Balanced Perspective
Balanced Asset Management Newsletter ~ Summer 2011
The Fireworks
Many of us celebrated our
nation’s birthday this month
by watching fireworks. If
you’re like me, you sometimes
wondered after a long flurry
of colorful explosions, whether
you just witnessed the finale,
or were more explosions to
come?” In a similar way the
stock market has put on
an impressive show only to
pause a couple of times and make us wonder, “Was
that it? Is it over?” Each time it has continued on to
reach new heights.
The latest spectacle has all eyes on politicians
who are playing chicken with the economy as they
debate raising the debt ceiling. The grandstanding seems to overshadow the larger issues related
to the right amount of spending and taxes for our
government. One thing is sure – we cannot continue
down a path that leads to a fate like Greece. Many
are worried about the possibility of a government
shutdown or default if the two parties can’t work out
a compromise. Don’t be surprised if a deal is struck
in the eleventh hour that at least begins to confront
these serious problems. It could be like fireworks all
over again. If that happens, it could be viewed positively and provide a catalyst for the financial markets.
Stranger things have happened.
“Balance, peace, and joy are
the fruit of a successful life.
It starts with recognizing
your talents and finding ways
to serve others by using them.”
- Thomas Kinkade
A Little Sameness
in a World of Change
If you haven’t heard, this past spring we renewed our
office lease for five more years. We love the location
and think it is a convenient place for our clients to
visit for regular reviews. The building owner has been
steadily (albeit slowly) making improvements to the
facility over the past couple of years and more are
planned.
Inside the Balanced Asset Management offices we
try to keep a professional but comfortable feel to the
space you visit. We like to think we are welcoming
you into our home. Occasionally over the years we
debated installing a sign in the waiting area. We al-
ways abandoned the idea because a corporate-looking sign just didn’t seem quite right. Recently though
we commissioned Brad Meissner to create new art
that hangs in the waiting area. It’s not really a sign as
much as it is a way to say “Welcome to our home.”
Taxes
in the Good Old Days.
Congress is currently debating whether or not it
makes sense to raise our taxes in an effort to lower
the huge debt of our country. We thought it might
be interesting to look back into the history of income
taxes and compare the past to the current tax rates
for a married couple filing jointly.
This year there are six tax brackets. The top
bracket applies to wage earners making $380,000 or
more. They are taxed at a rate of 35%. As recently as
2001 you paid that same top rate if you were making
only $166,000.
1990 was a much more simple time. There were
only two tax brackets back then. If you made less
than $32,000 you paid 15%. Anything above $32,000
was taxed at the rate of 28%.
In the seventies taxes were higher and much more
complex. In 1975 there were an unbelievable 25 different tax brackets and if you were lucky enough to earn
$200,000 or more you paid 70% back to the government. Not a good decade to be successful.
Previously, in 1963 it was even worse. The top tax
rate was 91% if you earned more than $400,000. Of
course $400,000 in 1963 was a very large income.
However, if you are being taxed at 91% you would
have to think long and hard about whether it was
worthwhile to make $401,000 if you had to pay 91%
of the extra thousand to the government. That of
course, is part of the current discussion. At what tax
rate do you take away the incentive to work harder
and longer.
Review – The stock market (S&P
500) has traveled a bumpy road so
far this year. The first bump in the
road was a reaction to the tsunami in Japan and the uprisings in
North Africa and the Middle East.
Despite these historic events the
U.S. stock market bounced back
in just a month. The second bump
in the road began in May and was
the product of reignited fears that
Greece would default on its debt.
The possibility of these problems
extending beyond Greece to the rest
of the Eurozone added to the fear.
We experienced de ja vu as you may
remember the same issues in May
and June of 2010 causing a near
20% decline in the stock market.
This time the stock market recovered by the end of June and was
up a respectable 6% at the halfway
point of the year. In our last Market View, we mentioned that this
year could be a year of double digit
returns in the stock market, but it
would be a bumpy ride. We’re right
on track!
Outlook – The story hasn’t
changed much in the past year.
We continue to face the same big,
structural challenges that aren’t
going away any time soon: high
unemployment, a depressed housing
market and oppressive government
debt. These challenges are playing a
game of tug-a-war with some positive forces: strong corporate profits, large corporate cash positions
(see chart 1), low interest rates and
reasonable stock valuations. It’s this
economic tug-of-war that created
volatility in the stock market during
the past two years. This battle will
continue to play out over the next
several years.
While Washington debates the
government debt ceiling it seems
apparent that the U.S. will be faced
with austerity measures in some
form. We still expect a “muddle
through” environment where the
economy might grow at a 2-3%
rate. That is not robust enough to
drive significant improvement with
unemployment or housing over the
short-term. However, companies
have proven that even with slow
growth they can increase earnings.
The stock market could grind higher
Market View
Summer 2011
Economic Observations
& Market Analysis
in this environment.
A short-term catalyst may be
born out of the debt ceiling debate.
Even small steps toward addressing
our nation’s deficit and debt problems could boost confidence. If we
can make steady, albeit slow, progress toward meeting the challenges
mentioned earlier we would then
be positioned to benefit from some
big economic tailwinds in the years
ahead. An emerging middle class in
places like China, India, Brazil, etc.
will drive global growth for the next
ten or more years (see chart 2). This
supports our long-term themes of
emerging markets (stocks & bonds),
technology and natural resources.
The U.S. economy also stands to
benefit greatly as this increasing
global demand leads to increased
sales, profits and jobs for U.S. companies. It won’t be a smooth ride,
but then it never is. Let us help you
navigate through the bumpy roads
and smooth the ride for you.
Regular reviews are a critical part of
a good investment experience, but
if you have any questions between
your reviews please do not hesitate
to call us.
CORPORATIONS INCREASE THEIR CASH
Corporate cash as a percentage of current assets
28%
26%
24%
22%
20%
18%
16%
14%
‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
‘09
‘10
Chart 1. S&P 500 companies – cash and cash equivalents, quarterly
THE WORLD’S MIDDLE CLASS IS
GROWING AT A SIGNIFICANT RATE
80%
5.1
Billion
60%
3.3
Billion
2.6
40%
Billion
1.4
873
Billion
1960
1980
1.8
Billion
Million
20%
1990
2000
2006
2025
Chart 2. Percentage and size of middle class population in the world.
Fun Facts
Pass the Chips
Bags of Doritos, Tostitos and Fritos now hold 20% fewer
chips than in 2009 as food inflation is kept hidden in tinier bags. (This is a blessing in disguise for those tempted
to pound down a whole bag in one sitting.)
Restaurant Review
Momocho • 1835 Fulton Road • Cleveland, Ohio 44113
(216)-694-2122
We bring friends to Momocho when we’re looking for
a unique evening, especially out-of-towners. Momocho
makes Cleveland feel like a hip place to be. It’s a short
drive (about 15-20 minutes) from our Westlake office
to Ohio City. Momocho is a food experience that makes
“traditional” Mexican food seem obsolete. On our first
visit we ordered the margarita sampler to taste four
different flavors. Drink slowly. The little
sample glasses make you want to hurry
to the next flavor and you’ll see the
effects of that error pretty quickly. The
cucumber margaritas get all the press
but we’re partial to the Pomegranate
and Blood Orange.
It will expand your stomach beyond
capacity, but at least for your first visit,
order the guacamole sampler. Choose
three of their six flavors. Our favorites
are the goat cheese and the pineapple
guacamole.
Momocho is known for their “taquitos” which are corn tortillas. You select the ingredients
that go inside. Our favorites are “Machaca” which is a
beef brisket with coffee hintings, and the “Pescado”,
mahi mahi with flavors of pineapple and mint.
Try to save room for their signature desserts: The
bread pudding and the fried ice cream are the two
that were featured on the T.V. show “Diners, Drive ins &
Dives”.
I would highly recommend reservations. The patio
is special, as is the service. We’ve been going for a few
years now and have always had great service. Don’t
miss this restaurant. It’s one of Cleveland’s gems.
This is the one
This year we are going to experience four unusual dates:
1/1/11, 1/11/11, 11/1/11, 11/11/11 and that’s not all. Take the last
two digits of the year in which you were born. Now add
the age you will be this year, and the result will be 111 for
everyone!
Not Rich Yet
Forty percent of Americans with a minimum of $1 million
in liquid assets say they do not feel rich. On average,
how much do they say it would take to make them feel
wealthy? $7.5 million.
Number of zeros
3
6
9
12
15
18
21
24
27
30
33
36
39
42
45
48
51
54
57
60
63
What you call it
thousand
million
billion
trillion
quadrillion
quintillion
sextillion
septillion
octillion
nonillion
decillion
undecillion
duodecillion
tredecillion
quattuordecillion
quindecillion
sexdecillion
septendecillion
octodecillion
novemdecillion
vigintillion
Investments and
Financial Planning
CFP
“I retire on Friday and I haven’t saved a dime.
Here’s your chance to become a legend!”
Spring Client & Guest Night
Our Spring Client and Guest Night was held at the
Spitzer Conference Center of Lorain County Community
College on May 4th. John Mauldin, author of The Endgame, was our keynote speaker. Mr. Mauldin painted a
future of difficult choices for our country as we try to
emerge from the Great Recession. Joe Scarpitti from
American Funds followed with a presentation focused
on a historical perspective and reasons for optimism.
Our final speaker was from Royal Caribbean Cruise lines
and she highlighted the joys of a vacation cruise. The 150
clients and guests who attended enjoyed another successful evening filled with good food, nice refreshments
and plenty of education.
Future Events
October 12th – Every spring and fall we host an educational event for our clients and guests. It has been our
privilege to feature some of the top minds in the world
of finance and economics at these events. Normally,
the financial topics take center stage and we close the
evening with a non-financial speaker of interest. This
fall we are switching the order – Dr. Pamela Smith, a
leading author, speaker and advocate for healthy living
and longevity will be our keynote speaker. The evening
begins at 6:30 PM with refreshments and light hors
d’oeuvres and the presentations will begin at 7:00 PM.
Look for your invitation letters containing more details
in September, but feel free to call if you would like more
information.
Contact Info
Advisors
Jeff Meissner |[email protected]
Kevin Doss | [email protected]
Alan Leitson | [email protected]
Gary Sprecher | [email protected]
Planning Assistants
Amy Tanski | [email protected]
Jessica Gonzalez | [email protected]
balancedassetmanagement.com | Office:(440) 925-3040
30400 Detroit Rd. | Suite 305 | Westlake, OH 44145
Registered Representative,Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC.
Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Balanced Asset Management are not affiliated.