To Our Valued Clients and Friends, 

Happy New Year!

May 2012 be a year of peace, happiness, prosperity, and a lot less stress!Starmont spent the last week of December reviewing taxable accounts, and seeking to “harvest losses” by selling positions in those accounts that had losses, so as to offset taxable gains in those accounts. In some cases we were able to eliminate all taxable gains; in most cases we were able to eliminate some but not all of the taxable gains, and in some cases we had no losses in the taxable account to harvest. The end of December is the one time of the year that those of us at Starmont wish we had more losses in our Clients’ taxable accounts.You will be receiving confirmations from Charles Schwab, or e-mail notices from Schwab letting you know that confirmations are available to you on-line, reflecting the sales. We will be e-mailing to Starmont Clients, and to your CPAs, the final Gain/Loss report for all taxable accounts prior to the January 15th due date for final estimated income tax payments for 2011.The sales left large amounts of cash in taxable accounts. As many of you know from conversations we had in 2011, Starmont believes that this is not the right time to be holding cash. Cash is yielding about 4/10ths of 1 percent per year (40 basis points), while the headline inflation rate is 3.8% per year (380 basis points), giving cash a “real return” of negative 3.4% (340 basis points). We use the “headline” inflation rate because our Clients pay for food and gasoline, so deleting the inflation rate for food and energy to calculate the “core” inflation rate makes little sense to us.

We will be investing the cash in our Clients’ accounts in January. Because of the “wash-sales” tax rules, we will not be able to buy the same funds that we sold for 30 days. But we want to have all cash invested before 30 days, unless something happens in the global equity markets to cause us to pause our equity purchases.  Since we follow a number of funds in each fund category, we know to which funds to turn to make these purchases. As a reminder of the criteria Starmont uses to purchase funds, read Harvey Rowen’s new article on Forbes.com. Here is a link:

http://www.forbes.com/sites/halahtouryalai/2011/12/29/5-questions-to-ask-before-picking-a-mutual-fund-in-2012/