JERSEY BENEFITS ADVISORS NEWSLETTER FALL 2010

MARKET WATCH

I don’t usually begin my missives with a quote from someone else, but I have to give kudos to Caroline Baum for this quote in her Opening Remarks article in the September 6, 2010 edition of Bloomberg’s Businessweek . She writes, “It’s easy to be nostalgic for the 1990-91 recession that gave way to the Clinton boom. What will it take to ignite that kind of growth again? The US economy remains almost comatose…. The current slump already ranks as the longest period of sustained weakness since the Great Depression…. Once in a lifetime dislocations will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the banking collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit.”

The portion of the quote in italics was included in Caroline’s article, but it was quoted from Time Magazine in September. However, the year of the quote was 1992, and shortly thereafter, the economy was off to the races for one of the best economic cycles in American history. While I am not predicting a 90’s type recovery, I believe you have to have a long term historical perspective when attempting to understand the cycles of the US economy, and be very wary of the media with their hysterical style of reporting.

While the 1990-91 recession could be considered mild in comparison to the 2007-09 recession, which by the way ended in June 2009 according to the NBER, many of the same problems we are experiencing today were concerns in 1992. Of course, the once in a lifetime dislocations didn’t take years to work out then, and also turned out not to be once in a lifetime dislocations. My point here is to be careful not to get caught up in the sensational, overly pessimistic and simplistic descriptions of our current state of affairs, and the equally inadequate prescriptions for corrective action espoused by various experts.

An article in Barrons quotes Stephen Roach, non executive chairman of Morgan Stanley Asia, on the solutions offered by both parties. He states," Also, the idea that we can come up with a quick fix is ludicrous. Politicians aren’t being honest. They’re saying, ‘Well if you just listen to what my party says, we can turn America around tomorrow.’ That’s a crock. And the American public has lost respect for what politicians are saying on both sides of the isle because these are deep seated problems that have been building over time and there’s no quick fix.” The idea of no quick fix sums it up, but it doesn’t mean unsolvable.

Thomas Donlan also writes in Barrons, “Medicare, Medicaid, Social Security, government retirement programs and military spending already consumed all the government’s $2.1 trillion in tax receipts for fiscal 2010. The rest of the official cost of government-including the spending to create and save jobs and the interest on the national debt-was borrowed.”

Budget cuts, changes in entitlement programs, tax increases and continued erosion in the value of the dollar (inflation) are on the horizon as the American public continues to wrestle with the questions of what do we really want in the way of entitlements, and what are we willing to pay for them.

Meanwhile, some help from the markets, like September’s best in 71 years performance can’t hurt! The DJIA is now up 3.45% for the year, the S&P 500, has posted a 2.45% increase for the year and the NASDAQ is up 4.38%.

THE POLITICAL AND THE ECONOMIC OUTLOOK

The mid term elections are rapidly approaching, and it seems the markets have priced in the prospects of Republican gains in the House of Representatives and possible control of that body. Since the market is always looking toward the future, don’t look for the actual election results to move the markets all that much. In the short term, the market’s prospects will be more focused on the earnings reports this month and the jobs report on Friday, October 8.

The overpromising by the Obama Administration that stimulus would save jobs has cost them their credibility. While it did lessen the effects of the recession, the stimulus hasn’t done much to help unemployment. This is because stimulus is a means of injecting government spending into the economy when it is weak, not a jobs program, per se. Employment only increases when the imbalances which caused the recession have been resolved.

As mentioned earlier, the recession’s official end was cited as June 2009. While many people feel we are still in the grip of recession, the facts don’t bear this out. We are in the recovery phase of the economic cycle, which means we are working our way back to the Gross Domestic Product level of the previous cycle. Because this recovery has been very weak, it is taking longer to reach GDP levels achieved prior to the recession, and it makes everyone impatient. The employment picture should begin to get better once we enter the expansion phase of the economic cycle, which will begin when we get back to the previous GDP levels of the last cycle. No one knows exactly when that will be, but it will be evidenced by lower unemployment numbers.

As we enter the last quarter of 2010, there may finally be a chance for a more pragmatic approach in Washington. It almost seems like we had to go through this exercise in idealism summed up in the quote “change we can believe in”, to reach the understanding politicians will say anything to get elected. The perception by the populace of a government moving so rapidly and unapologetically to the left, against the will of the majority, has led to a rebuke of big government ideas. While government is not the entire problem, it is also not the entire solution. I think if the administration fails to move more to the center, Obama will be a one term president.

At its last meeting, the Federal Reserve stated it stands ready to use Quantitative Easing, being called QE2, to further help the economy. This means the purchase of Treasury Securities in the open market, which will keep interest rates low, but could further erode the value of the dollar. This is a balancing act, and it can be positive for the markets. Rising stock markets mean better economic conditions, which can happen, if the government exhibits the fiscal discipline needed.

IF YOU ARE READY TO GO PAPERLESS READ ON

For those of you who have brokerage and retirement accounts through Pershing, there is a service called My Edocument Suite, which might interest you. It enables you to view account documents online, and is provided on behalf of Transamerica Financial Advisors, Inc. by Pershing LLC (member FINRA, NYSE, SIPC), a subsidiary of The Bank of New York Mellon Corporation.

On this secure website, you can request a user ID and password that will allow you to access your brokerage account statements, trade confirmations and other documents online. It also enables you to stop your paper statements and have notifications sent to your email when a new statement, confirmation or tax statement (1099) is available. All you need is your account number and a few minutes to answer some security questions. The link is http://www.myedocumentsuite.com . Call me for assistance.

Gold broke through the $1,300 per oz. level in late September. It belongs in your portfolio, but don’t put all of your eggs there!

DOLLAR COST AVERAGING THROUGH A SYSTEMATIC SAVINGS PLAN IS AN EXCELLENT WAY TO BUILD UP AN ACCOUNT WITHOUT A SIZEABLE INITIAL INVESTMENT.  THIS IS  THE WAY MANY COMPANY RETIREMENT PLANS FUNCTION.  Saving a portion of our pay each month is very important.  Company sponsored pension plans are one method to save and should be used for retirement.  Other systematic investment accounts, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES  can be opened, some for as little as $50 per month, and debited directly from your checking or savings account. For more information, just call to set up an appointment. REFERRALS ARE ALWAYS WELCOME.

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

34 Doe Dr.
Woodbine, NJ 08270
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.

JERSEY BENEFITS ADVISORS INVESTOR NEWSLETTER SUMMER 2009

MARKET WATCH

As we close the books on the first half of 2009, there appears to be a cup half empty, cup half full scenario going on, depending on your point of view. The markets closed mixed with the S&P 500 winding up at 919.32, a 1.8% gain for the year and up 35.9% from the low of 676.53 in March. The DJIA finished at 8,447.00, which is still -3.8% below the beginning of the year, but still 29% above the low of 6,547.05 set in March. The Nasdaq posted the best year to date gain of the major indices when it closed at 1,835.04, which is a 16.4% increase for the first half of 2009.

While these gains from the lows in March indicate a fantastic recovery for the markets, they represent only a portion of the returns necessary to restore the indices to their former highs. For example, the DJIA would have to gain 67.7% to get to it’s former all time high of 14,164.53 and the S&P 500 would have to add 70.3% to reach it’s former high of 1,565.15. Of course the NASDAQ, which went to the moon in 2000, would have to increase a whopping 175.1% in order to reach the heights it attained before the dotcom bubble burst. While these numbers are troubling, they speak volumes about percentages and compounding. The sad fact is that it takes a 100% gain to recover a 50% loss, or put another way: if you start with 100 dollars, and lose 50%, you have 50 dollars. It will take a 100% gain to return the 50 dollars to the original 100 dollars. Isn’t math just so unfair!

The point here is not to make you feel despondent, but rather to help keep things in perspective. Yes, this was a great quarter and perhaps this recession could be over or at least in its final stages, but there are a great deal of challenges ahead of us. After having witnessed the near implosion of the world’s financial system, the creative destruction of the auto industry in the US, and a tanking of the stock market to levels not seen since the mid 1990’s, looking for positive signs makes sense. If you’ve been investing through all of this turmoil, it is like you had the opportunity to go back to 1997 and put in new money. These gains are real and will continue to positively impact your portfolio going forward.

REFERRALS AND THE MERGER OF TFA & ISI

Has the advisor of any of your friends or relatives left the business, or have any of your other investment representatives been absent during the recent market turmoil?

Do you feel as if your representative only wants to talk to you when all is well with the world? I am here to talk to you about the state of the market, the performance of your investment portfolio, and your retirement plans, regardless of what the market is doing.

With the merger of Transamerica and Intersecurities, I look forward to continuing to provide you with quality investment products and individualized service.

Please feel free to refer any of your friends or relatives who may looking for a new advisor to me. Thank you!

ECONOMIC OUTLOOK

As I mentioned on the preceding page, there is some evidence, as well as historical precedent to indicate the recession may be over or in the fourth quarter, to use a sports analogy. As I noted in previous newsletters, the two longest recessions, since the Great Depression, were the recessions of 1973-75 & 1981-82. Each of those recessions lasted 16 months. March of 2009 was the 16th month of the current recession. As I’ve mentioned before, there are always numerous opinions on these matters, but it is more than likely no coincidence the markets, which are leading indicators, began recovering in March.

While I’d like to believe this is not a head fake, but rather a real recovery, I’ve read enough opinions by numerous bears to remain reticent. This doesn’t mean not being invested, but rather it means cautious, disciplined investing. With the government running GM, TARP funds in the financial sector, Korea and Iran defiantly rebuking Obama’s olive branch, Congress salivating over health care and over a trillion dollars of stimulus in the system, a lot could go wrong. Inflation is one evil that comes to mind.

Obama says he doesn’t want to run GM or the health care system. The specter of public housing conjures up horrendous images of what public health care would look like.

PRIVACY POLICY, MERGER UPDATE & INSURANCE

PRIVACY POLICY

At Jersey Benefits Advisors and Jersey Benefits Group, Inc. protecting your privacy is very important to us. We want you to understand what information we collect and how we use it. We collect and use information from you on applications and other forms as well as information about financial transactions with us and from non-affiliated third parties. This “nonpublic personal information” is obtained in connection with providing a financial product or service to you.

We do not disclose any nonpublic personal information about you without your express consent, except as permitted by law. We may disclose the nonpublic personal information we collect to persons or companies that perform services on our behalf.
We restrict access to your nonpublic personal information and only allow disclosures to persons and companies as permitted by law to assist in providing products or services to you.

We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information at all times.

MORE ON THE MERGER

Transamerica Financial Advisors, Inc. is excited to share some important news with you. Pending final regulatory approval, Transamerica Financial Advisors will merge its operations with St. Petersburg, Florida based InterSecurities, Inc., an affiliated firm that has been offering financial services for almost 25 years. We anticipate the merger will take effect in September 2009. As part of the merger, the resulting entity will retain the Transamerica Financial Advisors, Inc name and continue to be a full service, independent broker-dealer and registered investment advisor. Most importantly, the relationship you have with your registered representative or investment advisory representative WILL NOT change.

INSURANCE SERVICES

Have you reviewed your insurance policies lately. Whether it comes to insurance on your life, health or investments, the need for insurance is something that should not be overlooked. Changes in status, such as a marriage or the birth of a child are times when insurance levels may need to be adjusted. Also, during times of peak earnings and peak responsibilities, a look at the protection you are providing to your family, in the event of an untimely death, is an unpleasant, but necessary task. Just as the insurance on retirement income, provided by annuities as part of an investment strategy paid off during this downturn, planning with life insurance helps your family when an unanticipated death occurs.

John H. Kaighn

Jersey Benefits Group, Inc.

NBER Makes It Official: Recession Started in December 2007

As I mentioned in the 3rd Quarter newsletter at some point in the future, the National Bureau of Economic Research would determine the economic situation we are experiencing to be a recession. Well, that time has come. Official recession watchers at the NBER said today that the U.S. economy is in recession, and it began in December 2007. Here is the text of their statement.

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Read their full statement here.

Now the task at hand is for investors to ascertain the depth and length of this downturn. Since the stock market is a leading indicator of the economic cycle, once it can be determined that the economy is healing and poised for recovery, stocks will begin their next advance. While a recovery is something we are all hopeful will be occurring sooner than later, it is my opinion there will be some false starts before the next bull market begins in earnest.

John Kaighn

Jersey Benefits Advisors

The Kaighn Report

Correction or Bear Market; Recession or Slowdown?

One of the worst January performances for the stock market is behind us and many investors are wondering just where we stand as we begin February. Are we just experiencing another correction, or are we in the throes of a full fledged bear market? While dipping close to bear levels for an hour on the Tuesday following the Martin Luther King holiday, the market has rebounded well off of those levels recently, despite much weaker than expected employment numbers. With the media and presidential candidates tossing the word recession around like a hot potato, Congress and the President brandishing a $150 billion stimulus plan and the Federal Reserve Chief slashing interest rates like a Samurai, is it any wonder main street investors are wondering what will happen next?

In a speech last week, Hillary Clinton sounded the alarm about the "second Bush recession". The media gave her a complete pass on the statement, because if my memory serves me correctly, The National Bureau of Economic Research confirmed the last recession began in the first quarter of 2001, so it is quite difficult to blame that recession on the current occupant of the White House. Furthermore, there is no confirmation of a recession at this juncture, and many economists believe the current fiscal stimulus being contemplated may well overstimulate an economy that could recover on its own from the current slowdown. So, what is the real deal?

The economy's anemic .6% growth rate for the fourth quarter does indicate a recession is a distinct possibility. A jobs number showing the economy shed 15,000 jobs also is cause for concern. With the credit crunch and housing debacle still raging, it is prudent for policymakers to manage the risk of recession proactively. However, the economic team at JP Morgan Chase recently stated that the current spate of economic stimulus being contemplated is like "risk management on steroids". Ed Yardeni, who heads his own research firm, said it succinctly in a letter to his clients when he noted, "I don't recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession". None of the plans being developed will have any impact on the economy in the current quarter or the second. All of the pump priming effects will be felt in the second half of the year.

If all of the doom and gloom predictions of recession turn out to be overblown, and the economy limps along with slow growth through the first half of the year, things just might improve on their own. When all of the monetary and fiscal stimulus kicks in during the second half of the year, the economy could heat up more than anticipated. The Fed could find themselves in the situation of having to raise interest rates to battle reignited inflation.

As I stated in an earlier blog, closing values of 1,252.12 in the S&P 500 and 11,331.62 in the DJIA would indicate a 20% decline for those two indices from their highs in October 2007. Until those levels are reached, we are officially only in a correction. Recessions and bear markets usually occur when most people are unaware of the possibility of their occurance. Perhaps a contrarian position might be the most prudent view to take at the present time.

John Kaighn

Jersey Benefits Advisors

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How Much Was That Partridge?

As we began the week the Dow Jones Industrial Average was still up 7.03% for the year, while the NASDAQ was holding onto a 9.13% gain and the S&P 500 managed to hang on to a 3.5% year to date gain, but concerns about flaggng growth and rising prices extended last week's losses into the final week of trading before the Christmas Holiday. The Dow Jones Industrial Average fell 172.65 points on Monday and all the major indexes lost at least one percent. A speech Sunday night by former Fed Chairman Alan Greenspan added to the market's ill humor. Greenspan said "stagflation", when inflation accelerates and the economy weakens, is a growing possibility, given last week's data showing spiking consumer prices. With inflation on the rise, the Fed, which has reduced the target federal funds rate three times since the summer, might feel less inclined to lower rates again.

Meanwhile, PNC Wealth Management released its tongue in cheek Christmas Price Index based on the items in the song "The 12 Days of Christmas". According to PNC, the total cost of the items in the song is now $19,507.00, which takes into account the 3.5% increase in the Consumer Price Index so far this year. The $395 cost of 5 gold rings reflects the 21.5% increase in the price of gold over 2006. Even though the Fed primarily looks at core inflation, which excludes food and energy price increases, the overall CPI rate of 3.5% is well above their target level of a 1% to 2% rate of inflation.

The market reacted to the Feds 25 basis points cut in interest rates with a thud last week, mainly because traders wanted a 1/2 point cut. It seems like the traders might have missed the bigger point, because historically, the third in a series of rate cuts by the Fed is a charm for the market. In the year after three successive rate reductions by the Fed, the DJIA has gained an average 18%. This has happened 14 times since 1921, according to Ned Davis Research. Stocks have risen with striking consistency after three rate cuts, except in 1930, at the onset of the Great Depression, when the Dow fell nearly 40% that year. Let's hope history is on our side in 2008!

There has recently been a great deal of talk about the possibility of a recession, characterized by two or more successive quarters of negative GDP growth. According to an article in Monday's Wall Street Journal, most economists they have polled put the risk of recession at around 38%, while John Lonski, chief economist at Moody's says, "The odds of a recession right now are just under 50-50." Gary Pollack a Managing Director at Deutsche Bank Private Wealth Management says," The economy will skip a recession because the decline in housing will be offset by increases in exports and government spending." As you can see from the various opinions it is almost impossible to know when or if the economy will slip into recession. Recessions are generally confirmed after the fact, so the best thing investors can do is be aware of the possibility of recession and understand the implications for their investments. Markets usually decline during recessions and assets can be bought at lower prices. If you don't NEED to sell anything during a market downturn, think about adding to your investments.

Overall, the comparison of earnings in the coming year to earnings in 2007 could surprise on the upside, because they will be compared to weaker numbers from the preceding year. Whether we can avoid a recession and have another soft landing, similar to the first quarter of 2007 remains to be seen. As a student of history, I like the odds of a market gain for 2008 in the context of three Fed rate reductions, especially when the mainstream media has begun to talk about the possibility of recession. Enjoy the Holidays and let's hope the markets can stabilize and add to the meager gains for the year.

John Kaighn

Jersey Benefits Advisors

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Investors Waiting on the Fed

All eyes are on the Federal Reserve as investors await the Federal Open Market Committee meeting next week. Many investors are anticipating a decrease in the Federal Funds Rate, which has been on hold at 5.25% for over a year now. With crude oil closing above $80.00 a barrel, a slowing economy, weak job creation, subprime mortgage woes and a credit crunch, the Fed has been analyzing much data in order to make it's decision on interest rates. The stock market has been experiencing a great deal of volatility recently, as investors try to determine whether the next major move is going to be positive or negative.

Investors, who have been nervous about the impact of sinking housing and credit markets on the economy, were relieved to hear Countrywide secured $12 billion in credit. The additional financing alleviated concerns the nation's largest mortgage lender might collapse because of spiking defaults. The news from Countrywide boosted investor sentiment, as this makes it appear the credit crunch may not be quite as bad as some people had anticipted.

Economic news lifted investor sentiment as well. The Labor Department reported claims for unemployment benefits rose by 4,000 last week to 319,000 which is the sixth increase in seven weeks, but less than the 325,000 claims analysts expected. Low unemployment, at 4.6%, has been one of the economy's strengths. The rise in jobless claims follows last week's reading on August payrolls, which declined for the first time in four years and sent stocks plummeting amid worries that credit tightness and market turmoil had hit the labor market. However, Thursday's report appeared to assuage some concerns.

"Whereas U.S. growth may be dented and it may skate near or into a recession it's not going to have a major impact on world growth," said John Merrill, chief investment officer of Tanglewood Capital Management in Houston. He said investors are gravitating toward larger capitalization stocks because of stock specific news from GM and McDonald's, but also because of the health of overseas economies where big companies do much of their business. At this juncture, with the word recession creeping back into the vocabulary, investors appetite for risk has abated and there is a flight to quality, which favors larger diversified stocks.

John Kaighn

Jersey Benefits Advisors

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Happy Memorial Day

The summer months, which usually are considered the doldrums by those in the investment community, could provide some interesting outcomes as we head into the Memorial Day weekend and what many see as the onset of the summer season. This is also the start of the summer driving season, and gasoline is already hovering around $3.00 a gallon. As hurricane season also begins to heat up, I hope there are no direct hits on the oil infrastructure, or the possiblity of $4.00 a gallon gasoline I've read about could become a reality. Meanwhile, the Dow Jones Industrial Average continues to set record after record, and now the S&P 500 is is less than 5 points away from its all time record of 1,527.46 set in 2000. If the Federal Reserve holds interest rates steady at the FOMC meeting in June, they will have held rates steady for a year, something the Fed does not do often. The Fed has held its target for short-term rates at 5.25% since June 2006, after raising it steadily for two years to tame inflation. Banks use the rate as a benchmark for pricing consumer and business loans. These issues could be setting the stage for a very interesting second half of 2007.

For well over a year now, I've been writing about the dual concerns of a slowing economy and inflation. Fed policy has been concerned with remaining hawkish on inflation, while some economists, investors and journalists expected rate cuts as early as September 2006. The midcycle slowdown economists predicted seems to be exactly what has happened, with the bottom being symbolized by April's paltry retail sales figures. While many thought the housing slump would drag the economy into a recession, it seems the builders and subprime borrowers are the ones bearing the brunt of the pain. Most homeowners remain solvent and able to meet mortgage expenses. As long as the employment numbers continue to hold steady, consumers should be able to continue to meet obligations and make discretionary purchases.

Where the economy goes from here no one can predict with certainty, but there are reasonable hypotheses one can make based on the data. This economic cycle is in the mature phase of the current expansion and the mid cycle slowdown was like a breather, before growth picks up again. Expansions don't last forever, so at some point in the future we will have a recession again. With that said, it looks as if the second half of 2007 will be a time when growth reignites and inflation will continue to be the number one concern of the Fed. With the productivity of workers declining, and the pool of skilled workers drained, labor will begin to demand higher wages. Usually, when the economy slows down unemployment ticks upward, but that hasn't happened during the first two quarters this year. Some economists think this is because the slowdown in housing hasn't worked its way down to the employment figures. Others think there is a possibility the economy is actually growing faster than the GDP numbers indicate. As we head into the Memorial Day weekend, one thing is certain, gas is going to cost you about $3.00 a gallon. As far as interest rates are concerned, the jury is still out. Will the Fed raise, cut or hold? Will the S&P 500 EVER break 1,527.46? Time will tell. Enjoy the holiday!

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