Permanent Value Inc. - Registered Investment Advisor

President’s Message

SPRINGTIME IS ELECTION TIME …

As in any Presidential election year, politics dominate the headlines and especially which nominee will eventually face the President in November. As of the second week of April, the top two Republican candidates have been narrowed down to one and it is becoming clear who America’s choices will be in November. The main question that voters have been asking themselves is “am I better off economically than I was four years ago?” The second question is “what has this Administration and Congress done to improve the economy?” The third question would be “is there someone out there who can do a better job?” While these questions garner all the headlines, we believe it is each individual’s responsibility, along with the advice of their financial advisor, to improve their economic position regardless of who is in the White House, what party controls Congress, or what the economy is doing.

So what can be done now to improve our personal economic situation based on the opportunities that are available? We know that interest rates are at a historical low and real estate prices are down significantly over the past five years. We know that US companies are profitable yet not enough to be hiring at a rate that would lower the unemployment rate more than marginally. We know the government is deeply in debt and the debt has almost tripled in the past ten years. Thus, we know that the government will do everything possible to keeps rates low in order to avoid overwhelming interest rates on the debt. So how do these facts help us?

UPDATE REAL ESTATE…

Refinancing your current real estate and looking to add it should be one of your highest financial priorities. All the factors mentioned above, from low interest rates, inventories, and prices to increasing rents and population lead to this conclusion. Where to start is sometimes a tough question since most people buy based on where they want to live or the aesthetics of the house rather than the numbers of how it will significantly increase their financial position. This is where we as your advisor come in because we can take an objective look at your current situation and see how your current and future real estate holdings fit into your goals and lifestyle. We will be contacting you and by applying this philosophy we hope to accelerate the timeframe by which you will reach your goals. Factors such as current cash holdings, mortgage/s held and future income needs will all be evaluated to determine how suitable an accelerated real estate asset strategy is for you. Even Warren Buffett recently said in an interview on CNBC that he would buy “millions” of single family homes if it was logistically feasible for him to do so. This being said, it is certainly possible for a small investor to buy a few investment properties to achieve early financial independence if shown how and when the long-term conditions and prices are right.

We hope you and your families all had a very Happy Easter and Passover and look forward to seeing and talking to you as we review your 2012 budgets and plans ahead for the year.

Planning Perspective

IRA Beneficiaries

A beneficiary form for an IRA sounds pretty straight forward.  You fill out the application, write down your beneficiaries and you are done, right?  Wrong.   Mistakes on beneficiary forms are one of the least understood and least paid attention to areas of financial planning. Yet, they can be very costly if mistakes are made or the custodial provisions in the contract are not understood.  Last month we talked about how to stretch an IRA into a Multi-Generational IRA and the benefits of doing so.   This month we wanted to dive into the details of whether a Multi-Generational IRA is right for you.

Two questions you want to consider are:

1. Do you have a substantial retirement account that you want to leave to your children or even grandchildren?
2. Do you want to mitigate or even eliminate taxes on your IRA or 401k?

If the answers to either one of these are yes, please fill out a beneficiary review checklist if you haven’t done so already (call our office if you haven’t received one) and send it back to us so we can see if a Multi-Generational IRA is an appropriate next step for you.

Year in Review

The Year in Review

“Much Ado About Nothing” is one of Shakespeare’s famous comedies and, surprisingly, the title succinctly summarizes the U.S. stock market in 2011.

There was “much ado” during 2011 as we experienced one of the most volatile years on record. For example, regarding the S&P 500 index stocks, Bloomberg said, “Individual stocks were more volatile than in 2009 and 2010, with 55 losing more than 30 percent this year compared with a total of 13 in the prior two.”

On top of that, “Stocks swung at a daily rate of twice the 50-year average after the S&P 500 reached a three-year high in April.” After hitting that high in April, the S&P 500 then plunged 19 percent over the next five months. Continuing the whiplash, the market staged a remarkable comeback and that’s where the “about nothing” comes in to play.

By the time the final trades were placed on December 30, the S&P 500 ended the year exactly where it started – and we mean exactly! It started the year at 1,257.6 and it ended the year at 1,257.6. Yet, during that time, it moved up or down a total of 3,240 points when you sum the absolute daily changes on a closing basis, according to The Chart Store via Ritholtz.com. So, after all the volatility, after all the worrying, the market ended the year right where it began. Whew!

Despite the year ending in a push, here are 10 newsworthy items that hit the headlines.

1. Europe reached crisis mode. Several European countries experienced severe budget problems including Greece and Italy while the dithering of European politicians kept markets on edge. The three main causes of the crisis were 1) excessive government spending leading to 2) excessive government debt coupled with 3) slow economic growth.
Source: Anthony Sanders, Professor of Real Estate Finance at George Mason University, December 15, 2011

2. Interest rates continued to fall. The 10-year Treasury ended the year yielding below 2 percent and the 30-year yielded below 3 percent. On a total return basis, the 30-year Treasury jumped 35 percent in 2011, which is higher than every stock in the Dow Jones Industrial Average!
Sources: The Wall Street Journal; Barron’s

3. The Middle East rose in protest. Mass protests swept the Middle East, governments were overthrown, and the political landscape was dramatically reshaped. The reverberations will last for years.
Source: The Economist

4. Apple and Steve Jobs were everywhere. Apple was 90 days away from bankruptcy in the late 1990s, but through the magic of Steve Jobs, the company briefly became the world’s most valuable company in 2011 – surpassing Exxon! The iPhone was the #1 most searched term on Yahoo! for the year. And, yes, Steve Jobs passed away from cancer at the much too young age of 56.
Sources: Bloomberg; Yahoo! News

5. Japan was rocked with a massive earthquake and tsunami. The devastating power of Mother Nature claimed more than 15,000 lives, shocked financial markets, and disrupted business around the world. The pain and scars of this tragedy will remain for many years.
Source: Bloomberg

6. The U.S. credit rating got “dinged.” In August, Standard & Poor’s downgraded the AAA credit rating of the United States due to political bickering and unsustainable budget deficits. The stock market promptly fell yet, surprisingly, interest rates ended the year at extremely low levels.
Source: Bloomberg

7. Gold kept its luster. Despite weakness at the end of the year, gold prices finished the year in positive territory for the 11th consecutive year. In times of uncertainty, investors have shown a preference for the yellow metal.
Source: The Economic Times

8. Foreign stock markets took it on the chin. Unchanged in the U.S. looks good compared to China, which fell 22 percent; Hong Kong, down 20 percent; Brazil, down 18 percent; Germany, down 14.7 percent; and Britain, down 5.6 percent. There’s no place like home!
Sources: Associated Press via Yahoo! News; Bloomberg

9. Burgers and banks were bookends. The best performing stock in the Dow Jones Industrial Average in 2011 was McDonald’s, which rose 31 percent. At the other extreme, Bank of America was the worst performer dropping 58 percent. Looks like a lot of people ordered an extra fry with that Big Mac.
Source: Associated Press via Yahoo! News
  
10. “Planking” became a worldwide phenomenon. Traced back to a 20-something Australian, planking involves lying face down on the ground with your arms at your side. The “trick” is to do it in unusual places or atop peculiar objects. The unrelated “fitness” version of planking also made headlines in 2011 when a 71-year-old Wisconsinite named Betty Lou Sweeney set a new Guinness World Record by holding an abdominal plank for an incredible 36 minutes and 58 seconds. What’s even more incredible is in 2009 she was “severely overweight and nearly died from complications from an infection that went septic and shut down her kidneys.” Two years later and 100 pounds lighter, she set the world record. Yes, there’s hope for all of us!
Source: Yahoo! News

Returns

Notes: * This newsletter was prepared by Peak Advisor Alliance. * The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. * The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. * The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998. * The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.* Past performance does not guarantee future results.* You cannot invest directly in an index.* Consult your financial professional before making any investment decision.

Weekly Focus – Think About It

“The bad news is time flies. The good news is you’re the pilot.”
–Michael Altshuler, speaker, entrepreneur