Winter 2009 - Client Update Letter

We completely understand the pain and emotions you have felt in dealing with the turmoil over the last several months. Almost everything you see, hear and read is unsettling and frustrating. Rather than make this a very long letter talking about the past few months, we would rather bring a few things to your attention and review a few economic factors that could contribute to a recovery.

A new law passed in December, allowing most IRA owners who are required to take distributions to suspend distributions for all of 2009. If you are required to take income from your IRA and you do not need the money, call us and we can suspend your IRA distributions for this year. This could be a large tax savings for you. Please see the attachment.

We realize some people may feel like they need to make major changes to their investment portfolio. In times like this, your tolerance to risk may have changed. If you feel like you can’t take risks and want to consider alternative ways to control risk, let us know. We can certainly understand.

On the positive side, here are several forces that have historically contributed to economic viability. The Federal Reserve is a key player in our financial system. The Fed has lowered the federal funds rate to a range of 0% to 0.25%, which is known as the zero interest rate policy. The Fed has also adopted a policy of buying Treasury securities in order to hold down interest rates and increase monetary growth. For now, we suspect the Federal Reserve will hold interest rates down for an extended period of time. Commodity prices have also fallen sharply. Lower raw materials and energy prices (especially gasoline) will decrease the cost of goods and services over the long run. This should keep the price of products we buy stable and lower commodity prices should be a deterrent to higher inflation. Also, President-elect Obama has proposed a massive fiscal stimulus program, which, as it stands now, could be close to one trillion dollars. Although the details are still emerging, a large part of the program will be tax cuts, which allow workers to keep more of what they make. Another objective is to employ up to 3.5 million workers. Ultimately, the goal is to give Americans the confidence to spend and to have faith in our economy.

Because the credit crisis shock was so severe last fall, we expect to see disappointing economic news for months. At some point, the economy will turn around, we just don’t know when. This recession started 13 months ago in December 2007. Perhaps we can find solace in knowing we are 13 months closer to the end of this recession. History shows that periods of turmoil and steep market declines have subsequently proven to be among the best time to invest.

Every bear market has been followed by a bull market (higher stock returns). Furthermore, stocks routinely rebound ahead of an economic recovery. In fact, it is not unusual for the markets to bounce back strongly in the face of a contracting economy with no end in sight. We are optimistic this bounce back will happen this year. If you would like an in-depth economic analysis or have any questions, please call us at (800) 381-7431.

Sincerely,

Gary P. Klein, ChFC                                           Bill Beeler
Chartered Financial Consultant                           Financial Advisor

                                                                               *Attachment to letter