From a Kingdom Advisors email.)

How about it ladies? Does this speak to your observations? (Here is the dangerous question: how am I doing?)

An Antidote to Greed.
The English architect John Foster once remarked that the loudest laugh in hell is reserved for the man who dies rich. (presumably because the decedent had neither the enjoyment of spending it nor the pleasure of giving it away.)

According to the medieval philosopher Moses Maimonides, for instance, there are eight grades of charity:
(1). To give reluctantly.
(2). To give cheerfully, but not adequately.
(3). To give cheerfully, adequately, but only after being asked.
(4). To give cheerfully, adequately, and of your own free will, but to put it in the recipient’s hand in such a way to make him feel the lesser.
(5). To let the recipient know who the donor is but not the reverse.
(6). To know who is receiving your charity but to remain anonymous to him.
(7). To have neither the donor nor the recipient be aware of the other’s identity.
(8). To dispense with charity altogether, by enabling your fellow humans to have the wherewithal to earn their own living.

Like studying or exercising, giving only becomes ingrained when we engage in it regularly. If you aren’t charitably disposed now, becoming rich isn’t likely to make you so. That makes it imperative to give along the way. (From Spiritual Wealth)

It Makes a Difference.
One difference between a registered investment advisor and a stock broker.

RIAs are regulated by the Securities and Exchange Commission and state regulators, and are held to a higher fiduciary standard than brokers because they are required to provide more disclosure and act in their client’s best interest. Brokers, on the other hand, are required to recommend investments that are suitable for their customers and to obtain the best execution when buying or selling shares for them. (Financial Advisor magazine, May, 2008). The difference is one of understanding the responsibility of a “fiduciary” (best interest of a client) as compared to one who provides what is “suitable”. An investment may be suitable but not in the best interest of the investor. In the event of a dispute, “suitability” is a lesser standard of defense for the broker than “fiduciary” is for the advisor.

WELL, THAT IS ENOUGH FOR ONE POINT OF VIEW.
This past week, on July 30th, Twyla and I celebrated our 31st. wedding anniversary. What a patient woman!!!!!

PS. Feel free to share this From My Point of View with others. With their permission, send me an email address and I’ll add them to the list. I will also send the quarterly, professionally done “Thoughtful Investor” newsletter.

PS Also, I have an opening for another client if you have someone to refer to me.

MORRIS

March 24, 2008 - THE GREATEST FIGHT OF THE GENERATION

“How high’s the water momma?” “Six feet high and rising”
(Words from a song by the late Johnny Cash)

After two/three days of heavy rain we were asking the question.  At one time the water was over the top rail of the fence in the picture. We do not worry about it flooding the house. The water would flow over the top of Beaver Lake Dam before reaching our house. This was not a record high for the lake but close to it.
 
THE GREATEST FIGHT OF THE GENERATION
 
Imagine two huge men in a boxing ring. Each one is a professional with years of experience. They each are determined to be “King of the Ring”.
 
Round One. Without hesitation they rush to the center of the ring and begin to pound away at each other. First one of them has the advantage but then the other takes the offensive. Minutes go by with no let up in activity. The bell rings and judges determine which of the fighters has won the round.
 
Round Two. The same scene as round one.
 
And so it goes, round after round. Each fighter trying to put away the opponent. Two huge, hulking masses seeking to dominate the other.
 
Question: If you are not one of the fighters, what is the best thing you can do?
Answer: Stay out of the ring.
 
What is the greatest fight of the generation? Terrorism?  The Democratic  party presidential nominating process?  The debate over global warming?
 
My vote is for the current national financial debacle. Our problems have accelerated well beyond what was considered a few months ago as a limited “sub prime” mortgage situation. 
 
As reflected by the stock markets, each day is a “knock down drag out” battle between the bulls and the bears. Those investors who are bullish are pounding away and making the market rise. Those who are bearish are equally active in making it go down. Some market days the bell rings to close business for the day and the bulls win with triple digit gains. The next day the bears prevail with triple digit losses.
 
WHERE ARE WE WITH CLIENT ACCOUNTS?
We are not in the ring but have been on the apron around it with Timeless Strategies and Timeless Strategies Expanded. Those accounts have been 50%-55% in money market funds for more than a month. As of today that amount will increase by another 10%-15%.

 
Using Nov. 1, 2007 as a base for looking at market actions and Timeless Strategies funds shows the following representation as to values.  The Timeless Strategies values are based on a representative group of client accounts for the time period. The Broad Index line is the average of fourteen indexes measuring different areas of the markets. Timeless Balance is our balanced program that stays essentially 100% invested at all times. 
 
 
November 1, 2007 to March 20, 2008

Timeless Strategies Funds
Timeless Balance Funds
14 Broad Market Indexes
 
The 14 market indexes show losses from -8.89% (Dow Jones Industrial Average) to -21.75% (NASDAQ 100 Index).  The average decline for all fourteen is -15.73%.
 
We are presently in the third day of a strong market advance. Does this mean we have reached the bottom? Probably not.  We are in a position where if the markets make certain benchmarks we can commit more for growth. If the benchmarks are not reached then any new decline will have very little effect on our positions.
 
MORRIS

March 4, 2008 - PROCESS, PATIENCE, AND PERFORMANCE

 

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November 8, 2007 - LIKE AUTUMN LEAVES

What difference do you see in the above picture from the same scene in previous months? One answer is, the boat dock is more visible. But, why? The answer is, there is not as much foliage on the trees to obstruct the view. It is autumn and the leaves have fallen.

To notice the change requires comparing this month’s picture to the October and September and perhaps the August pictures. At first, comparing the August to the September picture very little change (if any) may be seen. As the months progress and increasingly individual leafs drop the observation becomes clearer that change has taken place.

The same observation can be made with regard to the stock markets in the past few months. Without getting into a lot of technical language here is what has happened. The number of companies whose stock prices have reached new highs in the past 52 weeks has been declining since mid February 2007. This means that an increasing number of stocks are rolling over into their own bear (declining) market. 38.2% of the operating companies listed on the New York Stock Exchange are already down more than 20% in price during this time.

LIKE AUTUMN LEAVES they have been dropping almost unnoticed. First it was small company stocks. Since then it has expanded into middle and large companies. The process has gone unnoticed because the popular market indexes quoted in the news are indexes of large companies. And those indexes (the Standard & Poor’s 500 and Dow Jones Industrial Average) are “capitalization” weighted. In other words, even if the majority of stocks in the index decline and a few of the largest companies increase the index will still show favorable results.

Imagine a teeter-totter with three 500 pound gorillas on one end and nine 100 pound monkeys on the other. The gorillas are still going to determine which end of the board sits securely on the ground.

The stock markets have been deteriorating much more than are reflected in the capitalization weighted indexes. The markets have been propped up by a declining number of high profile large company stocks in a few industries.

What has now happened is that due to adverse problems in the credit markets, plus oil prices escalating, and unfavorable earnings by companies, a couple of the gorillas have fallen off the board. Those events eventually get noticed when it is realized the monkeys are now at ground level.

Yesterday’s markets got everyone’s attention. All the usual market indexes fell significantly.  For the third day in the past three weeks the number of shares offered for sale represented 90% of the volume on the New York Stock Exchange. Frequently 90% down days are followed by rebound rallies lasting 2-7 days. If there is no 90% UP day then it is more likely that additional down days will follow.

HOW DID YOUR ACCOUNT FARE YESTERDAY? The average of 15 indexes measuring different areas of the markets lost -2.74% of value. Timeless Strategies accounts declined -0.32% and Timeless Balance accounts dropped -1.26%.

ON A PERSONAL NOTE:

(1). A couple of weeks ago Twyla and I drove to Branson, MO and spent  several nights. It happened that the Oak Ridge Boys were performing at the Grand Palace. I have listed to country music since age 6 or 7 (then know as Hillbilly) but was reluctant to spend $35.00 each on tickets to hear the “Oaks”. After all, they have been performing together since the early 1970’s. I figured that by now their voices would be creaking and groaning. Well I was wrong. They may be seniors but they can still sing.

The last week of this month we are returning to Branson (only 2 ¼ hours away) for another three night stay. This time we will see and hear the group “Mannheim Steamroller”. I expect it to be just as enjoyable.

(2). Forty years ago one of my best college friends was a guy by the name of Bob. After college we went our separate ways and lost track of each other. About twenty years ago while I was living in Maryland I learned that Bob was pastoring a church in Oklahoma (his home state) and I called him. Our conversation was brief but we both got busy so there were no follow up calls. Again, we lost track of each other.  A couple of months ago I discovered that Bob lives in Ft. Smith, AR. just 1 ½ hours south of Rogers.  Yesterday I had a meeting in Van Buren (an adjoining town) and after it was over I visited him.  It was the first time for us to see each other in 40 years. We had a great time talking and getting reacquainted.  Friendship is something to be treasured and not set aside, forgotten, in the pressures of daily living.

Morris  

October 31, 2007 - TRICK OR TREAT?

FIRST THE TREAT.

Based upon an analysis of client accounts, with no additional deposits or withdrawals, using the Timeless Strategies investment program, account values increased between 8% and 8.5% during the past quarter (August 1st. through October 31st)

This past couple of months the investment allocation was 70% in equities (stock mutual funds) and 30% in fixed income (money market funds). On Oct. 29th one mutual fund position was sold changing the allocation to 60%/40%. And, on Nov. 1st another sale changed the allocation to 50%/50%.

Given the market actions of Nov. 1st I think it is prudent to exercise more caution for the time being. We are now in a position to better protect against the downside.

Several more favorable market areas are: foreign companies, large international dividend paying companies, and natural resources funds. Investments are allocated to these areas.

NOW THE TRICK.

Yesterday, on my way into town, I passed our local gas station with middle grade gas advertised at $2.87 per gallon. On the way home less than two hours later the sign said $2.95 per gallon. Twyla and I went to dinner last night at one of our favorite Mexican restaurants, passed the same gas station where the mid level gas price read $3.05.

THAT IS INFLATION. 6.27% IN 5 HOURS.

Any questions why the Federal Reserve Board's lowering of interest rates has the dollar referred to a "the Bernake Peso"? (As in what we once referred to as "third world, banana republic currency")

WHAT DOES FED ACTION HAVE TO DO WITH THE PRICE OF OIL? Let me try this over.over.over simplification.

First imagine you are a foreign oil producer. You sell 10000 gallons of crude for $90 a gallon, meaning you get paid $90,000 US. Using today as the benchmark $90,000 buys you $90,000 worth of goods and services.

The Federal Reserve Board lowers interest rates making the dollar less attractive for the amount of interest it may earn, relative to other national currencies. The dollar is now worth less making it more expensive to buy things in other countries.

You, the oil producer no longer have $90,000 worth of buying power. The same goods and services you previously received in return for $90,000 cost more. So, what do you do to protect your buying power and have it continue to make the purchases? You raise the price of a gallon of oil to $91.00. Now your 10,000 gallons brings you $91,000 which buys you the goods and services previously costing $90,000.

WHO PAYS THE ADDITIONAL $1,000? Yesterday at our neighborhood gas station the price of a gallon went from $2.87 to $2.95 to $3.05.

That is not the entire answer but I hope you get the concept.

ON A PERSONAL NOTE.

Twyla asked that I tell you how much she appreciates the e-mails and cards of sympathy she received from you at the death of her father last month. She shared them with her mother, Frances, who is doing well in grieving the loss of her husband of 62 years.

The two of them plus a sister and her son, and another brother and his wife, left for a town in Louisiana about an hour ago. They are going to observe the baptism of a college age nephew this coming Sunday.

Gratefully, life goes on.

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September 21, 2007 - THE FEDERAL RESERVE BOARD HAS ACTED. WHAT NOW?

Since the initial market rally following the Federal Reserve Board's lowering of certain interest rates this past week the number of stocks traded (volume) has stayed about the same but increases in value have, in comparison, been far less. When greater effort (volume) that produces less results (points gained), and when it follows a substantial rally, it typically indicates increased resistance to higher prices.

Today's close showed good gains in the major market averages but nothing spectacular. The market index highs were reached earlier in the day but selling brought the closing numbers down.

There is reason to expect the markets to pull back from the gains of this past week. Not all the way back, but 25%-50% back. All of which means we may have it happen in time to report lower account balances at the end of this week (which also means the end of this month).

I still vote that we record account values on the highest day of each month, no matter what day that is.

Here are today's actions taken in Timeless Strategies accounts. Exposure to the markets was slightly expanded. Merger Fund, which we have held for about a 1 ½ years was sold. It represented approximately 10% of the account values.

Two new funds were purchased; Fidelity South East Asia Fund (8% position) and US Global Emerging Europe Fund (7% position) The net effect is the increase of invested funds to 65% and the addition of funds representing areas of the world that are growing strongly. In addition, the areas represented by these funds are not in position to be adversely affected by our credit problems.

Timeless Strategies accounts now are invested 25% in international funds, 30% in US funds in specific industry areas, and 35% in money market funds.

If the markets continue to behave themselves this coming week, meaning a reasonable pull back, then additional commitments will be made. I am analyzing funds defined by capitalization (small, medium and large) and orientation to value and growth. I am using the time period of July 20th to the present so that the sharp decline in July and August is considered. Then I am using the time period of August 16th to the present to see the effects of the recovery of values by funds to this day.

COMING TRIP.

As indicated previously, I will be in Maryland October 6th. to the 14th. AND TWYLA IS COMING WITH ME. If you want to meet with us (socially, business, or both) during those days let me know by email with a couple of suggested times. If you think you may need money from your account while we are there let me know so I can bring forms with me.

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September 15, 2007 - CAUTION IS STILL THE BEST STRATEGY

Sources that are interested in selling stocks are still dominant over sources that feel inclined to buy. The recent rally does not follow the usual pattern of a healthy growing market. The Federal Reserve Board still has yet to meet (tomorrow) and decide if they will reduce interest rates and if so by how much. There is so much expectation for it to be 50 basis points (1/2 of 1 percent) that anything less may send the markets lower. There is no certainty that if the FRB meets expectations the markets will gain in value. The markets may already reflect the expectation of an interest rate reduction.

The chart above shows the relative strength of Timeless Strategies accounts (Red line), Timeless Balance accounts (Purple line), and Average Market Indexes (Green line). The period of time is Aug. 27th to Sept. 6th, 2007.

The picture demonstrates how volatile the markets have been during this time.

Timeless Strategies accounts remain 60% invested and 40% in a money market fund.

That's it for now.

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September 4, 2007 - A SELLER'S MARKET

From mid July to mid August selling initiated trading volume in the markets was like a rocket that had run out of fuel and was headed back to earth. There was very little change in the "I want to buy" side of the equation that makes a stable market. A lot of "I want to sell" and not much "I want to buy" means sellers had to continue to reduce their prices to entice someone else to accept their offer. Any buying has come in quick but infrequent bursts.

Buyers had little enthusiasm or motivation because they could not be certain of the value of what was being offered by the sellers. What is referred to in the press as a "credit crunch" is actually a "confidence crunch". Questions such as: (1) Can I really believe the credit reporting agencies when they say AAA rated debt is safe? OR, (2) Have all those people who bought homes, on programs by banks and mortgage lending companies that did not require verification of income and expenses, told the truth? AND, (3) Are investments held by banks, stock brokerage firms, and other financial institutions worth what they say they are?

It is that age old question of "Who do/can you trust"? And when the answer is "I don't know" the uncertainty becomes a problem in knowing how to react. It translates into "don't take any chances by buying".

HERE IS WHAT IT LOOKS LIKE FOR THE PAST THREE MONTHS. The Broad Market, reflecting the averages of various indexes measuring different areas, has declined 10.06% during this period.

Timeless Strategies accounts are down 6% to 6.5%. The largest drop in value during this time period is 7% to 7.5%.

Timeless Balance accounts are down 3%. Their largest drop in value during this time period is 8% to 8.5%.

These figures are taken from looking at client accounts where there have been no withdrawals or contributions during the time period involved.

What is expected if the broad markets decline 15% or 20%? Timeless Strategies accounts should show little additional loss from the 7.5%. Timeless Balance should continue to lose, into double digits, but not as much as the broad market.

What is expected when the broad markets begin to advance in value? Timeless Strategies will lag the markets, at least initially, because we are going to require a high degree of evidence that the gains will continue and not abruptly turn back down. Timeless Balance, because it stays 100% invested, will respond quickly to market gains.

IN CONCLUSION I hope you had an enjoyable Labor Day weekend. Twyla and I stayed close to home, venturing out (other than for church Sunday) only for dinner with a niece and her husband yesterday. We prefer holiday's to be peaceful and restful.

I'll be back on the East Coast in the Maryland area from October 5th to 15th. If you want me to stop in, and just visit and/or discuss some thing specific, let me know.

Thats my point of view.

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August 26, 2007 - POSSIBLE DISASTER, UNCERTAINTY, AND HOPE

In rapid succession the markets have moved from potential disaster to uncertainty. News about credit problems have resulted in the closure of many mortgage companies, pressures on banks with non-performing loans, and massive losses in some investment companies.

As a result Timeless Strategies accounts were allocated to reflect the possibility of additional declines by positioning approximately 40% in a money market fund and 15% in three funds that gain when various areas of the markets lose.

Recent action by the Federal Reserve Board, even though not directly a solution to the problem, infused new hope for averting a worldwide calamity. Recent market actions have been mixed with several days experiencing gains and others showing losses.

Following action by the Federal Reserve Board the funds that protect against loss were sold and the value added to the money market funds. Timeless Strategies accounts are now 55%-60% in money markets and the balance in four funds representing specific sectors of the markets.

There is not enough convincing evidence to determine that the bottom has been reached and it is time to become fully invested. Favorable market actions this coming week will provide additional encouragement to reduce money market funds.

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August 15, 2007 - MID MONTH UPDATE

Another down day for the Dow yesterday...over 200 points.

So, what is the damage to your account?

General market decline (average of eleven indexes): minus 1.88%

Timeless Strategies accounts declined: minus 0.15%
1/2 Timeless Strategies & 1/2 Timeless Balance accounts declined: minus 0.65%
Timeless Balance accounts declined: minus 1.18%

Hope this helps ease your blood pressure.

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August 10, 2007 – FROM MY POINT OF VIEW
MARKETS UNSTABLE…CLIENT ACCOUNTS STABILIZING

Yesterday’s news focused on the very strong decline in the Dow Jones Industrial Average (DJIA or ‘Dow”). The loss as measured by the average of eleven indexes measuring the total stock market performance was a loss of -2.37%.  The markets have opened strongly down today (9:35 AM Eastern Time)

Client Timeless Strategies accounts yesterday declined 0.71%.
Client Timeless Balance accounts yesterday declined -1.73%.

Timeless Strategy accounts are now positioned as follows:
          40% Money Market Funds
          15% in mutual funds that increase in value when markets lose.
          45% in selected area stock mutual funds.

MAJOR POINT: THIS IS AN EMOTIONALLY INITIATED CORRECTION.
IT HAS BECOME A MECHANICAL, PROGRAM DRIVEN CORRECTION.

This is not a correction based on poor US or foreign economic conditions.

What do I mean? Ask the question….what is the difference to the markets between July 18th and July 19th? ON July 18th there were concerns about the price of oil, real estate credit, and anything else someone could be worried about. Those concerns were not new and the markets were responding favorably. ON July 19th there began the sudden reversal with which we are still contending. Nothing changed economically overnight.
What changed was a perception of the concerns, especially credit risks related to the mortgage market. What had been dismissed in importance became highlighted as a significant problem. And the selling began.
SELLING RESULTS IN MORE SELLING. Electronic programs in stock brokerage houses, pension fund managers, mutual funds, hedge funds, banks, and insurance companies began to respond. They are programmed (by humans) to automatically sell if certain conditions are met.  This is the period from July 19th to August 3rd.

A point is reached where other opinions view the markets as oversold, with stocks valued to make them good investments. Buying starts and the markets begin to gain in value. Again, buying encourages more buying. A point is reached where about 50% of the previous losses have been recovered. This is the period of August 4th to August 9th.

Is the correction over? Is it now safe to be fully invested and take advantage of the market gains being made?

Yesterday, with its strong reversal down, says, “It ain’t over till it’s over and it likely ain’t over yet”.

THAT IS WHY, IN TIMELESS STRATEGIES, WE ARE POSITIONED TO RESIST ADDITIONAL DOWN DAYS. We will safeguard capital better than non-actively managed systems.

When will it be over? I don’t have any idea. It will be over when the markets give indication we can interpret that says, “the probability is that it is over”.

I realize this is a simplistic accounting, not even talking about foreign markets, but I hope it helps.

PS. June and July the price of a barrel of oil increased and the markets gained. Lately the price of oil declined from $78.00 a barrel to $ 71.00 and the markets declined. I thought it was supposed to work the other way. Is this a crazy world?

 

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August 2, 2007 – Market Volatility

Chart Courtesy of Investors Fasttrack….July 1, 2007-July 31, 2007

LEGEND:
          Green Line: Average of fourteen market indexes
          Red Line: Timeless Strategies Program    (TS)
          Purple Line: Timeless Balance Program  (TB)

STATISTICS:

Index	July 1	July 19	% Change	July 31	% Change
DJIA	13,408.62	14,000.41	+4.41%	13,211.99	-5.63%
S&P 500	1,503.35	1,553.08	+3.31%	1,455.27	-3.20%
OTC	2,603.23	2,720.04	+4.49%	2,546.27	-6.39%
RUT-I	833.70	851.85	+2.18%	776.12	-8.89%
Wil-5	15,210.65	15,695.74	+3.19%	14,682.66	-6.45%
VLE-I	2,431.47	2,502.86	+2.94%	2,315.93	-7.47%
Avg Index	724,889.75	751,740.44	+3.70%	700,648.69	-6.80%
FSA-TS	590,829.94	615,620	+4.20%	575,465.13	-6.52%
FSA-TB	939,790	962.421	+2.41%	917,126	-4.71%

HEADLINE ONE: Friday, July 13, 2007
Dow Jones and S&P 500 Indexes Reach New High for 2007

HEADLINE TWO: Friday, July 13, 2007
FSA Client Accounts Reach New High for 2007

HEADLINE THREE: Monday, July 16, 2007
Morris Vickers Declares the Month of July Closed

News Article:
          Interviewed in his office today, Morris Vickers, President of Financial Security Advisors, Inc. declared that the month of July 2007 has now ended as of July 15, 2007. Additional days in July will become part of August.  Asked about why the declaration has been issued he said, “I have had enough of markets that do well for the first two or three weeks of a month, only to decline during the last week. As a result, the monthly reports received by clients show little or no gain from the previous period. Therefore, from this time forward each month will end on whatever day shows the best gain in an account. Instead of picking the arbitrary date, the 1st of each month, we will pick whatever date provides the most encouragement”.                   End of Article

OK, that is out of my system, for the moment.

LOOK FOR CHANGES IN A FEW TIMELESS STRATEGIES FUNDS.
Confirmation and monthly statements will soon reflect a lower emphasis in fixed income and large value companies. Additional exposure is in areas of technology and industrial equipment. The most recent time when we were in technology was when we sold our holdings in April 2000. Then the tech bubble burst and it has taken this long to again become favorable.   

Industrial equipment is strong because of the number of construction projects under way in various parts of the world.

RECENT READING��ARTICLES I FIND INTERESTING
From the Employee Benefit Research Institute:
33% of workers ages 45 to 55 have less than $25,000 saved for retirement.
17% of workers have had retirement benefits for themselves or their spouse reduced.

From Business Week:
90 is the number of designations, degrees, titles, certifications, and accreditations available in the financial services business.

From Fidelity Investments:
It looks like couples need to talk a bit more about retirement. Questioned individually, spouses approaching retirement differ on when they’ll actually retire, their retirement lifestyles, and who might work during retirement,

According to a survey by Fidelity Investments:

• 35% of the couples (especially the husbands) differed on when they thought their spouse would retire.
• 37% differed in their optimism of whether their nest egg would allow them to retire comfortably or less comfortably (the men were more optimistic).
• 41% disagreed about whether either or both of them would work during retirement.
• Only 38% said they worked together on retirement planning. It’s little wonder they differ.

Northern Trust Company, Chicago:
A survey of millionaires (1$ million in investable assets) found that those who can afford to retire don’t seem inclined to do so.  The survey found that 17% of the millionaires over age 70 are still working.  While boredom and the desire to work keep many from retirement, about half are worried about health care costs wrecking their nest egg.

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November 2006 – Ministers, Employees or Self-Employed?

THE CONFUSION CONTINUES

I recently attended a meeting of ministers where the primary subject was retirement planning. However, it did not take long for questions to arise on the subject of minister’s responsibilities for the payment of taxes related to income and Social Security.

My first encounter with these questions was in 1968/1969 when President of the United States, Lyndon Johnson, signed legislation changing the Social Security system with regard to ministers.

The confusion exists because of the failure to understand that two separate tax systems are involved. One system collects taxes based on the individual’s earnings from salary, capital gains, interest and dividend income. The second system determines the amount to be paid into “SECA” (Self-Employment Contributions Act) for self employed persons or “FICA” (Federal Insurance Contributions Act) for employees by their employers. This second system is generally referred to as “Social Security”.

Why is this important?  Two different tax systems mean it is possible to be self employed in one system and an employee in the other.

SOCIAL SECURITY
What we call “Social Security” is more than a program to provide income for retirement. A 15.3% tax is paid either as a shared amount between employer and employee or the entire amount by the self-employed. Of the total amount paid, 2.9% is used to fund Medicare hospital insurance. The additional 12.4% provides benefits to fund old-age (retirement income), survivor and disability benefits.

Ministers are considered self-employed for “Social Security” purposes. Does this make sense? The question is immaterial. Tax policy does not need to make sense. It just needs to generate income.  Unfortunately most church compensation does not take into account the financial responsibility ministers face in having to pay both the employer (7.65%) and employee (7.65%) tax. Many churches provide additional income, paid as salary, to offset what usually is the employer’s tax responsibility.   

Because both systems require payments to be made to the Internal Revenue Service, as agent for the Federal government, it is easy to overlook the payments as amounts divided between two responsibilities.

THE INCOME TAX SYSTEM.
Are ministers self employed for federal and state income tax purposes?  It is virtually impossible for a minister to justify a self employment status. The status of whether the minister is an employee or self employed independent contractor can be determined by several tests.

The crux of the question has to do with the nature of the relationship between the minister and the church served. The degree of control and independence is evaluated using three categories: behavioral control, financial control, and the type of relationship.

Behavioral Control focuses on the question of how much instruction is the worker given by the church served. The issue is not whether instructions are actually given but that there is authority or expectation concerning the work to be done.

Does the church provide a place for you to do ministry?
Are you provided equipment with which to work? (Pulpit, desk, etc)
Are you provided supplies?
Are workers provided to assist in ministry?

Financial Control relates to issues such as:

Are business expenses reimbursed by the church?
Are you required to invest your own financial resources in the work?
To what extent is most of your income derived from one source?
Are you paid a guaranteed amount on a specific schedule?
Due to your efforts can you make a profit or experience a loss of income?

Type of Relationship looks at arrangements such as:

What is stipulated in a written contract with the church?
Church provision for paid sick leave, vacation time, and retirement plan.
The permanency of the relationship; a short time project or open ended?
It is not necessary that all questions point in one direction: Employee or Self Employed. It is the overall picture of the relationship that matters. The entire context of the ministers’ work and relationship with the church presents an almost insurmountable barrier to self employment.

As employees, ministers should receive a W-2 Form, from the church, showing the amount of income paid them for the year.  The self employed, or independent contractor, receives income paid them on a 1099 Form. It is important that the minister, filing as an employee, receive a W-2 Form from the church.

There are other significant tax implications for ministers focusing on accountable and unaccountable reimbursed business expenses; housing expenses relative to earned income credits; and, the taxability of housing allowances by SECA but not for income taxes. Those are subjects beyond the focus of this article.

Written by Morris Vickers, D.Min, CFP, Accredited Asset Management Specialist.

My brief biography: Ordained Southern Baptist minister with 30 years full time service as a Pastor and Associational Missions Director. I am the owner of Financial Security Advisors, Inc., a registered investment advisor incorporated in Maryland, November 1984. My doctoral thesis from Eastern Baptist Theological Seminary, Philadelphia, PA is “Developing Materials to Enable Ministers to Evaluate Their Retirement Planning Alternatives”.

I am available, at no cost, to consult with ministers and churches concerning issues such as addressed by this article.

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I may be contacted at:
479-925-2939 Office Telephone
MVMinistry@aol.com Email
Or
Financial Security Advisors, Inc
P.O. Box 909
Rogers, AR 72757

This article does not contain investment advice. It is intended to be educational about the subject of the article. This is not a solicitation or recommendation of any investment program.