Weakness continued to be shown throughout the week last week as two of the three major broad market averages closed lower for the second week in a row, the first time we have seen back to back down weeks since the bear market rally started back in early March. The one major average which bucked the trend was the NASDAQ which managed to pull out a meager increase for the week thanks to a three day week ending rally of more than four percent. The broad indexes continue to trade in a fairly narrow trading range which was entered into at the beginning of May. Most of the stall in the rally can be attributed to uncertainty as to what the US consumer is going to make of the current situation and if they are going to buy into the scenario of the government being the white knight which saves the day. It seems that there is about an even balance between events and announcements that should be inherently good for the markets when compared to those which should have an adverse effect on it, thus leading to the daily sideways wondering we have been experiencing. One interesting thing of note in these markets is the lack of any real volume which is currently participating in market movements. There is typically a lull in trading volume as summer kicks off and many money managers take some time off, but this year the volume seems to be abnormally low of this time of year. When experiencing low volume there is an even more pronounced “herd” mentality every time something is released either positive or negative, thus leading to wide daily trading ranges. The VIX Index over the course of the low volume week last week decreased by almost 6 percent and is now safely into the upper level of the trading range seen prior to the market falling apart at the end of last year, meaning that the large daily movements in the market may be behind us and more normalized trading days could be to come.

On the international investment front one area of the world which has recently seen very nice returns could be in for a pretty choppy ride. With the military coup that took place on Sunday in Honduras the overall stability of the region could be in jeopardy especially with Venezuela, saber rattling about military action in the region. We are watching Latin America very closely to see if there is going to be an investment opportunity in the future of which we can take advantage. During the week last week the IMF was busy making many statements about a variety of countries as to the outlook which they expect for the rest of this year and 2010. Australia was one country which the IMF sees as performing better than expected when they released their last report in April, with revised expectations for GDP to be a negative .5 percent for 2009 when compared to the previously thought negative 1.4 percent. France also fell on the good graces of the IMF with the announcement that they think an economic recovery will begin to take place during early 2010. Both of the above mentioned countries are of particular interested to us as having a strong investment possibility because we could both benefit from an economic recovery in the counties as well as the probable continued decline in the US dollar. Weakness in the US dollar is still a theme which we see playing out for the remainder of the year and into 2010, in large part because of the amount of dollars which the US government has flooded the system with during their economic stimulus activity. The announcement last week by the Fed saying that they would not currently be growing their program under which the government can buy US treasuries, seems to have temporarily lessened the downward pressure which is on the US dollar, but in the long run there is still too many dollars in the system to keep both the currency and inflation rate where they are.

For the trading week ending 6/26/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-0.20 %	3.13 %
Aggressive Model	0.19 %	3.14 %
Growth Model	-0.10 %	2.87 %
Moderate Model	-0.33 %	0.95 %
Stable Model	-0.11 %	2.72 %

We currently remain in a very defensive position holding large positions in cash and or hedging positions to offset some of the market exposure which is currently in our models. We did make a move into one sector which we have been following for quite some time, that being pharmaceuticals (PHPIX). We used an indexed style mutual fund because it gives us the ability to trade back out without penalty should the sector move against us and we want to be out of the position. We continue to look at various sectors of the market for any signs of strength, but can find very few investments that do not look like the rally since the beginning of March has stalled out. Many of the recent industry and sector leaders are now lagging behind the broad indexes which is either a sign of new leadership in the rally or a rally that has run its course.

Economic Wrap Up: Last week the most anticipated and watched economic news release was the fed’s decision to keep interest rates in the current range. With this decision being what most people working on Wall Street thought was going to happen it was a relatively non market moving announcement. One announcement last week which was market moving was the durable goods orders for the month of May which was released on Wednesday the 24^th to show an increase in orders by 1.8 percent. The increase of 1.8 percent was significantly over market expectations, the market was looking for a decline of .9 percent, and is seen by some as a possible signal that manufacturing is going to begin to pick up in the US during the second half of 2009. The final GDP figures for the first quarter of 2009 were also released last week and came in slightly better than expected at negative 5.5 percent compared to the expected negative 5.7 percent. Wrapping up the week on Friday the 26^th Personal Income was shown to have risen by 1.4 percent during the month of May while the consensus on the street was for an increase of .3 percent, Personal Spending however did not come in better than expected. With income coming in better than expected and spending coming in as expected it lends one to wonder about if the confident US consumer that has their income rising really believes that things are going to be turning around for the better. If this was actually the thought then one would think that spending would also be increasing, which is something that we have not seen so far during this market rally.

This shortened trading week has a full weeks of economic news released packed in starting with consumer confidence and the home price indexes being released on Tuesday. As I have stated before the consumer confidence figures have little meaning if there is not a corresponding move in the consumer spending figures. Consumers can be as confident as they have ever been but if they are not spending any money the economic system is not going to work as it has in the past. On July 1^st construction spending (May), pending home sales (May) and automotive sales (June) are all released. The construction spending and pending home sales figures could clean a little insight in the housing sector which will probably show that it is in fact bottoming out, while the automotive sales figures will probably show that more people have purchased cars than expected in part due to all of the gimmicks that dealerships are currently running. Thursday, the last trading day of the week, holds what could be the largest of the economic news releases this week with the unemployment rate for the month of June being released. Expectations are for the rate to be 9.6 percent up from the previous reading of 9.4 percent. If the rate is shown to be over the psychological 10 percent barrier it could have very adverse effects on the overall markets, on the other hand if the rate comes in better than expected it could add fuel to the rally which for the moment appears to have stalled.

Last week, the likelihood of the broad markets rising, and ultimately extending the bear market rally, diminished.   All of the broad indexes closed lower for the week – the first showing of moderate weakness in many weeks. Looking at the markets, it currently looks like there is substantial downward risk coming into play because many of the economic points investors have recently been speaking about – signaling a bull market rally – have shown weakness. The sector of the market hit the hardest during the course of the previous week was the commodity and natural resources sector. The sector moved lower partly due to the surprise strengthening of the US dollar and partly because it is more probable that the economic recovery is going to be slower than initially anticipated. Not even gold was spared from last week’s downturn; this was somewhat surprising because, typically, when the market turns downward gold is one of the first things that moves up due to its perceived safety. Gold may have recently been driven up as a result of over speculation regarding what China is or is not purchasing and the overall worldwide demand for gold. Gold needs to see a pull-back from its speculative peak, which occurred near $1,000 per ounce. One good item to note about the decline last week was that it occurred with extremely low volume, with most of the large institutional money managers apparently waiting on the sidelines. The only day with above average volume was Friday, which correlated to quadruple witching in the options market, a day which typically sees volume spike upwards as options contracts come due and new ones are created.

Overall leadership of the markets appears to either have changed or be in the process of changing, with commodities and natural resources in the recent rally falling from the top spots and sectors such as health care, biotechnologies and pharmaceuticals rising. I am actively watching these emerging sectors for the right moment to make an investment and will move when the situation warrants.  One item I am watching very closely is the VIX indicator of  overall market volatility, which spiked upward during the first two trading days of last week and settled back down toward the end of the week. The move, which occurred at the beginning of the week, was quite significant (up 16 percent) and at the same time broke the downward trend it had been in since March of 2009. The VIX settled back down during the last three trading days of the week. Typically, once a downward trend has been broken, clusters of spikes soon follow. Hopefully, the VIX does not rise to such lofty levels as were seen last year as the market deteriorated, but it is a possibility.

On the political front last week, President Obama’s administration set out the basic guidelines for the financial industry regulation reform they will be seeking from congress. Most of the reform will have very little impact on the everyday consumer and is aimed at the large financial institutions to try to avoid a recurrence of our current economic situation. The tricky part of the new legislation will be establishing the correct amount of oversight without causing an undue burden to the industry as a whole. The vast majority of financial institutions had very little to do with the current economic situation, doing exactly what they should have been doing, while a few outlier firms caused the majority of the mess. Also on the political front, there has been little news regarding the possibility of Bernanke and Paulson having to testify under oath on Capitol Hill about the Merrill Lynch Bank of America sale. While the public should know the truth about what happened during the sale, it really does not have any effect on where things are now and what is being done about them. Even if Bank of America was pressured into closing the deal, was it really any more pressure than the government used when they forced banks to take TARP money?

For the trading week ending 6/19/09, the returns in FSI’s portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-2.59 %	3.34 %
Aggressive Model	-5.62 %	2.94 %
Growth Model	-3.66 %	2.97 %
Moderate Model	-1.84 %	1.29 %
Stable Model	-2.82 %	2.84 %

Over the course of the week, as mentioned above, I was very actively moving out of investments with a lot of inherent market risk and moving toward the safety of the sidelines. The sold list is quite extensive and includes Direxion funds Latin America (DXZLX) and Emerging Markets (DXELX), Profunds China (UGPIX), Rydex Financial (RYFIX), Natural Resources (EWC, DNLAX, PGNAX) and half of the position in Direxion Funds Small Cap Bull Fund (DXRLX). These sales were made because of the way natural resources have recently been behaving; I rode them up very nicely, but felt that the downside risk was growing greater by the day and that it was time to take some profits and see if the natural resources return to a comfortable level, where it makes sense to buy in again. With the end of the trading week behind us, it looks like our move-out earlier in the week was very timely as commodities and natural resources have continued to decline. I am also actively watching my other holdings for any signs of true weakness and will make decisions on an individual holding basis as to whether I need to sell or hedge the positions with inverse funds. The bottom line is that I have moved toward safety in order to preserve wealth and will be actively looking for investments with a strong potential upside and a relatively low downside risk.

Economic Wrap Up: Last week, the economic news released had little direct impact on the overall market, but the combination of economic news and factors led investors to believe that the rally may in fact fail to materialize. Both the Producer Price Index (PPI) and the Consumer Price Index (CPI) releases last week showed that there is virtually no sign of inflation taking hold on the US economy. This lack of implied inflation is very good for the Federal Reserve, and I am sure they breathed a little sign of relief at the news, since they can now continue working on the issues at hand without the added wildcard of inflation being a problem, at least for now. Initial jobless claims came in a little higher than expect at 608,000 while the market had been expecting 604,000, but the difference was so small in the grand scheme of things that there was little adverse effect on the market. One figure released last week continued to indicate that the housing market could possibly bottom out. The housing starts figure of the month of May was released last Tuesday to show that there were 532,000 starts during the month; the release was almost a full ten percent above market expectations and in line with more optimistic expectations which continue to show a bottoming in the US housing market.

This week, there will be a few very key economic news releases scheduled – the most important being the Fed’s decision on interest rates, which is set to be released during the middle of the trading day on Wednesday. Most market participants expect the Fed to leave the rate alone, especially since data released last week showed that there was little cause for alarm from inflation. Critics of the Fed are calling for rates to be increased so that the money supply is tightened up a little, which should in turn help minimize the angst about inflation in the future. Another release that could have a meaningful impact on the market is the final GDP figure for the first quarter of 2009, which will be released on Thursday. The consensus is that the previously released negative 5.7 percent will stand unchanged; any deviations from this value could result in large movements of the broad markets. The final economic releases for the week are occurring on Friday and include both personal income and spending. These two figures will provide some insight into the mind of the US consumer and it will be interesting to see if spending has gone up with the previous increase in consumer confidence. If consumer confidence rises and yet consumers do not increase their spending, it could lead to a very interesting situation. This situation would be a very difficult situation for the Fed to get around because they really need to get consumers spending, whether they are confident in the system or not, in order for all of their recent stimulus actions to have the desired effects.

After the trading last week, it is safe to say that the rally that kept up speed since the beginning of March appears to have stalled out.  While many people in the financial world still call March 2009 the market turn, they are now saying it much more quietly, as the market looks like it could be rolling over.  There are many signs that the economy is much better than it once was, but just because the economy is better does not mean that the stock market will follow in lock-step.  In fact, we might see the economy recover during a time in which the overall level of the stock market declines, due to greedy investors who jumped into the market hoping to make quick money.  The recent string of events in the treasury auction markets, during which rates were increased in order to sell out the auction, seems to indicate that higher interest rates in the near future.  The rates do not necessarily have to be imposed by the Federal Reserve’s policy; the rates could move higher because of supply and demand changes in the treasury market.  Also on the treasury front, last week Russia announced that they are considering moving some of their reserves from US Treasuries to IMF Bonds, in order to diversify their holdings.  This announcement came a week before the BRIC countries (Brazil, Russia, India and China) were to meet in Russia to discuss, among other things, their currencies and reserves as they relate to the US dollar.  It looks like a few of the countries will push for fewer US dollar exchanges and more debt exchanges amongst themselves.  This could provide more security to their countries’ financial health, should the US continue to have economic troubles.  If the above mentioned moves materialize, it could spell a very difficult time for the US dollar, which in turn could greatly hamper the economic recovery in the US.

The automotive industry was in the news last week with the finalized merger/sale of Chrysler to Fiat.  Now we play the wait-and-see game to find out if the merger will benefit either party, or if Chrysler will end up with a bigger headache than they were bargaining for.  At least we know that the Dodge Viper line is still alive for the moment with the announcement of the Viper factory reopening in Detroit.  GM also made the news recently with the announcement of their Saab vehicle line being sold to Swedish luxury Super Sports car manufacturer Koenigsegg.

On the political front many new revelations have occurred over the previous week both in US politics as well and global politics. In the US, more heated discussion about healthcare reform has sent the investable healthcare sector on a yo-yo ride with HMOs performing well one day, then tanking the next on speculation as to what the reform will look like.  With the impending changes to the US system, investments in the space should be very cautious.  Also in the US, the Banking industry appears to be in for some sweeping regulatory changes, which President Obama will outline on Wednesday the 17^th.  On the global front, Iran is in a real mess as their political system relates to the recent elections.  The effect of the elections can be seen in the wide trading range of oil since the uncertainty over who won surfaced.  In the end, the election results probably matter very little since the country on the whole is run by Grand Ayatollah Khomeini.  Rounding out major political events impacting world markets is North Korea and the strong sanctions imposed on them by the United Nations last week.  Again, we see the uncertainty of North Korea’s desires most directly in the recent upward move in the price of oil.

With all of this uncertainty, it makes the current investment risk very difficult to determine.  Items such as gold, which are typically a safe haven in times of uncertainty, have recently come down in price; commodities (also considered relatively safe during uncertain times) have moved dramatically on the shifting value of world currencies, mainly the falling US dollar.  There appears to be almost nowhere to hide on down days in the markets.  Due to such circumstances we have decided to move back toward wealth preservation and have tightened up the stop out points on many of our holdings.  While this may increase the number of trades placed in our models, it should greatly limit our downside exposure to a possible double-dip recession.

For the trading week ending 6/12/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	1.08 %	6.08 %
Aggressive Model	0.44 %	9.07 %
Growth Model	0.29 %	6.89 %
Moderate Model	0.12 %	3.19 %
Stable Model	0.20 %	5.82 %

We made one change in the portfolio models last week and that was to start moving out of our holding in Westcore Colorado Tax Exempt Fund (WTCOX).  With the current situation of many government auctions pushing up the yields in order to sell out, the current outstanding fixed income instruments are losing face value.  While this loss of face value would be recouped in the future if the instrument was held until maturity, between now and maturity the investment could continue to sustain losses.  WTCOX for the most part performed exactly as expected over the five plus months during which we used the fund.  The coming week could be very volatile for a variety of reasons and we are closely watching all of our holdings to see if we need to sell any in order to preserve the gains we have in many of our holdings.

Economic Wrap Up: Slow is a very good way to describe last week’s economic news releases.  Over the course of the week very few releases had any measurable effect on the broad markets: the most impactful release was the initial jobless claims for the previous week because it came in better than expected.  Retail sales figures from Thursday delivered exactly what the markets expected, having increased by 0.5 percent during the month of May.  One item that we found of interest but the market did not react to was how large the Treasury budget deficit was during May of 2009: $189.7 billion dollars.  The Treasury deficit is the difference between what the treasury took in during a given month and what they laid out (represented by the chart below).

*Data from the Financial Management Services (A Bureau of the US Department of Treasury) webpage.

In looking back to 1981, the current deficit is one of the largest we have ever seen in the US.  It really indicates just how vigorously the Treasury has poured money into the current economic situation.  The main question is: Can the Treasury continue spending in this manner with the current low levels of receipts?  We do not think that they can continue at the current rate without major consequences in the future when they have to unwind their positions.

This week will be moderately busy with many releases that could significantly impact the markets.  First up on Tuesday (6/16) is the building permits, housing starts and the Producer Price Index for May.  We will further see if the US housing market is turning around or if some of the past couple of months’ releases were anomalies.  On Wednesday the Consumer Price Index (CPI) for the month of May will be released.  This news release will provide a glimpse into the current inflationary event going on in the US; the Fed will watch this figure to see if any action will be needed on the inflation front.  Finally the initial jobless claims figure (6/18) could impact the markets, which expect a high level of claims this week relative to last week.

Financial Planning Tip: Bank and Credit Union Insurance Extended

It was recently announced that the $250,000 insurance coverage for FDIC covered bank accounts and NCUA covered credit union accounts will extend through December 31, 2013.  Previously, this level of coverage was set to expire December 31, 2009.

The $250,000 limit is permanent for IRAs and other certain retirement accounts.  On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

Insurance coverage can be increased if accounts are held in different categories of ownership, such as single owner accounts, retirement accounts, joint accounts, and revocable trust accounts.   Some account types can also provide increased insurance coverage.  For example, joint accounts (two or more persons) currently have $250,000 insurance coverage for each individual on the account.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government and insures more than $4 trillion of deposits in U.S. banks and thrift institutions.  The National Credit Union Administration (NCUA) is an independent federal agency that insures nearly 90 million account holders in all federally chartered credit unions and most state-chartered credit unions.

GM officially filed for bankruptcy on Monday June 1^st, which came as no surprise to market participants, who can finally move on with other important market news.  It is unclear how long the company will remain in bankruptcy, but there are hopes that they will be able to restructure and reemerge very quickly.  Also in GM news, they have found an apparent buyer for their Hummer vehicle line and to no one’s surprise it is a company located in China.  The purchase is far from complete and some automotive industry critics think that the bid is crazy, but the offer has been made.  Also on the automotive buy-out front, it appears that Fiat will purchase Chrysler out of bankruptcy.  The big question will be: how much of a stink can the pension funds mount, and will anyone on the Supreme Court put a stay on the proceedings.  We understand that the pensions believe that they are receiving the raw end of the deal with the buyout, but it seems as though the administration has already ruled out Chrysler coming out of bankruptcy and maintaining viability without the deal going through, so the pensions may be shooting themselves in the foot.

Commodities were volatile last week as they swung wildly: up for three days and down the other two.  We can relate most of this to volatility in the US dollar and speculation that the dollar will gain in strength against other world currencies.  As the dollar strengthens, commodities and natural resources move lower, because they effectively cost more for the rest of the world to purchase when their currencies are worth less as compared to the dollar.  The trend of the dollar strengthening last week will be a short-lived phenomenon; remember that less than three weeks ago investors were wondering if the US would lose the AAA credit rating from Standard and Poor’s.  The underlying reasons for the credit rating being discussed three weeks ago have not changed: the government still has a lot of money in circulation in order to try to give the US consumer confidence, and the situation in the rest of the world has not really changed enough to warrant weakness in the other world currencies.  We found it funny last week that Ben Bernanke testified before congress that the government really needs to look at the way that they are spending money, when it seems that a large portion of the money going into circulation came from his department.

For the week, gold declined moderately along with almost every other publicly traded natural resource and hard asset.  Oil was one of the very few commodities that increased in value over the course of the week, in part due to changes in the supply and demand in gasoline worldwide.  The volatility, as measured by the VIX Index, actually ticked up a notch despite all of the broad markets moving higher for the week. This could be a sign that the current level of volatility which we are seeing in the market is near the current equilibrium.  Activity in the merger and acquisition space picked up moderately over the course of the last week, with many of the bids being seen as hostile and not expected to go through; it was at least nice to see that there are companies out there that are attempting to move forward past the current economic situation.  High yield investments continued to increase in value last week, but the spreads have continued to narrow and the default rates could start to increase, thus making them an investment to watch very closely.  Finally, as stated above, the dollar increased in value against many of the world currencies, which we think will be a short-lived trend.

For the trading week ending 6/5/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	2.58 %	5.80 %
Aggressive Model	0.13 %	8.59 %
Growth Model	0.11 %	6.58 %
Moderate Model	0.00 %	3.07 %
Stable Model	-0.09 %	5.61 %

Over the course of last week we made a few tactical investments and are watching them very closely to ensure that they behave as we expect.  Our first major change was to sell our hedging position in Direxion Funds S&P 500 bear (DXSSX).  Our second and third moves last week were to reinvest in both Latin America and China in a few of our investment models.  We invested because both funds showed very good strength over the course of this recent rally, and because geopolitical news from the regions made the risk in the investments worth taking.  Our final change last week was to move into the Rydex Precious Metals Fund (RYPMX).  This fund is made up of many holdings related to the metals and mining industry and has outperformed the underlying materials during the course of the latest rally.  We continue to add to some of our positions and are looking for other investments as the rally continues with the thought always present in our minds that we could need to move back into cash very quickly should the market start to deteriorate.  Once we are out of this uncertain period, we will begin to use more managed funds and lean away from the index-related funds that we are currently using.  Many fund managers underperform compared to the indexes when there is a big rally and outperform the indexes when they are not in rally mode.  The indexes are, for the most part, still in a rally mode.

Economic Wrap Up: Last week saw a fair amount of economic news release surprises: some that were considered good, others not so good.  To start off with the good economic news releases, last Monday personal income showed an uptick of half of a percent while the consensus was for income to drop by two tenths of a percent.  This combined with less of a decrease in personal spending (also released last Monday) appears to point to US consumers growing a little more confident in the worst of the economic cycle being behind us.  Also released last Monday were better-than-expected construction spending figures, as well as a better-than-expected ISM Index figure.  On Tuesday we received confirmation on the previous day’s construction spending figures by seeing that pending home sales jumped upward 6.7 percent during the month of April while “The Street” expected an increase of .5 percent.  Now we just need to see if the financing is available for all of those pending sales once closing time rolls around.  On Thursday last week the first of a few employment related figures was released: initial jobless claims rose by 621,000 over the prior week, which was moderately above expectations.  Then, on Friday, the big news of the week was a jump in the unemployment rate to 9.4 percent, which was above most expectations, while at the same time Nonfarm payrolls were shown to decrease by 345,000 (substantially better than the expected drop of 520,000).  On Friday it appeared as though people viewed the employment news as somewhat offsetting, therefore having little overall impact on the general markets.  The final economic news release last Friday was the consumer credit figure, which showed a decline in consumer credit of $15.7 billion during the month of April, this coming on the heels of a decline of $16.5 billion during the month of March.  The US consumer using less credit will ultimately be good for the economy, but it would be better if consumers chose not to take available credit, rather than the banks not even offering the credit, which seems to more the case right now.

This week is a very slow week for economic news releases.  The treasury budget, released on Wednesday is the first economic news release of any importance, and calling that one important is a bit of a stretch.  Retail sales figures for the month of May, released on Thursday, will probably be the biggest economic news release of the week.  Wall Street will watch this release very closely to see if the resurgence of consumer confidence translates into better retail sales or if the blip in consumer confidence was just a one-time event.  Overall, it is a very slow week and the scheduled releases will not move the markets much.

Well, there will finally be a new automobile manufacturer in town!  We are excited to see how well the government can run the new and, hopefully, improved Government Motors (GM).  GM headlined the news over last week, with the looming bankruptcy filing seeming imminent with all kinds of news articles about how big of an impact the filing would have on both the US and the psychology of foreign investors to the US markets in general.  Many of the last minute deals to restructure outstanding debt appear to have been accepted, after the government sweetened the deals a bit, but we really do not think that it will matter too much because the basic problem is still: GM is not selling cars.  We are not clear how a restructured GM can completely turn a 180 on the types of cars they make and start turning a profit in any short amount of time.  With Chrysler already in bankruptcy and very little information about what they are up to, and now GM joining the party, one has to wonder about the psychological effect of such actions on foreign investors who, for a long time, have viewed GM and Chrysler as pillars of the US economy.  One thing is certain: the foreign auto makers will pick up market share in the US as US consumers continue to feel unsure about buying US manufactured vehicles.  We have yet to see the trickle-down effects, as some parts manufacturers will probably have to file for Chapter 11 along with many dealership owners.  The increase to unemployment as a direct result of the filing will be minimal because, even with the projected 12 plants being shut down and others going idle, there could be about 21,000 people unemployed, which, as large as it seems, represents a very small piece of the employment pool.

For the shortened trading week the broad market indexes all increased in value with the NASDAQ leading the way by increasing nearly 4.9 percent, followed the S&P 500, and the Dow.  The world markets last week also had a very good week as shown by the Dow Jones World Index advancing by a little more than three percent.  Gold rallied for the week, increasing by a little more than two percent, and oil made a huge move upward of more than eight percent.  The large upward move in commodities last week was partially due to the falling value of the US dollar, which hit new lows over the course of the previous week against many of the major world currencies.  With Geithner traveling to China for the first time as the Secretary of the Treasury this week, we should see some sort of unity stance on the US dollar, since a continued decline in the value of the dollar hurts both the US economy and our major trading partners, such as China.  The overall volatility in the S&P 500 as measured by the VIX continued to move lower over the course of last week, and now sits right at the low for 2009 which was set the previous week.  In general this rally continues to shows signs of life as the weeks roll by with higher and higher returns on the broad indexes, if this is a new bull market it is one of the strangest turnarounds that the financial markets have ever seen.  Then again, there has never been the amount of government intervention into the financial markets as there has been this time around.  We are currently maintaining our stance of protecting principal while slowly moving back into the equity market more fully, so that the rally does not continue to run without our participation.

For the shortened trading week ending 5/29/09, the returns in our portfolio models are as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	3.67 %	3.13 %
Aggressive Model	1.75 %	8.45 %
Growth Model	1.20 %	6.47 %
Moderate Model	0.45 %	3.07 %
Stable Model	0.79 %	5.71 %

We made only one change during the course of last week, and that was to trim back our position in Westcore Colorado Tax Exempt Fund (WTCOX).  The move to sell approximately half of our position was due to the market seeming to favor equities over fixed income.  This thought is in line with the general consensus that interest rates will have to begin increasing at some point in the future as inflation becomes more of a concern. When prices increase, the value of bonds typically decrease, thus we would want to be allocated less toward the bonds and more toward equities.  We continue to look at our positions and the markets in general in an attempt to find investments which we feel are a good value.

Economic Wrap Up: Last week the largest piece of economic news that surprised the markets was the consumer confidence figure for the month of May which showed consumers having far more confidence than expected.  The figure released was 54.9 while the market had been expecting 42.6 and the previous month’s reading was 40.8.  This increase is one of the largest one-month-increases in consumer confidence, and could be a precursor for what is to come.  The figure is supposed to be, in part, forward looking, which could be a very strong indication that the US consumer believes that the worst of this economic cycle is behind us.  One dampener for last week was the continued weakness shown in the housing market on Tuesday through the release of the Case Shiller Home Price Index, which showed an annualized decline during the month of March of 18.7 percent, while the markets expected a decline of 18.4, and the previous months reading was a decline of 18.67.  This could be a bottoming out process starting in home values, but it is still too early to make that call.  The GDP figures released on Friday showed that the US economy shrank by 5.7 percent during the first quarter of 2009, this being revised from first expectations of a negative 6.1 percent. While the number is not finalized yet, the revision was at least in the correct direction.  Rounding out the week for economic news was the durable goods orders figure which came in much stronger than expected, indicating that the manufacturing industry may be starting to pick up in order to replenish some of the diminished inventories.

This week there is a long list of economic news slated for release with the majority of it not expected to move the markets.  The week kicks off with personal income and spending on Monday as well as the ISM index and construction spending.  Construction spending as well as Tuesday’s release of pending home sales could provide a little insight in the housing market to see if a bottoming out process has begun.  Auto and truck sales are also being released on Tuesday (to no one’s surprise, the figures are not expected to be very good at all, with all of the uncertainty that surrounded GM during the month of May).  Factory orders are on the docket for Wednesday, and could provide insight into the replenishing of various inventories.  Initial jobless claims are expected to be lower this week over last.  We will see if the markets are correct about them when they are released on Thursday.  Rounding out the week on Friday is the release of the Unemployment figures for the month of May; the markets are expecting the reading to show a little over nine percent unemployment; a slight increase since the previous month’s reading of 8.9 percent.  Overall there are a lot of releases but most of them will not be market movers, provided that they are reasonably close to expectations.

Financial Planning Tip: Distributions from Roth IRAs

In most cases the best strategy is to leave as much money as possible in your IRAs, and for as long as possible.  However, if you need early access to money in your IRAs, it is generally better to take a distribution from a Roth IRA rather than a traditional IRA.  You can withdraw your regular contributions at any time without paying tax or penalty.  This is not the case for the earnings, however.  Unless you pass the tests described below, a withdrawal of earnings will be taxable — and may be subject to a penalty as well.

Withdrawing Your Contributions

The rules for Roth IRAs permit something that is not allowed for traditional IRAs: you can withdraw the nontaxable part of your money first.  Distributions from traditional IRAs come partly from earnings and partly from contributions. But when you take money out of a Roth IRA, the first dollars you take out are considered a return of your regular contributions. You do not have to meet any special criteria to receive those dollars free of tax. You can take them out any time, for any reason, without paying tax or penalties.

When you apply this rule, you treat all of your Roth IRAs like a single big Roth IRA.

Example: Suppose you have a Roth IRA with a balance of $2,500 (a $2,000 contribution and $500 of earnings) and another Roth IRA with a balance of $3,000 (a $2,000 contribution in a different year and $1,000 of earnings). You can withdraw the entire $3,000 from the second Roth IRA without paying tax, even if you do not pass the tests to withdraw earnings tax-free.  Your other Roth IRA will now be treated as if it has $1,000 of contributions and $1,500 of earnings.

In a way, it might be considered a disadvantage to be able to take money out of a Roth IRA so easily.  The best way to grow your investments is to keep as much as possible in your Roth IRA as long as possible, so it will continue to earn investment income tax-free.  You may find it difficult to resist the temptation to take money out of your Roth IRA — and later regret that you withdrew the money.

Qualified Distributions

If you receive a distribution of earnings from your Roth IRA, you are required to pay tax (and possibly penalties) unless you received a qualified distribution.  A qualified distribution is a distribution that passes both of the following two tests:

Five-Year Test: The five-year test is satisfied beginning on January 1 of the fifth year after the first year you establish a Roth IRA. If you established a Roth IRA in 2004, for example, any distribution from a Roth IRA will satisfy the five-year test if the distribution occurs on or after January 1, 2009.

The five-year test is satisfied on January 1 even if you establish your Roth IRA late in the year. In fact, you’re treated as if you established your Roth IRA in the previous year if you make the contribution on or before April 15 and designate it as a contribution for the previous year.

When you meet the five-year test for one Roth IRA, you meet it for all Roth IRAs. For example, suppose you contributed $500 to a Roth IRA in 2004. Three years later you decided to set up another Roth IRA and contribute $2,000. Both IRAs will meet the five-year test on January 1, 2009.

Type of Distribution: Even after you meet the five-year test, only certain types of distributions are treated as qualified distributions. There are four types of qualified distributions:

• Distributions made on or after the date you reach age 59½.
• Distributions made to your beneficiary after your death.
• If you become disabled, distributions attributable to your disability.
• Qualified first-time homebuyer distributions.

A distribution of earnings that fails to meet these tests will be taxable, and may be subject to a penalty as well.

For additional information please consult your tax advisor or refer to Chapter 2 (Roth IRAs) of IRS Publication 590, http://www.irs.gov/publications/p590/index.html.

The financial markets last week felt somewhat like a roller coaster ride, as the week started off with large gains of nearly three percent across the three major US indexes on Monday.  With the gains, the three major indexes made back more than half of the previous week’s losses in just the single day of trading.  The move was prompted by analysts recommending the purchase of Bank of America as well as better-than-expected results announced by Lowe’s.  The one day spike, however, was short lived with the markets giving the majority of the gain back over the following four day slump.  The slump at the end of the week was caused, in part, by the rumblings on The Street that Standard and Poor’s was looking at the AAA sovereign credit rating of the US after they issued a statement warning Britain about their massive amounts of government spending and what impact it could have on their overall AAA rating.  If the US were to see its AAA sovereign credit rating cut, it could have a detrimental impact on the already weak economy which depends heavily on foreign debt to correct the current economic state in the US.  The US government is taking many of the same actions as Britain, and many Wall Street analysts view the warning to Britain as an indirect warning to the US.  Throughout the course of the week, the dollar showed near-record weakness against many world currencies, continuing the slide that started at the beginning of May.  We could see the first sign of any impact of the considered rating change over the next few weeks in the US Treasury auctions, at which, typically, foreign banks and governments load up on US treasuries.

One of the major wild cards for the markets in the coming weeks will be what actions are taken in dealing with North Korea as they have, yet again, tested a nuclear device and more missiles. As the world prepares to deal with these recent actions, the Obama administration will come under the limelight regarding foreign policy.  The outcome could greatly impact many of the countries with which our economy is intertwined through trade or other economic methods.  Another wild card on the geopolitical front is the ever present situation with Iran.  We would see Iran’s main impact on the world markets in a spike upward in oil prices coming out of the region and the adverse affect such price increases could have on various market sectors.

With a less certain outlook of the current rally in worldwide stock markets, the price of gold moved up last week more than three percent, extending its weekly gains to five in a row, totaling nearly an eight percent increase in value.  The upward move in gold has come as expected as investors have pulled a little of their money out of the markets with gains over the last few months and have moved into the relative safety of gold.  The overall volatility of the S&P 500, as measured by the VIX index, dropped to a new low for 2009 during the week last week and then moved up sharply at the end of the week.  The VIX reading now stands at the upper range of where it has traded historically from mid-2007 to mid-2008.  While it is much lower than it has been in the recent past, it is still relatively high.

For the trading week ending 5/22/09, the returns in our portfolio models are as follows:

	Last Week	Year to Date
S&P 500 (benchmark)	0.53 %	-0.52 %
Aggressive Model	1.70 %	6.59 %
Growth Model	1.19 %	5.21 %
Moderate Model	0.65 %	2.61 %
Stable Model	0.81 %	4.88 %

We made only one change during the course of last week, and that was to trim back on one of our positions in financials.  We sold the remaining holding of Profunds Financials (FNPIX) with a gain of more than 20 percent, although actual gain will vary based on investment model.  We maintained our hedging position throughout the week, which proved to be very beneficial during the four lower trading days at the end of last week.  We are actively looking for solid investments and have cash ready to invest should the opportunity arise.  Simultaneously, we are attempting to preserve wealth and not become caught up in the chase for high returns.

Economic Wrap Up: The economic news releases for last week were few and far between, with two of the main releases pertaining to the housing market.  On Tuesday the 19^th both building permits and housing starts for the month of April were released.  Both figures came in much poorer than expected, indicating that the housing market may still have room to move lower.  The FOMC minutes from the most recent meeting, released last Wednesday, offered very little new data and insight.  Initial jobless claims released last week were higher than expected but still lower than the previous week, somewhat muting the affect they had on the overall market.

This week more economic news will be released than last week, starting off after the long holiday weekend with the consumer confidence figures for the month of May and the Case Shiller home Price Index. With the releases of the housing information last week, it appears as though the housing market has continued to slide lower and we should see the effects in the figures released on Tuesday.  On the other hand, consumer confidence expectations sit so low that the figure could come out better than expected if a large number of the 5,000 households surveyed for the calculation feel that the worst of the current economic cycle is in the past.  With one of the two troubled auto makers in bankruptcy and the second heading into some form of bankruptcy protection, many US consumers may view that as the last shoe to drop on this whole situation.  On Thursday the 28^th New Home Sales figures are released, which could come in slightly better than expected if the consumer confidence number is higher than expected.  On Friday the 29^th we will see more GDP estimates for the first quarter of 2009, with the market expecting a negative 5.5.  Overall, there are a few items this week that could create major market movements in either direction.

Financial Planning Tip: College Savings and Costs

A recently released survey indicates that most American parents have not reduced the amount they are saving for their children’s college educations as a result of the recession, but most are considering cheaper schools.

In the OppenheimerFunds Inc. survey released last week, sixty percent say they have not reduced their amount of college savings. But 57% say they are considering, or planning to consider, more affordable colleges because of the recession, and 82% are willing to send their child to a community college for two years before they attend a four-year school,

The nationwide survey of more than 1,000 parents of pre-college age kids showed 77% have saved less than $20,000 for their children’s college expenses; 62% have saved less than $10,000, and 43% have saved less than $5,000. Twelve percent have saved nothing at all.

Parents of children closest to college—those ages 15 to 18—are not necessarily stronger savers. More than half (55%) of these families have saved less than $10,000 for college, 40% have saved less than $5,000, and 13% have saved nothing at all.

At the same time, more than half (56%) of the parents surveyed think scholarship money will pay for a substantial portion of their kids’ college education. While many students receive some kind of grant aid, the amounts received and annual costs significantly differ.

According to the College Board, about two-thirds of all full-time undergraduates nationally receive grant aid. In 2008-09, aid in the form of grants and tax benefits averaged about $3,700 for in-state students at public four-year colleges, compared with an average annual total cost of $14,333, and aid averaged about $10,200 per student at private four-year colleges, compared with an average annual cost of $34,132, according to the 2008 Trends In College Pricing Report by The College Board. (The total costs include tuition and fees and room and board.)

Yet nearly 80% of parents say they want to cover 50% or more of their kids’ college expenses, and 24% say they want to cover the full amount. Among Americans who want to cover at least part of their kids’ college expenses, 66% say they want to do this because it is very important for their kids to graduate college with as little debt as possible. For 87%, a very important reason is that they would hate for their kids to have to drop out of college for financial reasons.

Of the respondents, 47% had a financial advisor, and 56% of those parents had discussed saving for college with their advisor in the last year.

Parents who have used 529 plans are twice as likely as those who have not (31% versus 16%) to have saved at least $20,000 for their kids’ college education, and are more likely to say they plan to cover 50% or more of their kids’ college expenses (90% versus 75%).

Please contact our office if you would like assistance in planning for college expenses.

Two weeks ago the markets had a great week, rising by more than five percent and inspiring excitement among many investors that the stalled rally may, in fact, be marching onward and upward again.  Last week, however, the markets served up a good sized piece of humble pie, giving up almost all of the return they had made over the previous week on a string of weaker-than-expected economic news releases as well as a bad round of news in general.  Some of the worse news of the week came from the automotive industry which had to decide the number of GM and Chrysler dealerships to close.  While GM had the luxury of notifying their dealers that they will lose the GM line in 18 months, such was not the case for Chrysler dealerships, which were sent notices that they will lose their lines in the next 30 to 60 days.  The criteria for figuring out which dealerships would go down are still a bit murky.  Many owners are considering what, if any, legal action they can take, but the industry might already be damaged.  With the announcement of so many dealerships closing, many people will feel the effect since layoffs are inevitable both at dealerships, and further up the automotive chain into sectors such as parts manufacturing, trucking, and advertising.  The other bad news out of the auto industry is that GM is seeing that bankruptcy seems more and more like the only way to overcome their current situation.  While the stocks markets have priced in a bankruptcy for GM, the general public has not come to terms with the impact that having two of the “big three” in bankruptcy could have on both the morale of the industry, and how people outside of the US would feel about American cars.

While the overall returns for the major indexes were much lower for the week, market volatility did not spike higher.  The VIX index, which two weeks ago reached a new low for 2009, only moved up slightly over the course of last week.  Gold, however, moved up almost two percent on the heels of a very strong showing two weeks ago.  We can attribute some of this move to investors moving back toward gold as they feel that the market has recently rallied too quickly, and also attribute some of it to demand for gold picking up slightly around the world on the thought that the worst of the worldwide recession is behind us and economic prosperity is returning to the world.  We do not think that gold will continue to rise even if the stock market rolls over and moves lower over the next month or two.  Panic drove gold up last year and it has never really pulled back to reasonable levels, so much of last year’s hype is still priced in.  Last week oil pulled back about half of what it had added in the previous two weeks as geopolitical tensions and demand for oil pulled back slightly.

We need more of a correction than what we saw last week in order set the market to where it could begin a meaningful recovery.  After last year, recovery cannot just happen with the flip of a switch; if it were that easy, then Ben Bernanke would have flipped every switch he could find to see if any worked.  The financial markets are, historically, very quick on the way down and very slow to recover, offering many opportunities that look like great buying points along the way, and many mini slides that shake out investors looking to make fast money.  We are currently in wealth preservation mode, and are attempting to not get drawn into a market just because everyone else is doing it.  They are just driving it higher before it could come falling down around them.  We are actively looking for smart investments and stand ready to put money to work if such opportunities present themselves.  Currently, many investors are becoming greedy in the markets, and as Warren Buffet has been saying recently, “Be fearful when others and greedy, and greedy when others are fearful.”  It might just be the time to go the other way.

For the trading week ending 5/15/09, the returns in our portfolio models are as follows:

	Last Week	Year to Date	Since 12/31/07
S&P 500 (benchmark)	-4.93 %	-1.04 %	-37.69 %
Aggressive Model	-4.87 %	4.81 %	-7.77 %
Growth Model	-3.51 %	3.98 %	-6.40 %
Moderate Model	-1.61 %	1.94 %	-7.21%
Stable Model	-2.90 %	4.04 %	-6.63 %

Over the course of last week we made a few changes in our model allocations, first we sold our recent positions in both the Rydex Internet Fund (RYIIX) and the Rydex Retail Fund (RYRIX).  While both positions had been in a very strong uptrend, both broke down early in the week, looking like they could continue their way down.  If these funds trend upward again, we will consider purchasing the sector again.  The small-cap market sector also showed some weakness early in the week prompting us to sell half of our position and watch the remaining balance very closely.  With the current state of the markets possibly having stalled out and appearing as though they could move downward, towards the end of the week we decided to put a hedge on all of our accounts to offset any major drops in our other positions.  The current amount of risk in the markets has greatly increased over the last few weeks and we are allocating accordingly.

Over the past few weeks many people have been asking about their individual account performance relative to the model performance shown in these weekly commentaries.  We construct the model performance by rebalancing the model’s figures back to exact model weightings every day.  This is different from the way we actively manage accounts.  Trading back to a target weight every day is not feasible and we, therefore, let the weightings ebb and flow as long as they do not drastically stray from the model allocation (+/- 2 percent of target).  If a position moves more than two percent in either direction we evaluate the need to adjust the position and take the necessary action.  This is one of the major differences between the model performance and actual performance of accounts.  Over time, with positions rising and falling in actual accounts, the effect of the weighting differences compared to the models should cancel out.  Times of large market moves and volatility, such as now, magnify the disparity.  A second difference in performance is the cash position.  The model performance is run with no return on money markets or cash positions, the actual performance of the accounts would include any return on the cash or money market positions.  With the way Financially Speaking computes actual performance returns it is not possible to run inter-month figures and very difficult to run performance figures other than on a monthly basis.  The quarterly reports that we send out are the most accurate way to judge performance of accounts, the model performance in the weekly commentary should not be considered the exact performance of anyone’s individual account.

Economic Wrap Up: Over the course of last week, the US economy received some news releases showing that the current economic downturn may not be over.  The first piece of economic news that suggested we are not out of the woods yet was the retail sales figure released on Wednesday the 13^th, which showed that retail sales for the month of April fell by .4 percent.  This is a drastic improvement over the previous month’s reading of negative 1.3 percent but still way under the expected figure of zero percent growth.  When we examine retail sales, not including auto, the news was even further from expectations with the release coming in at a negative .5 percent when the market expected .2 percent growth.  This lower-than-expected figure was, in part, due to the uncertainty of the US auto manufacturers and the weariness of the US consumer to purchase cars in an environment where no one knows which car makers will be around to service long warranties in the future.  Business inventories continued to decline during the month of March falling by approximately one percent; at some point the inventories will need to pick back up as companies start to believe that the recession is over and that the US consumer will come back full-force.  Many economists have their eyes on business inventories as a sign for when the economic situation will turn around.  With the negative one percent being an improvement over the previous month’s reading of negative 1.3 percent some economists believe that the worst of this cycle may be behind us – we are still skeptical of this.  Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) figures which were released during the week showed slightly higher-than-expected readings, but readings were not high enough to spark concern about coming inflation.  Initial jobless claims hit the markets on Thursday the 14th with the release coming in much higher than the previous week and much higher than expected. While the initial jobless claims indicator is a lagging indicator for the overall economy it has a large psychological effect on people’s perception about the health of the economy because it has a very real personal affect on many people in society.

This week is a very light week for economic news releases with housing starts and building permits kicking off the week on Tuesday the 19th.  Both figures should shed some light on the current state of the US housing market and, hopefully, will show that there is some recovery taking place in the housing market.  The second major economic news release for the week comes from the FOMC meeting minutes from the end of last month.  The verbiage regarding the current economic state of the US will be the key to the release.  If the language has changed since the previous release, it may signal that the FED thinks that the current situation will be shorter or longer than expected.  Early indicators signal that the FED feels that the current recession is coming to an end more quickly than previously thought.  Other than those two economic news releases there are the weekly initial jobless claims on Thursday the 21^st, the Leading Indicators for the month of April, and the Philadelphia Fed figure.

Financial Planning Tip: Tax Substantiation of Charitable Deductions

This is a good time to review the Internal Revenue Service deductibility rules for charitable contributions, as many people are being inundated with mail and telephone solicitations for donations.

For cash contributions, the IRS requires either a bank record (statement or canceled check), a charge showing on a credit/debit card statement, a detailed receipt from the qualified organization, or a pay stub showing a deduction from net pay.

If the contribution is either a single payment or a series of related payments to the same charity that totals $250 or more, then the donor needs a written communication from the charity stating the amount given and that nothing was given to the donor in exchange.

The letter must be dated prior to the date of filing the tax return for the year of the contribution, including extensions. The donor can receive items de minimis, such as personalized mailing labels, cards, mugs, etc.

For contributions of property, a taxpayer must have appropriate documentation of the property donated and the condition of the property on the date of contribution.

Additional information on how the property was acquired and how the fair market value was determined on the date of the contribution must be retained by the taxpayer. The taxpayer — not the charity — has this burden of substantiation. Used property must be in good condition or better. The taxpayer can use any one of several websites to assist in determining the “thrift shop value” for use on the tax return.

On your tax return it is advisable to list each cash contribution with appropriate amounts and the name of the charity. Avoid listing a large figure for miscellaneous deductions, which might prompt an inquiry from the IRS. For donations of property, it is not necessary to attach an explanation to your return unless the contribution exceeds $500. That requires the completion of Part 2 of Form 8283 (non-cash charitable contributions).

Should the value exceed $5,000, then a qualified appraisal should be completed and submitted along with Form 8283.

Cash gifts to charities where no receipt is obtained and no bank record exists are not deductible. Placing cash in a collection plate when a charity does not use the envelope system or tossing money into the kettle during the holidays no longer qualify as charitable deductions.

For additional information consult your tax advisor or see IRS publication 526, Charitable Contributions, http://www.irs.gov/publications/p526/index.html.

The bank stress test results were finally released last week, but did they really tell investors anything new?  The market seemed to do a very good job at anticipating the results over the course of last week and moving accordingly.  Of the nineteen financial institutions stress tested, nine came back showing that they were well capitalized and did not need to raise any more money.  The nine included companies such as JP Morgan Chase, US Bancorp Goldman Sachs, and American Express to name a few.  Ten large financial institutions, however, showed a need to raise capital, including companies such as Bank of American ($33.9 Billion), Wells Fargo ($13.7 Billion), GMAC ($11.5 Billion), and Citigroup ($5.5 Billion).  Some of the capital-needs figures were quite large but, on the whole, not surprising.  For example, Bank of America needing to bolster their capital by nearly $34 billion was expected with the amount of assets that have either been pushed on the bank or acquired by the bank during the economic downturn.  We think that the results of the stress tests will ultimately be seen as a sigh of relief when investors stop and think about how bad the results could have been and the adverse affects that would have resulted in the financial markets.  Now the government needs to figure out how to make the banks start lending to consumers more readily and we could really get rolling.

One damper in the news last week was the result of the treasury auction that took place toward the end of last week.  The US treasury actually had a difficult time finding buyers for their 30 year bonds, and had to push up the yields in order to fill the auction.  Part of the auction which was very intriguing was that indirect bidders, such as worldwide central banks, bought three percent less of the long term bonds than they have historically bought.  This could signal what may occur in the future as far as foreign governments and central banks demanding higher interest rates in order to hold US debt, which could ultimately lead to inflationary pressures in the US. While one auction is not significant enough to indicate that anything has changed, the auction surely caught the eye of Wall Street, which promptly sold off on the news.

Over the course of last week, all of the major indexes increased in value.  At the same time, the VIX reading for the S&P 500 decreased to its lowest level in 2009 and is now very close to the upper range it traded within during 2007 and 2008.  The S&P 500 is close to breaking above the previous high for the year (set on January 9^th), while the NASDAQ set a new high for this year during last week.  The DJIA still needs about 600 more points in order to create a new high for 2009.  Oil broke out of the range in which it had been trading since mid-March, finishing the week with a gain of more than 11 percent.  Gold moved up marginally last week, gaining 3.5 percent as investors continued weighing the option of investing in gold, moving back into the equity markets, or moving into the fixed-income markets.

For the trading week ending 5/8/09, the returns in our portfolio models are as follows:

	Last Week	Year to Date	Since 12/31/07
S&P 500 (benchmark)	5.96 %	4.09 %	-34.46 %
Aggressive Model	3.97 %	10.17 %	-3.05 %
Growth Model	2.93 %	7.76 %	-2.99 %
Moderate Model	1.37 %	3.61 %	-5.69%
Stable Model	2.50 %	7.15 %	-3.84 %

Over the course of last week we made a few tactical moves in the portfolio models.  First, we moved completely out of our hedge (DXSSX), which we put on slowly over the last couple of weeks, on the renewed strength of the markets after the announcement about the bank stress test results.  Second, we moved into a full position in Rydex Internet Fund (RYIIX) and Rydex Retail Fund (RYRIX).  Both sectors have been leading the various sectors on a relative strength basis over the current uptrend, second and third to only the financial/banking sector, to which we already have exposure.  Finally, we opened a new position in small-caps, using Direxion Funds (DXRLX).  This comes on the heels of our moving out of the small-cap space a mere two weeks ago when it looked like it could start to move lower.  Small-caps ended up continuing to move higher and moved high enough to where it looked like a good purchase point.  We will be actively watching all of our positions for breakdown, with an especially close eye on DXRLX, and will make adjustments as necessary.

Economic Wrap Up: There were a few economic news releases over the course of the last week that gave fairly good signals about the current state of the economy and shed a little light on future possibilities.  First, the pending home sales figures for the month of March were released last Monday and showed an increase of 3.2 percent, while most analysts and the street as a whole expected zero, and the previous months figure was 2 percent.  Construction Spending, also released on Monday, showed an increase of .3 percent while the street expected a decrease of 1.6 percent and February’s figure was a negative 1 percent.  Both of these indicators suggest that the bottom of the housing market could be forming (if sales continue to grow and financing for buyers becomes more readily available).  If the housing market can turn around, it could really help US consumers gain confidence in the system and the stimulus from the government that has flooded the financial system.  Initial jobless claims for the previous week also came in better than expected at 601,000, while the markets were expecting between 620,000 and 635,000, and the previous week’s reading was 635,000.  The preliminary productivity figures for the first quarter of 2009 came in at expectation and had little impact on the broad markets, as did the unemployment rate for the month of April.

This coming week is moderately full for the economic news releases, with the US Trade balance and Treasury budget kicking things off on Tuesday.  On Wednesday (5/13), retail sales figures for the month of April are released as well as business inventories for the month of March. Everyone will watch the business inventories very closely for any signs of recovery since many people blamed inventories for a large portion of the negative GDP growth for first quarter 2009.  Hopefully the number released will surprise investors by coming in better than the expected one percent decline. On Thursday, the Producer Price Index for the month of April is released and on Friday the Consumer Price Index is released – both figures are expected to be almost flat but could show a shift in the inflationary pressures on the economy.

Financial Planning Tip: New Car Purchase Tax Incentives

Car dealers are heavily promoting new car sales and if you are considering buying a new car you should understand the available tax incentives. Purchasers of new cars, light trucks, recreational vehicles and motorcycles will be allowed to deduct sales, local and excise taxes on their 2009 income tax returns. This is an above-the-line deduction, so you don’t have to itemize to claim it. To qualify, the vehicle must be new and purchased between Feb. 17 and Dec. 31.

Taxes on the purchase price of up to $49,500 qualify for the special deduction. As an example, if you live in a state that charges 6% sales tax on the purchase of a new car and your car costs $40,000, you will be able to deduct $2,400 on Page 1 of your 2009 Internal Revenue Service Form 1040 when you file next year. This is a deduction and not a credit. Thus, the tax benefit will depend upon your tax bracket.

The deduction phases out for single taxpayers with an adjusted gross income of more than $125,000, and married taxpayers whose AGI exceeds $250,000. The deduction is not available for single individuals with AGI of $135,000 and married individuals with AGI of $265,000 or higher.

The IRS also offers tax credits for purchase of other distinct categories of motor vehicles, such as qualified hybrid vehicles.  Hybrid vehicles use a combination of gasoline and electric engines. These vehicles have drive trains powered by an internal combustion engine and a rechargeable battery.

The credit is available only to the original purchaser of a new qualifying hybrid vehicle. If the qualifying vehicle is leased, the credit is available only to the leasing company. The credits available in 2009 range from approximately $2,000 to $3,000.

Once 60,000 hybrid or clean-technology vehicles from a particular manufacturer are sold, the tax credit is reduced and eventually eliminated. The full credit can be claimed up to the end of the third month after the quarter in which the manufacturer sells the 60,000th hybrid vehicle.

The credit for qualified Toyota and Lexus vehicles was eliminated for purchases on or after Oct. 1, 2007. The credit for qualified Honda vehicles was eliminated after December 31, 2008. To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, you can go to the IRS website and search for “qualified hybrid vehicles.”

April is now behind us with the markets locking in sizeable gains, which has not happened for quite some time.  It was nice to finally have a month of strong gains, but now the question about the rally’s sustainability looms even larger than before.  If the worst of the current economic cycle is behind us and much of the government intervention starts to have the desired effect, then the rally could certainly continue on.  But the problems that put the US in the current situation did not occur overnight, nor will they likely be fixed overnight.

One of the major events last week was the announcement that Chrysler will go into bankruptcy.  The announcement made by President Obama in a press conference came as little surprise to the stock markets and the general public because it was seen as imminent for the past few weeks. How long the bankruptcy will take and how the company will look once it emerges from chapter 11 is unclear at this time; the large size of this filing places it in uncharted waters.  Fiat looks like it will still partner up with Chrysler in some manner but the terms of the deal are not yet released.

The big news event in the coming week occurs on Monday with the release of the banking stress test results.  Most likely, the results will show that a few of the major banks are in trouble as far as their capitalization rates, but some sort of plan will, undoubtedly, come out at the same time in order to quell any fears about the banks.  Also with the results, the government could outline some sort of new oversight in order to try to reassure investors and the public that this sort of capitalization issue will not arise in the future.  Ultimately, the government is not in a position to let any of the major banks fail, and will lend to them as a last resort should the banks try other avenues in raising capital without success.

The overall market volatility as measured by the VIX index fell a very slight amount over the course of last week, but declined by more than 16 percent over the month of April.  This decline in the VIX is a sign that widely oscillating market days may be behind us, at least for the near future.  Gold prices fell by approximately three percent over the course of the previous month as investors became more comfortable with the risk level in the equity markets, and moved from the safety of gold into equities.  Oil stayed in a very tight trading range compared to how much it has swung in recent months, increasing by five percent during the month of April.

For the trading week ending 5/1/09, the returns in our portfolio models are as follows:

	Last Week	April 2009	Year to Date
S&P 500 (benchmark)	1.37 %	9.69 %	-1.76 %
Aggressive Model	0.23 %	8.19 %	5.97 %
Growth Model	0.22 %	6.50 %	4.69 %
Moderate Model	0.50%	3.36 %	2.21 %
Stable Model	-0.04 %	7.20 %	4.54 %

We made one change to our models during the course of last week and that was to move into the Rydex Internet Fund (RYIIX) based on the strength the sector is showing relative to the rest of the market.  We used the Rydex fund because it is a no load, no transaction fee fund on the Schwab platform and also allows for trading out quickly should the group start to falter and give us the signal to sell.  We took our first of three steps moving into a full position and will take the subsequent steps in the future if the sector and fund continue to show strength.

Economic Wrap Up: Last week was an exciting week for economic news with many major releases throughout the week. The main one was the advanced figure for GDP for the first quarter of 2009, which showed a contraction of 6.1 percent during the first quarter.  This was much higher than the 4 to 4.5 percent range that many economists expected, but the market, to much surprise, moved upward decidedly on the report.  The reason for the upward movement of the major indexes is debatable.  Some people say that it was because inventory numbers fell so much during the first quarter that manufacturing will have to pick up soon in order to resupply the inventories.  Others say that the markets increased in value because the negative 6.1 percent was so bad that the worst of this downturn must have happened during the first quarter of 2009, and will start a recovery during the second quarter that will run through the end of the year.  We are uncertain why the markets moved upward on Wednesday, and can see truth in both of the above arguments.  One thing is for certain, if we are going to make it to an annual GDP rate of zero or above for 2009, our economy is really going to have to kick in to high gear to pull out of the hole in which the first quarter started.

Another economic news release from last week was the consumer confidence number for the month of April which showed a very surprising upward movement, coming in at 39.2 while the market expected a reading near 29.5 and the previous month’s figure was 26.9.  This jump in consumer confidence is a very good sign, but is only one indicator and will mean much more if US consumers start to spend money according to how confident they feel.  The housing price index for the month of February was released on 4/28 and showed a little improvement over the previous month’s reading, indicating that the housing market may, in fact, be leveling out from the very steep downward trend of the recent past.  The FOMC also released their most recent interest rate decision last week, deciding to leave rates in their current range between zero and .25 percent, as was expected.  Personal income and spending, both released last Thursday, came in very close to expectations and, thus, affected the overall markets very little.

This coming week is another very full week for economic news releases, starting off with construction spending and pending home sales on Monday.  On Thursday the 7^th the productivity figures for first quarter 2009 will be released as well as consumer credit for the month of March. The unemployment rate for the month of April rounds up the week on Friday the 8^th along with wholesale inventory figures for the month of March.  The wholesale inventory figures could prove to be a very important number because many people attributed the bad GDP figure released last week to the massive decline in inventories.

Financial Planning Tip: Teens and Money – Tips for Parents

Most parents intend to educate their teens about money, but with today’s hectic schedules many may not follow through.

A USAA study found that 79 percent of college-bound freshmen have not received budgeting or spending advice from their parents or anyone else.

Parents and Money

• 53% agree that their child thinks “money grows on trees.”
• 57% put no restrictions on how their child can spend the money they are given.
• 76% said their high school student does not have a budget.
• 88% feel it’s important to monitor their child’s spending and guide their money use.

College-bound Teens and Money

• 27% plan to have their own credit card.
• 21% anticipate spending between $200 and $500 a month on clothes and entertainment.
• 23% believe they can spend up to $500 without their parents’ approval.

Talking to Teens about Money

• Needs vs. wants: Teens need to understand the difference between the two.  Car insurance and school-related costs come before movies and entertainment.
• Create a budget: Sit down together to discuss how money will be provided, earned and spent.  Make sure the budget is realistic and includes some fun money.
• Share responsibility: Teens should have some financial responsibility to help form healthy financial habits, such as paying for car insurance or a credit card.

Credit Cards

• Explain how they work: After high school, teens are flooded with credit card offers.  They need to understand the rules and the consequences.
• Interest: Talk to them about how quickly interest can grow if they keep a balance.
• Pay on time: Late payment fees can add up quickly.
• Future credit: Poor debt management can affect their credit score and affect their credit rating — both affect the interest rates they’ll pay on credit cards, car loans, home loans and more.
• Start small: You may consider giving high-school seniors a low limit credit card so they can get in the habit of paying it in full each month.  It is good for your children to learn while you’re there to help, instead of later down the road.

Financial Tools for Teens

• Joint accounts: Parents should consider joint banking accounts to ensure money is managed properly.  Online accounts allow easier fund transfers.
• Pre-paid spending cards: These safeguard against overspending but allow teens to manage their own money.  Parents also can fund cards instantly online.

Source:  www.usaa.com

Did you know that many of our clients have brought their teens in to meet with us?  We are happy to set up a meeting for you and your teen to discuss financial planning and investments as well as college planning concerns.  Please call our office for an appointment if this would be of interest to your family.

The streak of weekly increases is finally over for two of the three major indexes, with both the Dow Jones and the S&P 500 closing on Friday with a weekly loss for the first time in six weeks. The NASDAQ managed to eke out a positive return. Does this mean that the bear market rally has come to an end? Not necessarily, but investors who saw only an up-side to investments in the current market and took very large bets accordingly might bail out at the first sign of weakness. As stated in last week’s commentary, the market’s recent uptrend was unsustainable and a correction was inevitable. With the market already having a good case of the jitters it would not take of much for the markets to roll over and move significantly downward. We are currently investing for that possibility by taking defensive positions in the models. Currently the downside potential outweighs the upside potential in our opinion, and some of the possible events that could lead the markets lower include:

1. The bankruptcy of one or more of the big three in the auto industry

2. The results of the bank stress tests, showing a very unfavorable situation

3. The spread of swine flu in the developed world

4. Continued negative earnings releases

5. A spike in the price of oil due to a political shock to the system

6. The US consumer cutting back further on spending

7. Increasing unemployment in the US

8. The housing market in the US continuing to fall

9. Lending in the worldwide banking system continuing to be very sluggish

A few of the possible events which could move the markets higher include:

1. The US consumer growing more confident in the economy and increasing spending

2. The banking stress test results showing that banks are well capitalized

3. Upbeat quarterly earnings for the rest of reporting companies

4. The housing market bottoming out and possibly moving upward

5. The auto industry straightening out without any bankruptcies

6. Financial credit around the world beginning to flow freely

7. Drastically reduced volatility in the markets

8. Another round of monetary government stimulation

We currently feel that there is a greater possibility of seeing more events on the negative list than on the positive.

Gold moved up nicely over the course of the last week with prices increasing by more than five percent (presumably as people took some of their short term profits out of the market and bought into something with more perceived safety). We do not believe that gold will make a sustained move upward but will probably resume the downward trend of the past few weeks. Oil price, however, is probably near its current floor. It could possibly move lower, but as long as the tension in the Middle East remains at current levels there is very little that can decrease the price of oil a meaningful amount. Thus, if you currently own oil related stocks, now is probably not a good time to get out (especially if you have held them since the spike in oil prices over the last year or so).

For the trading week ending 4/24/09, the returns in our portfolio models are as follows:

	Last Week	Year to Date
S&P 500 (benchmark)	-0.32 %	-3.09 %
Aggressive Model	-1.92 %	5.73 %
Growth Model	-0.81 %	4.46 %
Moderate Model	-0.31%	1.70 %
Stable Model	-0.75 %	4.58 %

We made several changes in our various portfolio models during the course of the last trading week. One major move we made last week was to sell our small-cap fund, RYMKX. We sold out for a gain in order to take some of the current risk out of our portfolios. The small-cap indexes on Thursday created a large divergence in performance from the rest of the broad market indexes, falling by more than one percent while the other major indexes were up about one percent. Since the small-cap sector has performed the best since market-bottom back in March, this divergence was neither a good sign for small-caps nor for the broad markets in general. A second change we made last week was to sell China (UGPIX) at a very slight loss. The reason we sold this fund was that the Chinese government seems to be changing their policy on the amount of liquidity they would like in their financial markets. We feel that, over the long-term, investing in China will pay off, but for the coming few months it could be a very volatile investment while the government adjusts their monetary policies. A third move last week was to lighten our model weightings to emerging markets and Latin America. In both funds we sold half of our total positions to take profits off the table, as market volatility looks like it will temporarily increase in the coming weeks. The fourth move we made over the course of last week was to sell part of our allocation to financials based on the thought that they will probably not increase drastically in value with the release of the stress test results. We felt that the current situation did not warrant moving completely out of financials. Finally last week, we added a small hedge on our aggressive portfolios to lighten any downside potential that may occur in the coming days. This hedge is the first in a series of steps to hedge our portfolios if economic conditions do not change. We started with the aggressive portfolios since they have the most exposure to risky market sectors. Should deterioration continue, we will utilize more hedging as we move out of various positions.

A few of our current positions historically act as hedges due to the nature of their investments. Both Merger (MERFX) and the Arbitrage Fund (ARBFX) specialize in M&A investments. Historically, when a market makes an actual correction from a bear market to a bull market, the merger and acquisition industry takes off as companies that have survived the economic downturn seize the opportunity to either buy or merge with less fortunate companies to gain market position. Another relatively safe position during a market correction is the fixed income side of investing, in which we hold both high yield funds and municipal bonds. Finally, cash becomes more and more valuable as a market correction ensues, as evidenced by our heavy allocation to cash through the last part of 2008. On a very important note, if you are unsure of the model in which your investments are currently managed, or you are uncomfortable with your current model, this is a great time to give us a call and we can meet your needs.

Economic Wrap Up: Last week was a slow week for scheduled economic news releases with the only major releases having to do with the housing market. On Thursday, the existing home sales figures were released for the month of March and showed a slide in existing home sales over the previous month. New home sales figures for March came out on Friday the 24^th and showed a very slight decrease in home sales over the previous month. Durable goods orders were down but by less than half of what the street was expecting. This may signal a coming upturn in the economic cycle, although, most people are very skeptical of such an upturn at this time.

Unlike last week, this week is full of very important economic news releases starting with consumer confidence figures for the month of April due on Tuesday the 28^th. The figure released is expected to be near 29.5, a modest increase over the previous reading. If this number comes in worse than the previous reading of 26, then the markets could turn lower very quickly. Also released on Tuesday is the Case-Schiller Home Price Index, which should provide insight into whether the housing market is continuing in a free fall or if there has been some leveling off in housing prices across the US. We are leaning toward the figure showing a very small leveling off in the housing market. On Wednesday the 29^th we will see the advanced GDP figure for the first quarter of 2009, and, while the figure will likely be revised in the coming weeks, it will give a good idea of where the US economy is in the current market cycle. Also on Wednesday, the Federal Reserve will release their interest rate decision, which is expected to be a non-event with them leaving the rate between zero and one-quarter of a percent. On Thursday, both personal income and personal spending are released and could move the market if they show that the US consumer either has less money to spend or is spending less of what they could. Rounding out the week on Friday is another set of auto and truck sales figures. The expectation for the release is that automotive sales for April were much lower due to consumers waiting to see what happens to the big three with their plans for moving forward in some sort of partnership with the government.

Financial Planning Tip: Retirement Confidence Survey

A recently released survey by the nonpartisan and nonprofit Employee Benefit Research Institute (EBRI) shows record low confidence about retirement security. Only 13% of workers are very confident they will have enough money to retire comfortably, down from 18% in 2008 and from an all-time high of 27% in 2007

The reasons most commonly cited for declining retirement confidence included the recent economic uncertainty, inflation and the cost of living, job loss or a pay cut, loss of retirement savings, or an increase in debt.

The 19-year EBRI survey also shows many misconceptions still exist about retirement. Those include how much money will be needed and where the money comes from.

Here are some retirement facts:

·        Most workers in the U.S. today do not have a defined benefit plan. These plans, commonly called pensions, were common in previous generations of workers. Companies paid into these pensions and workers did not have to contribute. They have largely been replaced by defined contribution plans, which include 401(k) plans. Employees typically contribute the largest share to these plans, frequently with some company match.

The U.S. Bureau of Labor Statistics says just 20 percent of workers in private industry today have a defined benefit plan, or pension. About 43 percent have defined contribution plans.

·        Many people do not know how much money they need for retirement and large numbers of workers do not have enough saved to live comfortably. With 49% of people 55 and older having saved less than $50,000, many people will be forced to settle for a much lower standard of living in retirement than what they had hoped for.

A woman earning $40,000 at retirement would need to have $203,134 in savings by age 65 to ensure she could replace 80 percent of her income in retirement, according to EBRI calculations. This assumes she has purchased an annuity with a nominal guaranteed income and receives Social Security. A man under the same circumstances would need $190,138.

·        Few people have actually calculated how much they need to retire comfortably. Just 44% of survey respondents say they have actually calculated how much money they will need to retire comfortably, and an equal proportion (44%) say they simply guess at how much they will need for a comfortable retirement.

Please contact our office if you would like a new or updated financial plan that will project how much you need to save in order to attain your desired retirement lifestyle.

Source: “The 2009 Retirement Confidence Survey,” EBRI Issue Brief, no. 328, April

2009.