2008: A Year to Forget...or to Remember

The fourth quarter of 2008 witnessed the most dramatic loss in equity investment values in any quarter in history. While much lower volatility and a respectable price recovery seems to have begun in December, October and November returns were so weak that, combined with September’s significant losses, the year as a whole produced the worst annual performance in the many decades since the era of the Great Depression in the early 1930s.

For what consolation it may offer, to have suffered through this current era of dramatic loss will very likely mark a “once in a long life-time event.” And, to have survived will likely steel one’s endurance for lesser future threats…or permanently re-adjust one’s actual tolerance for risk. In any event, it seems unlikely to us that you, or even your children, or, perhaps, even your living grandchildren will ever have to face a greater threat to investment values than what you’ve just experienced.

Monetary and Fiscal Stimulus

While the Treasury Department’s spending on relief to financial institutions has so far had disappointing results and the Federal Reserve has virtually exhausted its conventional interest rate stimulus tools, recent performance from the late November market troughs seems to us a harbinger of a convincing investment market recovery ahead. As Jason Thomas explores in an article below, investment markets tend to recover in advance of a rebound in the underlying economy. The new administration’s expected efforts to enact a substantial fiscal stimulus (tax cuts and spending increases) package may add an effective catalyst to the very low interest rate and high liquidity environment already in place. So, while current employment statistics and corporate earnings reports are likely to get worse before they get better, we do expect that they will get better before this year comes to an end and that a solid recovery in investment values will by then already be underway.

A Time for Action

For many of our clients, the appropriate portfolio stance at this point will be to persevere in their willingness to accept investment risk and even welcome opportunities to profit from the current environment to accelerate the eventual recovery from the severe losses in value during 2008. We will be discussing modest changes to our capital markets expectations over the coming months and some clients will want to use this juncture to re-evaluate their appetite for portfolio returns and tolerance for risk. We look forward to assisting those clients formulate new strategies that move in either direction on the risk/return spectrum, but still fulfill the achievement of their goals.

But, separate from those enduring portfolio strategy decisions, there is now a unique opportunity for clients with substantial family gift objectives to make the most of the current situation. As Clay Stevens points out in the article to follow, very low interest rates, depressed market values, and threatened tax legislation combine to make this an especially opportune time to engage in family wealth transfers. We stand ready to promptly help you evaluate this opportunity for your circumstances and to facilitate creating and funding the appropriate structures while the timing is still opportune.

With our best wishes for a very happy, healthy, and prosperous new year,

Tim Kochis, CEO
Editor

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