Previous Messages From the Desk of Michael McDaniel

(8/30/2010) Time for a Pep Talk - Not even amidst the 2000/2001 “dot-com bust” or “2008 financial crisis” was the level of pessimism about the future as high as it appears to be today. Skyrocketing government debt, the ill health of our Social Security system, prolonged high unemployment, expectations of massive tax hikes and a perceived disconnect between taxpayers and our elected officials are all real reasons for concern. The mood of America is low. I just started reading “Mood Matters” by John L. Casti to help me understand this phenomenon (I will report back when I finish)................................I believe that investment opportunities exist................. Warren Buffett on investment timing: “Be fearful when everyone else is greedy and be greedy when everyone else is fearful.” So what do we do with our investments? I continue to rely on a diversified portfolio in concert with relatively high cash positions in this high anxiety investment environment. Fortunately we have a political system which allows us as voters to alter our country’s course. Much of what ails our country and thus our mood is controlled at the polls. Please make a concerted effort to vote November 2nd. The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.    Michael McDaniel

(8/18/2010) Low Interest Rates On Savings - Low Rates and A Foggy Conscience - For several months now I have fielded questions concerning this historically low interest rate environment. Namely, “What should I do with my cash?” As prudent investors it is wise to maintain an emergency fund, which is liquid and FDIC insured. The Federal Reserve has lowered interest rates to “emergency levels” for a prolonged period of time. This action has manipulated savings rates for our “cash” to extremely low levels. FDIC insured Certificates of Deposit (CDs) are now yielding 1% or less for 12 months maturities. The Federal Reserve manipulates rates as a means to control our actions. They lower rates to boost economic activity. When savings rates are low you are manipulated into spending your savings (“I am not making anything in cash, so I should just spend it”) or increasing the risk in your portfolio (“I am not making anything in cash, so I need to buy riskier investments like stocks or bonds”) or “I will just live with the fact that my savings is making nothing.” I have chosen to live with the fact that my savings is making nothing rather than spend frivolously or increase the market risk in my portfolio. The savings yields manufactured by the Federal Reserve are pathetic but at least I know I have my emergency funds intact. Note: CD’s are FDIC Insured and Offer a fixed rate of return if held to maturity    Michael McDaniel

(7/7/2010) BP - I continue to suggest that my clients hold BP stock. Why? 1.) I continue to like energy investments. Energy is a tangible item (think barrels of oil), energy is needed by all economies worldwide and energy has historically been a good hedge against inflation (which I believe is coming). 2.) I believe that the market has discounted BP stock too much. Today, June 30th, BP stock is trading at $28.75 per share. The value of all their assets (oil inventory, gas inventory, real estate, equipment, etc) is $33.25 per share [Yahoo Finance]. Please note that BP’s stock usually trades at 2-3 times the value of their assets (a.k.a “book value”). Meaning that if BP were forced to sell all their assets they would be worth more than what they are trading at today. Over the past few years BP’s revenues and profits were vilified. Now those revenues and profits will be needed to pay for clean-up and on going liabilities. BP’s 2009 revenues were over $265,000,000,000. It is my expectation that such a revenue stream will be able to handle the expense of the immediate clean-up costs and future liabilities. Among other things we need the well to be capped and BP needs another headline to take their place. I will continue to monitor this situation.    Michael McDaniel

(5/25/2010) Is this 2008 again? - The large and swift correction throughout the world’s stock and energy markets surely has my attention. In fact, some international markets have dropped over 20% in the recent weeks; causing me to classify them “crashes.” As I write this piece (May 20th 2010) the United States stock market (as measured by the S & P 500) is down over 12% since the highs reached just last month (April 2010); thus, I characterize this as a correction. We need to remind ourselves that the S & P 500 just finished an historic rally from the March 2009 lows; the S & P 500 is still up over 59% since the March 2009. I have received a few communications from worried clients. I have been asked if this is 2008 all over again? Is the Sky falling? Reasons to be concerned: · The unemployment rates here and abroad are poor (USA 9.9%, Spain 20%, Germany 8.2%- source BBC) · Inflation rates are expected to increase due to the increased printing of “fiat currency” · Many countries are struggling to refinance their debt (Greece…Spain?…) · Our own Federal Reserve has interest rates pegged at “emergency levels for an extended period of time” (source: US Federal Reserve) However, it should be highlighted that the United States is a safe haven investors around the world flee to when uncertainty increases. This is reflected in the fact that throughout the recent market correction the US Dollar has strengthened and investors are demanding US Debt. Though either or both of these trends can reverse at any time it is comforting to know that our country’s currency and debt is in high demand. The high demand for US Dollars and US Debt is very good news for Americans. In summary, it should comfort us that we had such a strong rally (March ’09 through April 2010), that our currency is strengthening and that our government’s debt is in high demand. *The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.    Michael McDaniel

(5/6/2010) Volatility Returns to the Markets - Written May 3rd (compliance approved on May 6th) While Greece sits in the crosshairs of bankruptcy and additional countries get in line for EU bailouts (Spain next?) volatility will remain high. Over the past year the overriding theme surrounding my investment decisions has been the value (or lack thereof) of the US Dollar versus other currencies. I have been “short term cautiously optimistic” while being “long term pessimistic” over the past year despite a strong US stock market rally (as measured by the Standard and Poor's 500). This view was a way to hedge the weakness of the US Dollar, which has been inversely proportionate to the returns in the stock market. In other words, as the US Dollar value declined all assets denominated in US dollars (stocks, gold, oil) went up. I believed that the weakness in the US Dollar would cease for a period of time on news that our Federal Reserve might raise interest rates to fight inflation which would strengthen the value of the US Dollar and put downward pressure on stocks, gold, and oil. Instead of the Fed strengthening our currency, extreme weakness inside the European Union has caused investors to once again flock to the USA for safety, pushing the US Dollar value (and volatility) up; and stock, gold and oil markets down. While Greece sits in the crosshairs of bankruptcy and additional countries get in line for EU bailouts (Spain next?) volatility will remain high. If you question how much risk is in your portfolio or wish to review your holdings please contact Phyllis or myself to set up a review. *The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.    Michael McDaniel

(4/21/2010) Low Rates and A Foggy Conscience - For several months now I have fielded questions concerning this historically low interest rate environment. Namely, “What should I do with my cash?” As prudent investors it is wise to maintain an emergency fund, which is liquid and FDIC insured. The Federal Reserve has lowered interest rates to “emergency levels” for a prolonged period of time. This action has manipulated savings rates for our “cash” to extremely low levels. FDIC insured Certificates of Deposit (CDs) are now yielding 1% or less for 12 months maturities. The Federal Reserve manipulates rates as a means to control our actions. They lower rates to boost economic activity. When savings rates are low you are manipulated into spending your savings (“I am not making anything in cash, so I should just spend it”) or increasing the risk in your portfolio (“I am not making anything in cash, so I need to buy riskier investments like stocks or bonds”) or “I will just live with the fact that my savings is making nothing.” I have chosen to live with the fact that my savings is making nothing rather than spend frivolously or increase the market risk in my portfolio. The savings yields manufactured by the Federal Reserve are pathetic but at least I know I have my emergency funds intact. Note: CD’s are FDIC Insured and Offer a fixed rate of return if held to maturity    Michael McDaniel

(2/9/2010)   - February 5, 2010 Recently stocks (international and domestic), precious metals (Gold/Silver), and oil have dropped substantially. As I suggested in my 12/2/2009 market commentary “I believe that the value of the US Dollar (or lack thereof) is determining the direction of the US market more so than earnings expectations.” The US Dollar has rallied substantially since my December comments and assets valued in US Dollars have dropped significantly. I had hoped that the FED would signal a rate increase as the catalyst for improvements in the value of the US Dollar. Instead, debt fears around the globe have once again caused a flight to safety; creating demand for US Treasuries/US Dollar. A distinct stock market rally has been in affect since March of 2009. Recent stock market losses have broken some technical resistance levels; which indicates that the trend from March of 2009 may be nearing an end. If the Standard and Poor’s 500 closes under 1,000 I would declare this trend “done.” What will the next trend be? The questions guiding my investment actions in the short term are: 1.) Will the debt problems in Greece, Spain, etc continue to dominate the news? 2.) How much will the US Dollar rally? 3.) Will our current earnings season provide reason for optimism? 4.) Will the FED signal a rate increase? 5.) Will Domestic unemployment #’s improve? We have tried to allocate our client portfolios in a manner that would take advantage of a continued stock market rally while not ignoring the aforementioned risks. If you would like an analysis of how much “risk” (as measured by standard deviation) your portfolio has, please let us know. If you feel a need to have a detailed review of your portfolio please let us know. *The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.    Michael McDaniel

(12/2/2009) December 2, 2009- US Dollar is the Key - According to Standard and Poor's (www.standardandpoors.com), the S & P 500 currently has a Price to Earnings ratio of 27 through September 30th. This historically high P/E suggests that "the market" expects earnings to increase substantially in the coming quarters. Traditional stocks (and possibly corporate bonds) could drop in value if earnings do not increase substantially. I believe that the value of the US Dollar (or lack thereof) is determining the direction of the US market more so than earnings expectations. As the value of the US Dollar drops to new lows all assets priced in US Dollars reflate in value to compensate. I expect the value of the US Dollar to drop until our Federal Reserve decides to raise interest rates from their current "emergency levels." Until the FED starts protecting us against inflation and a devaluing Dollar the US stock market (also precious metals and oil) should continue to rally. This is all good and dandy until the FED inevitably starts raising interest rates; at which time assets priced in US Dollars will drop in value (deflate). I remain cautiously optimistic. I continue to find investment opportunities in regions with high concentrations of natural resources, relatively more sound monetary policy, and higher GDP growth; such as Latin America (Brazil), Australia, China, Canada and India. In addition I have continue to target natural resources domestically and abroad (gold, silver, energy, etc). *The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.   Michael McDaniel

(9/9/2009) Risk versus Reward - August 26, 2009 (compliance approved September 1st, 2009) On October 10th 2007 the Standard and Poor’s 500 Index (S&P 500) closed at 1562.47. Stock markets around the globe have rallied significantly since it bottomed in March of this year. Today the S&P 500 opened at 1027.35. Even with a sizable rally in 2009 the S&P 500 is 34% below its 2007 high. (1) Earnings are important. Second quarter 2009 S&P 500 earnings mirror that of the earnings of the S&P 500 in the third quarter of 2004; at which time the S&P 500 was at 1114.58. Third quarter S&P 500 is 7.8% above today’s (8/26/09) S&P 500. (1) Earnings expectations are important. Standard and Poor’s expects earnings growth of 26.5% over the next 12 months (for S&P 500 companies). (1) According to Bloomberg, “The chief U.S. investment strategist at New York-based Goldman Sachs also lifted his 2009 and 2010 earnings estimates for S&P 500 companies to $52 and $75 a share, which are 30 percent and 19 percent higher than prior estimates.” (2) Do we believe this? I think such expectations are overly optimistic given the ill health of real estate (residential and commercial), weak capital markets, and the continued burning of the US Dollar. What is the point of this exercise? The markets (domestic and foreign) appear to be hitting resistance over the past week. Is this a pause in the rally, a top or a buying opportunity? If we believe the earnings estimates then it would be prudent to use this pause as a buying opportunity. This exercise has shown me that the market is valued in line with earnings (using this sophomoric minimal data point analysis). I need to see prolonged periods of earnings growth before I am a believer. What this analysis leaves out of the equation is the ever weakening value of the US Dollar versus other currencies, historically low treasury rates, historically low FED controlled rates, inflation projections, commodity prices, etc etc. I am inclined to continue to dollar cost average (tip-toe) into the markets (targeting international markets and energy) on dips. *The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. (1) http://www2.standardandpoors.com (2) http://www.bloomberg.com/apps/news?pid=20601087&sid=aAdEz1inj7zc    Michael McDaniel

(6/22/2009) Economic Outlook - I continue to be concerned about the longer term prospects for our nations economic health for a number of reasons. I am not optimistic about the earnings projections domestically over the next few quarters. I continue to gain excitement about the economic prospects outside of the US. In addition, I believe that my current economic outlook offers many investment opportunities. I expect the following to transpire (and offer opportunities) in the coming years: High Inflation, Value of our currency to decrease relative to other currencies, Price of oil (and other commodities) to remain consistently high, US Taxes and regulations will dampen the generation of wealth and jobs; stalling future economic growth domestically, Brazil and China to continue to gain strength on the worlds economic stage, US Treasury interest rates will soar, and Real Estate will continue to struggle. *****************************************************************The opinions voiced in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly   Michael McDaniel