Archive for the ‘Messages to Starmont Clients’ Category

Soft Patch or Brick Wall—The Economy Slows and Stocks Sink

Tuesday, June 21st, 2011

May was a down month.  Global stock  market indexes were down–from 1.1% (the S&P 500 index and the Russell 1000 Index–domestic large cap stocks) to 3.2% (EEM Index–emerging markets).

Global REIT indexes (commercial real estate) also were down, as was the commodities index.

Domestic and international bond indexes were mixed, with the Barclays Capital U.S. Aggregate Bond Index up 1.3% and the JP Morgan GBI Global Bond Index down 1.2%.

However, when we evaluate the first five months of 2011 as a whole, we see that all indexes are positive for 2011 through May 31st, with the domestic stock indexes up around 6%; the international stock indexes up around 4%; and the domestic and international bond indexes up around 4%.

All Starmont Client accounts are positive for 2011 through May 31st—with the amount dependent on how their assets are allocated among the various asset groups.  So far in 2011 the higher the allocation to equities, the better the portfolio performance.

The first six trading days in June have continued the negative trend from May.  Some analysts have described what is happening as a “soft patch” in the economy; others have said that the U.S. economy has “hit a brick wall.”  Some economists are revising their estimate of 2011 GDP in the United States to 2.0-2.5% from previous estimates of 3.0-3.5%GDP of 2% is not enough to create jobs and grow the economy at a sustainable rate.

Starmont has received a number of questions about the situation, and we thought that we would share those questions and our responses with you.

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Earthquakes, Tsunami and Nukes, Oh My – Starmont’s First Quarter 2011 Report and 2011 Outlook

Tuesday, May 3rd, 2011

1st Quarter Summary

The equity rally of the last three months of 2010 carried over into the first two months of 2011.  Then the earthquake, tsunami and nuclear problem in Japan, and the events in North Africa and the Middle East stalled the market in early March.  This was followed by significant drops in mid March, and then a recovery in late March. This created a mostly flat month for the domestic equity market, a down month for the developed international market, and an up month for the emerging international market.  We expect global equity markets to behave like this more often than not going forward given all that is happening in the world at the present time.

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View Slides from Starmont’s March 15th Webinar

Friday, March 18th, 2011

Is the Stock Market Getting Its Mojo Back?: Find Out Why 2011 Could Be the Inflection Year for the Stock Market

After a decade of the stock market underperforming historical norms, the economic winds seem to have changed. 2011 may be the year that the stock market returns to its historical long-term performance. At Starmont we have been increasing the equity allocation in most of our Clients’ portfolios. Harvey Rowen, Starmont’s CEO and Chief Investment Officer, discusses the thinking behind this strategy and answers frequently asked questions on topics like the next correction, buying gold and the outlook for bonds.

Click Here To View Slides

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2010 Review & 2011 Outlook

Wednesday, January 26th, 2011

We want to give you Starmont’s evaluation of last year’s market performance, do some prognostication on how the markets may shape up in 2011 and provide a glimpse into our new year investing strategy to preserve and grow our Clients’ net worth so that they can lead the lives they want to have. We also want to discuss some other aspects of Starmont’s services that we provide as part of our relationships with our Clients.

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Greetings from the Internal Revenue Service! Gifting Programs in Anticipation of Higher Estate Tax Rates

Friday, September 24th, 2010

To Our Valued Clients, Their Tax Advisors and Estate Planners,

Greetings from the Internal Revenue Service!

While you will not actually receive a notice like that from the IRS on January 1, 2011, effective on that date you will have a much closer relationship with the IRS than you do today.

As I pointed out in my August 23rd e-mail (posted on our website: www.starmont.com),

“You are facing a large tax increase in 2011 unless Congress enacts legislation to prevent it.”

One of the taxes scheduled to go up on January 1st is the estate tax. As I previously stated, “Estate taxes are re-imposed at 55% with a $1 million per person exemption compared to the 2009 rate of 45% with a $3.5 million per person exemption (there is no estate tax in the United States in 2010).”

For people with estates valued over $1 million or couples with estates valued over $2 million, one way to deal with this is to begin an annual gifting program. The gifts would probably be made to the beneficiaries of the givers’ trusts and/or wills, so beneficiaries would receive the money now instead of when the givers passed away.

As long as the giver does not make an annual gift of more than $13,000, there is no gift tax owed, no matter how many $13,000 (or smaller) gifts are made. Thus a giver could give to, for example, children, spouses of children, grandchildren, etc. Gifts to minors could be placed in a trust or used to fund a 529 Plan for college education.

Recipients of the gifts pay no taxes of any kind upon receipt of gifts.

Givers can also make gifts directly to educational institutions and/or to providers of health care services on behalf of the recipients of those services without incurring any gift tax, no matter the size of the gifts.

The problem with a gifting program is the givers’ fear that their money will run out before their “plans end” (the Starmont planning software euphemism for death).

But the goal of the gifting is to reduce the size of the estate to the exemptive amount ($1 million for individuals, $2 million for couples) at the time the giver’s plan ends. Givers have to make informed decisions about how much to gift each year, given their liquidity needs, age and health situation. For Starmont Clients who are going to be givers and not receivers, Starmont can do a cash flow analysis that shows the effect on the overall portfolio of different levels of giving.

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Higher Taxes on Their Way—Steps You Need to Take Now!

Thursday, September 2nd, 2010

Americans are facing a large tax increase in 2011 unless Congress enacts legislation to prevent it. There appear to be three windows of opportunity for Congress to act:

  1. 1. When they come back in session after Labor Day and before they go away for the elections in November;
  2. 2. In a lame duck session after the elections and before this Congress adjourns;
  3. 3. Next year after the new Congress convenes in January, if it were to pass legislation retroactive to
    January 1, 2011.

Our view is that nothing will get done by this Congress this year (indeed, so many incumbents are likely to get defeated in November that they may decide not to have a lame duck session, and the chances of anything except talk happening before the election seems remote in our view).

If we are correct, then on January 1, 2011, the following happens:

  • - Income tax rates go up for everyone, with the top bracket going from 35% to 39.6%
  • - Long term capital gains tax rates go to 20% from the current 15%
  • - Taxes on dividends go from the current 15% to 36.9%
  • - Estate taxes are re-imposed at 55% with a $1 million per person exemption compared to the 2009 rate of 45% with a $3.5 million per person exemption (there is no estate tax in the United States in 2010)

Thus you may want to meet with your tax advisor to discuss the following:

  • - Should you accelerate income into 2010 and defer deductions to 2011 (the reverse of the usual advice)?
  • - Should you take more than your required minimum deduction from your tax-deferred account(s) in 2010, paying at the lower 2010 income tax rate and lessening the amount in those accounts that will be withdrawn in later years at higher income tax rates?
  • - If you are younger than 70 years and 6 months and older than 59 years and 6 months, should you take money out of your IRA account for the same reason?
  • - Should you convert some or all of your IRA money into a Roth IRA for the same reason?
  • - Should you take capital gains in your taxable account(s) before December 31st in order to take capital gains at this year’s lower rate?
  • - Do you need to make any changes to your estate plan in light of the significantly lower exemption ($2 million per couple vs. $7 million per couple in 2009) and the higher estate tax rate?

For Starmont clients, we would be happy to be part of those conversations, either in person or by phone.

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First Half Market Update Part 2: Which Asset Classes Provide the Greatest Opportunity At This Time?

Tuesday, August 10th, 2010

In a word, none.

Equities are undervalued if you look at their projected price-to-earnings ratios at the end of this year, based upon projected earnings. But the projected earnings may be overstated if the economic recovery slows down or stops altogether. Emerging market equities are the new hobby-horse of the investment community. Our clients’ portfolios hold some, but the attention of the “what’s hot” crowd probably means they will do badly for a while until the investors with ADHD move on to some other “hot” product.

Bonds were the best-performing asset class in the decade just concluded and are the best so far in 2010. But when the Fed starts to raise interest rates (not a 2010 likelihood at this juncture), the value of outstanding bonds will fall. Our two Morningstar award-winning bond managers, Bill Gross at PIMCO Total Return and Dan Fuss and his team at Loomis Sayles, have produced positive returns so far this year while trying to position their funds for interest rate increases down the road.

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First Half Market Update Part 1: Economic Growth

Monday, August 9th, 2010

Global stock markets were down 6% to 13% in the first half of this year (depending upon which index you look at). Starmont Clients were flat to down 1% – 3% (as always, this is net of fees and costs). This is because Starmont Client portfolios underweight the equities market, and our Clients’ fixed income holdings are up for the year but not as much as the equities are down. (July was a better month, and most major domestic stock indexes are around flat as of July 31.)

Through June 30, the year was a tale of two stock markets. The first part of the year through April 25 was a continuation of the strong 2009 bull market. Indexes were up and it appeared that the recovery was taking hold. But things turned, and from April 26 through June 30, the market (as measured by the S&P 500 Index) dropped over 17%.  May was horrible (the worst May for the Dow Jones Industrial Average since May 1940). June was bad as well but not as bad as May.

The questions now are:

     – Whether the economic recovery will continue in the United States and globally, and if so, at what pace, or will the US and/or the global economy slip into a double-dip recession?

     – Where will growth come from?

     – What asset classes present the best opportunity to add value going forward? (This question will be addressed in Part 2 of the First Half Market Update coming tomorrow.)

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We are the Guardians of our Clients’ Dreams

Friday, July 16th, 2010

Two significant things happened yesterday:

- Congress passed the financial reform legislation, designed to prevent the kind of behavior by investment banks, commercial banks, and other kinds of financial institutions that led us to the brink of the worst depression since the 1930s; and

- Goldman Sachs settled their case with the Securities and Exchange Commission, agreeing to pay a fine of $550 million because of double-dealing with their Clients.

All of this came about because of the belief of many people in the financial services industry that if their behavior with their Clients wasn’t illegal, it was acceptable.

At Starmont we have a very different point of view. 

We believe that we are the guardians of our Clients’ dreams.  Based upon that belief, our behavior must not only be legal, it must be moral and ethical.  Our Clients must always know that we will do what we believe is best for them. In our view there is no other way to behave when you are dealing with other people’s money.

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Portfolio Equity Allocation Changes for Starmont Clients

Tuesday, June 29th, 2010

A letter from Harvey Rowen, CEO and CIO, Starmont Asset Management LLC

 To Our Valued Clients:

We are lowering portfolio equity allocations so that no Starmont Client has more than 40% of his/her/their/its portfolio in equities—down from 50%.

The decision over the weekend of June 26-27 by the G-20 to forego any further stimulus and to start cutting budgets (firing people) has made the market very nervous about global growth going forward, as was evidenced in recent stock market declines.

While President Obama said that the United States would follow a somewhat different path and keep stimulating now, and then half the US deficit by 2013 once we were out of the recession, it is unlikely that he can get any further stimulus legislation through Congress. This raises the question of where jobs are going to come from, and without jobs, what will drive growth in the United States and abroad?

On the positive side, the current concern about growth has in all likelihood delayed the Fed from raising the Fed Funds rate until sometime in 2011. The proceeds of the equity sales we are now making will go into fixed income, which is showing positive returns for the year, and we should not have to worry about rising interest rates (and lower values on outstanding bonds) for a while.

Best Regards,

Harvey Rowen

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