Jersey Benefits Advisors Newsletter Winter 2010

MARKET WATCH

My wife and I had the opportunity to visit New York City with some friends for her birthday on December 29th. That evening we strolled through Times Square, right past the unmarked, unlicensed, white cargo van that had been parked there for several days and was removed from the street the next day. It was searched for explosives, but none were found, however, the NASDAQ and other buildings in the area were evacuated. For the second time in a week, my attention was once again focused on terrorism. In fact, had it not been for the incompetence of the nut case with the bomb in his underwear, Christmas Eve could have been a night of tragedy for this country.

While sitting in the lounge at the Marriott Marquis in the Times Square area, our conversation turned to the multitude of high rise office buildings and the numerous businesses located in this section of the city. The history of this vibrant economic engine confronts you at every corner. The activity in the area gives one an appreciation for the scope of the economy of NYC, and helps me fathom the enormity of the 14 trillion dollar economy of our country, which many times seems quite esoteric.

We have been through a difficult recession and unemployment is still at an uncomfortable level, but as bad as 10% unemployment sounds, the reality is that 9 out of 10 workers have jobs. As an investment advisor, I read numerous publications and constantly scan data. I condense it into this newsletter to help you make decisions about your investments in order to attain your goals. Information constantly flows from the media, and much of it is spun by extremists on the right and left to advance their agenda. While I am not always correct, I try to be objective and show both sides of the issues facing us.

An interesting year has just concluded for the markets, as the financial panic that began in 2008 reached its nadir in March of 2009. Since then, the markets have recovered dramatically signaling the end of the recession and posting some significant gains for the year. In fact, the DJIA gained 18.82% for the year and closed at 10,428.05 while the S&P 500 improved to 1,115.10 which is an increase of 23.45%. Meanwhile, the NASDAQ rose to 2,269.15 adding 43.89%. While these percentage gains are significant, it is important to keep things in perspective.
In order for the indices to reach their former all time highs, the DJIA must still add 35.83% to get to 14,164.53 and the S&P 500 must improve to 1,565.15 which is another 40.35% gain. The NASDAQ, which bubbled into the stratosphere in 2000, must still reach 5,048.62 which is an increase of 122%.

While these statistics seem a bit depressing at first glance, it is safe to say that none of us invested all of our assets in the markets in October 2007, when the DJIA and S&P 500 reached these levels. While the value of our assets are lower than their highest value during the previous bull market, most of us have made money on our investments over the years. If you were investing through the entire recession, then you are poised to reap some pleasant rewards during the next bull market, which is unfolding now.

Remember, somewhere out there is a hapless soul who sold his investments in March, at the height of the panic, and went to cash. Now he is trying to decide if this rally is for real. Luckily, it is none of us! There will be some ups and downs going forward, and problems still exist, but the growth machine that is the US economy is unstoppable if we don’t constrain it.

ECONOMIC OUTLOOK FOR 2010

Of course, this turn of the page of the calendar also has us entering a new decade, which many times seems like a new chapter in an interesting book. There are many soothsayers out there trying to convince you they “know” what is going to happen this decade, and frankly I have read forecasts that are all over the map. My purpose here is to focus on where we are now and what we can expect in the short term, drawing on opinions depicting best and worst case scenarios.

As I mentioned earlier, the recession has not “officially” been declared over by the National Bureau of Economic Research, but the 2.2% growth in the third quarter is an indicator that the economy is growing again, albeit by economic stimulus. Of course, there are predictions of everything from a double dip recession to fourth quarter GDP increasing by 4.5% and annual GDP growth of 3.5% in 2010. According to a survey of 58 economists by Bloomberg, done in December, the US economy is “expected to muddle along at the 2.6% average annual growth rate of the past 20 years, that consumer prices will rise by 2.1% and that joblessness will remain at 10% for the year”.

Within that particular survey, the economists were divided into two distinct and extreme groups as to their view of the direction of the economy. One group adhered to the belief that the recovery will follow historical norms, with pent up demand generating a burst of growth. The other group believes things will be different this time as people will shy away from shopping and banks will be tight fisted with credit. While the “this time it is different crowd” was debunked in in the previous decade on dotcom profits, different paradigms, demographics, housing and decoupling of economies, there have also been recessions in the past where the recovery was not prolific or “V shaped”. It seems like the consensus view of muddling through may indeed be what happens.

Another area where opinions diverge drastically are on government intervention and stimulus. Had the government done nothing, the ensuing panic may have been even worse than what we saw from October 2008 to March 2009. So, now the focus is on an exit strategy.

There is reluctance to withdraw the stimulus too soon for fear of choking off a recovery. However, the more stimulus in the system, the higher probability of inflation. Many economists see little risk of inflation with unemployment at 10%, but politicians are already sweating the 2010 midterm elections. Current legislative initiatives will be costly, and all of us will have to pay more in taxes. Higher taxation stifles growth. Without growth, unemployment increases. Let’s hope Bernanke has the will to remove the punch bowl in time.

ROTH IRA CONVERSION RULES FOR 2010

In 2010, the income limit of $100,000.00 for ROTH IRA conversions will be eliminated, making it possible for anyone with an IRA to convert to a ROTH IRA. There are many factors to consider when making a decision about whether or not to convert your IRA to a ROTH IRA, but the overriding factor is taxation. If you convert in 2010, you must pay 100% of the tax by the date of final tax filing, which is October 14, 2011. Or, you can defer the tax due and pay half in 2011 & half in 2012. You also have until the final tax filing date to recharacterize or undue the conversion if your account value drops, and the tax would be lower by reconverting in 2011. However, then the total tax due would be 100% in that year. Give me a call for more information to see if it makes sense for you.

COMPANY INFORMATION:

Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com

Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053
800-245-8250
Member FINRA & SIPC

Third Party Administration and Insurance Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/

All opinions expressed in this newsletter are solely those of John Kaighn & Jersey Benefits Advisors, formerly known as Kaighn Financial Services.

Welcome to the "Credit Crunch"

In just a few short but grueling weeks, we have gone from an environment where liquidity was king to a "credit crunch", the antithesis of liquidity. Volatility has replaced predictability in the markets and the European Central Bank, their counterparts in other parts of the world, as well as the Fed pumped billions of dollars into money market funds last week to calm nervous markets and provide short term funds. Futures markets are even betting on the Fed to lower interest rates in the near future, to increase liquidity and bail out some of the bad bets on derivative investments, which have been magnified by the use of over the top leverage. Let' hope the Fed doesn't cave.

With interest rates at 5.25%, oil and gasoline prices in decline and the rest of the economy still growing, the interests of the overall economy would be best served by allowing for the liquidation of some of these bad investments and the subsequest pain being felt by the very individuals and institutions who initiated this newest bubble. There is credit available for other sectors of the economy, besides the private equity and subprime mortgage crowds, and while confidence may be shaken somewhat, by an end to easy credit, it is important for those who make bad bets with leverage and create asset bubbles to learn the Fed will not bail them out. Lowering interest rates at this juncture would only reinforce the over leveraged hedge funds and private equity managers to continue their risky ventures and to overpay for assets.

Look for continued volatility in the markets this week as investors try to ascertain whether the subprime debacle has been contained. It is entirely possible the Dow could slip below 13,000 as the market searches for a bottom. Thankfuly, this is also vacation time on Wall Street, so there should be a slowdown in volume after this week as we head into the last two weeks of August and the Labor Day Holiday. This is traditionally the time of the year with the slimmest volume in the markets and many hope that by September, the extent of this latest crisis will be better understood. My hope is that the Fed stays firm with interest rates and uses monetary policy prudently over the next few weeks.

John Kaighn

Jersey Benefits Advisors

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Internet Home Business Ideas and Opportunities

China Hiccups

The US markets opened lower today, as investors digested the overnight news from China. Stocks in China were down sharply on Wednesday because the government raised a tax on stock trades. The reason for this tax increase is an attempt to dampen some of the enthusiasm for stocks, due to a market boom. There are growing concerns about a possible bubble.

The main Shanghai Composite Index dropped 6.5 percent to 4,071.27 after hitting a record high on Tuesday. The Shenzhen Composite Index for China's smaller secondary market closed at 1,199.45 a decline of 7.2 percent. The market plunge came on the heels of an announcement by the Finance Ministry that tripled the "stamp tax" on stock trades from 0.1 percent to 0.3 percent. The change was effective Wednesday, as the the official Xinhua News Agency reported the ministry was trying to "cool the stock market".

The last time stocks plunged in China, which was February of this year, emerging markets took it on the chin. Stocks in the US and other mature markets also swooned as investors reacted to the news. Anytime you have a precipitous drop in a major market, there are bound to be ripple effects in all of the world's markets. One thing to remember is the fact that the markets do not move in a straight line, so after a period of increasing share prices, one has to expect a decline sooner or later. Hopefully, this will not be a correction that reclaims all of the gains made this year, but it is a distinct possibility. If you have a few dollars sitting on the sidelines, this may present an opportunity to buy shares at a lower cost. For those of you who continually dollar cost average, you will automatically reap the benefits of any sale on shares.

Later in the day, the US markets responded to the release of the FOMC minutes, as the S&P 500 index advanced to its first record close in more than seven years ending at 1,530.23. Investors concluded from the Fed report the evidence of a cooling economy might be a reason for the Federal Reserve to begin cutting interest rates in the second half of the year. The DJIA also closed in record territory at 13,633.08 as the markets shrugged off the news from China. Sometimes you just never know how the market will react to news, which is why I always recommend not letting emotion rule your investment decisions.


For More Information on Investments and Business Information and Opportunities, visit my websites:
http://jerseybenefits.com
http://johnkaighn.com

Fed Still On Hold

The Federal Reserve left interest rates on hold at the current level of 5.25% during the Federal Open Market Committee meeting today. The central bank noted the economy has been slowing, but is still expected to grow between 2.5% and 3% this year. As a result, they felt inflation is too high for their comfort level and still the number one threat to the economy.

The Dow Jones Industrial Average sprinted to another record close finishing at 13,369.29 for the session. The Standard and Poor's 500 added 4.86 points to close at 1,512.58, which is getting closer and closer to the record set in 2000, when the index reached 1,527.46. The Nasdaq composite index rose 4.59, or 0.18 percent, to 2,576.34. Of course, it is still far from the record set in 2000. Maybe someday, it too will surpass the old record, but I am not holding my breath for it to happen before the end of the decade.