January, 2010
By Darren Nyce, CFA
Senior Research Analyst, Castle Investment Advisors®, LLC

The United States economy and other economies around the world have been traveling on an extremely bumpy road for the last 24 months. Though not as severe as 2008, 2009 certainly saw its share of significant headlines:

  • Substantial Recession
  • Inauguration of President Obama
  • Government Stimulus Package
  • Automakers file bankruptcy
  • Madoff and other corruption
  • 10% Unemployment
  • Dollar Weakens

A big part of the problem surrounding this recession was everyone living on too much credit. Too much credit was available for housing projects and commercial developments. Too much credit was available for purchasing cars and using credit cards. Individuals and corporations increased their credit by large amounts and as we all know government agency’s both here and abroad also increased their usage of credit tremendously. For the last 18 months we have been transitioning from high leverage to lower leverage and that process will continue for most of 2010 and 2011.

The good news is that families are working hard to pay off loans and credit cards and to increase their savings. Developers have become much more cautious about building more projects until they know that they have plenty of tenants to move in.

In 2008, conservative investment portfolios went down, but aggressive portfolios went down even further. During the last quarter of 2008 we watched not only stocks go down in value but bonds, real estate, and lots of other traditional asset classes. After about 6 months of turmoil bond prices improved, the stock market started coming back, but real estate values are still having a tough time.

Going forward, we must consider all the possibilities which may affect our clients’ net worth. Wealth management firms, like Castle Investment Advisors® must be prepared to make changes in our clients’ portfolios in case we have deflation this year or perhaps inflation next year. If the dollar continues to decrease in value we must be able to help our clients purchase assets that will help protect their overall net worth.

In the world wide economy that we have today we must seek out good opportunities and values whether it be in the U.S. or in some of the stronger developing countries, and even in emerging markets.

When we meet with our clients our portfolio review will be more detailed because there are more concerns which we will address.

Here in the U.S. interest rates are currently low but they will likely start going up later this year. Unemployment is at approximately 10% and it is going to be very slow to come back down. The American consumer is the driving force behind our economy and our stock market. The consumer is going to have to get stronger and feel better about spending money before the economy will be able to completely regain its footing. We still think that working consumers are going to be very careful throughout 2010 with so many facing uncertain job situations. If they do not have a job then they are obviously going to remain very conservative in whatever way they spend their money.

As we move through 2010, we believe that high quality bonds paying a competitive interest rate and high quality stocks that pay dividends will be important assets in everyone’s portfolio. Because of these tough economic times we also must look at currencies, bonds from other countries, and commodities that provide protection from inflation, and economic uncertainty.

We do not know what kinds of laws are going to be passed in congress this year, but every consumer and every closely held business owner is very concerned about additional costs for running a business, higher income taxes both federal and state, and more large stimulus packages that might be passed which will continue to increase our overall debt and affect our economy. In making investment decisions we have all of these concerns in the back of our minds and helping each client design a “new 2010 investment allocation strategy” that protects them will be very important.

Our meetings may be a little longer this year because there is a lot to talk about.

We cannot stick with the same old traditional investment concepts because as our economy changes, our tax laws change, and as other countries become more competitive with us we must make changes in our wealth management decisions for your family to fit what is happening around us.

We will continue to send out our newsletters and we will talk about one or two ideas in each newsletter. If there is something special that you really want to hear about please let us know.

The Castle Investment Advisors®, LLC Investment Team

Tax, legal, and estate planning advice contained in this article is general in nature. Always consult an attorney or tax professional regarding your specific legal or tax situation.
This article was prepared for informational purposes only and does not constitute an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information regarding products and services. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. 
Any strategy discussed herein may not be suitable for all investors. Before implementing any strategy, investors should confer with their financial advisor. No current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels.