The Investment Survival Guide

Posted by & filed under Portfolio Management.

Your Future Small

Uncertainty. It’s a Sign of the Times We Live in. If Your Concerned about the Value of Your Savings and Investments in Your Retirement Plan, the Value of the Your Children’s College Education Savings and Investment Accounts, the Value of Your Trust, the Safety of the Income You Receive from Your Dividend and Interest Payments and the Value of Your Personal and Joint Accounts then it be May Worth Your While to Think Through Your Investment Philosophy, Strategy and Tactics Relative to the Amount of Risk You May Be Taking.

Risk Takes Many Forms. In Just the Last Few Years We Have Seen Systemic Risk as We Have Watched Financial Institutions Fail Due to Declines in the Value of the Underlying Assets Upon Which Their Investment and Income Streams Were Based.

We are Witnessing Political Risk Threaten the Credit Worthiness of the United States as a Sovereign Nation and Financially Terrorize Our States, Cities, Municipalities and Local Governments. State Retirement Systems Have Become Underfunded to the Degree the Solvency of These Retirement Plans Are Not Certain.

The Scarcity of Resources has Led to Political Gridlock in Washington Which Threatens to Undermine the Major Tenants Upon Which Our Economy and the Markets Have Been Built. These Include Predictability, a Safe and Secure Financial Infrastructure, a Stable Currency, Stable Prices for Goods and Services, an Equitable System of Taxation, Reasonably Priced Energy to Heat our Homes and Drive our Cars, a Well Maintained Physical Infrastructure and Transportation System.

Ultimately, the Risks to the Value of the Savings and Investments in Your Portfolio Spans the Spectrum from Systemic Risk, Market Risk, Political Risk, Liquidity Risk, Interest Rate Risk, Regulation Risk, Valuation Risk and Purchasing Power Risk.

This Type of Environment Requires Careful Planning for Investors to be Successful. If Your Invested in Your 401k or 403b Retirement Plan, Investing for the Education of Your Children, Saving for a Home, Using Your Savings and Investments to Create Income During Your Retirement, Creating or Managing Your Retirement Plan for your Company, Non-Profit or Yourself, Figuring out How to Preserve the Value of Your Investments to Transfer them to your Loved Ones and Protect Your Assets From Potential Creditors Who May Seek to Lay Claim to Them–Then You Are an Investor and You May be Affected by These Concerns.

Below Are a Number of Questions You May Want to Ask Yourself and Know the Answers to. These Questions May Help You Solidify and Crystalize the Process of Putting in Place Your Savings and Investment Philosophy, Strategy and Tactics to Protect and Grow Your Savings and Investment Accounts. They Represent a Starting Point for Such Planning. Not an Endpoint. The Process is Ongoing. They Are Also Not a Substitute for Legal, Accounting and Investment Counsel.

1.  How Much Cash Do I Need to Have on Hand to Meet Immediate and Short Term Expenses?

2.  Do I Understand How My Savings and Investments are Protected in the Event of a Default by My Financial Institution?

3.  Do I Understand the Length of Time it Will Take to Receive Funds from FDIC (Federal Deposit Insurance Corporation) and SIPC (Securities Investor Protection Corporation) in the Event My Financial Institution Defaults?

4.  Have I Considered How Events Like a Government Shutdown and a United States Government Default May Affect This Insurance?

5.  If I am Holding Savings and Investments Above the Thresholds Set and Covered by FDIC and SIPC Does My Financial Institution Carry  Private Insurance That Protects Me for Amounts Above These Thresholds?

6.  How Are My Savings and Investments Positioned to Protect Against a Credit Downgrade of the United States, a Fall in the Value of the Dollar, an Increase In Interest Rates and Possible Inflation or Deflation?

7.  Have I Clearly Defined the Purposes for Which I am Saving and Investing and Have I Separated my Assets Into the Types of Accounts Which Allow Me to Manage These Assets for Their Respective Purposes?

8.  Do I Understand the Level of Risk I am Taking with my Portfolio and am I Comfortable With it?

9.  Do I Understand the Relationships Between Growth, Risk, Compounding and the Rate of Return I am Attempting to Achieve and Over What Time Frame I am Attempting to Achieve it?

10. What is My Plan to Protect the Investments in My Retirement Plan Against Loss Due to Market Fluctuation?

11.  Am I Properly Diversified Across Asset Classes and Do I Understand the Range of Risk Management Strategies to Help Mitigate Risk in My Portfolio?

12.  Have I Done a Risk/Reward Cost Benefit Analyses Between the Yields My Dividend Producing and Fixed Income Investments Produce and the Corresponding Risk to My Principal Investment?

13.  Have I Reviewed How and Where to Position Some of My Savings and Investments in Foreign and Non-Dollar Denominated Assets?

14.  Do I Understand the Value of Hedging my Investments as Insurance Against Having to Sell at Possible Fire Sale Prices?

15.  Do I Understand the Role Hard Assets Such as Precious Metals, Agricultural and Other Commodities and Real Estate Play in My Portfolio?

16.  Have I Examined How Different Classes of Investments May Perform in Different Parts of the Economic Cycle?

17.  Have I Created a Plan to Protect My Assets if Someone Attempted to Lay Claim to Them Such as a Creditor, Court Judgment, Divorce, Automobile Accident or Business Liability and I Have Secured an Attorney to Create the Entities to Help Me Accomplish This?

18. Have I Evaluated How Taxes, Fees and Expenses Associated with my Investments Affect My Return and Have I Secured the Professionals to Help Me do so?

The Investment Advisor Provides Portfolio Management, Wealth Management, Retirement Plan Consulting, Estate Planning and Financial Planning Services. The Investment Advisor Helps Individuals. Companies and Non-Profit Organizations Manage Their Company Sponsored Retirement Plan Accounts Such as their 401k, 403b, Profit Sharing KEOGH, SEP- IRA, SIMPLE-IRA , Traditional IRA and Roth IRA Accounts.

The Investment Advisor Helps Families and Individuals Manage Their Estate Plans and the Resulting Entities That Are Created as a Result of Such Planning Such as Trust Accounts, Family Limited Partnerships, Education Accounts, Personal and Joint Accounts and Helps Families and Individuals Implement Their Beneficiary Designations.

The Investment Advisor Also Helps Parents and Grandparents Save and Invest for Their Children’s and Grandchilden’s College Education Savings and Investment Accounts Including Custodial, 529 Plan, Education IRA and Trust Accounts.

The Investment Advisor Does Not Provide Legal or Accounting Advice. The Investment Advisor Does Help it’s Clients Secure Attorneys and Accountants so They May Have Access to Legal and Accounting Advice. The Investment Advisor Works With Your Accountant and Attorney to Help You Implement and Incorporate Their Recommendations Into Your Savings and Investment Portfolio.


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The Investment Advisor is a registered investment adviser exclusively serving business, non-profit organizations, families and individuals doing business and residing in the state of Pennsylvania.  Pennsylvania is the only state in which The Investment Advisor is registered to conduct business. Therefore, only residents of the state of Pennsylvania, businesses or non-profit organizations with a physical place of business and who conduct business in Pennsylvania may consider this post an offer to conduct business. If you are a resident of a state other than Pennsylvania or a business or non-profit that does not have a physical place of business and conduct business in Pennsylvania you may view this article for informational purposes only. If you are a resident, business or non-profit that does not reside in or have a physical place of business and conduct business in Pennsylvania this article is not an offer or solicitation to conduct business in any state other than in Pennsylvania.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement are not affiliated with The Investment Advisor. Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement are third party vendors who act as financial intermediaries and service providers on behalf of The Investment Advisor and its clients.

Taxes-Tax Update For 2015

Posted by & filed under Tax Advisory.

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Key Points:

  • Tax changes in recent years included a new Medicare surtax for high-income earners, a new top rate for dividends, long-term capital gains and the phase-out of itemized deductions for high earners.
  • If you’re subject to higher taxes, it’s even more important to take advantage of whatever tax breaks apply to you.
  • Learn more about this year’s inflation adjustments and common tax breaks, including retirement plan contributions and charitable giving.

Although there are no major tax law changes this year, there are still inflation adjustments and other routine changes to consider. As always, it’s not what you make but what you keep that counts, that’s why it’s important to take advantage of every tax break you’re entitled to. Here are a number of items to consider as you plan for the year ahead.

Take advantage of federal income tax changes

To keep pace with inflation, the IRS has widened the federal income tax brackets and increased certain exemptions, deductions and credits1 (see table below). For additional information, please visit the IRS website.

 2015 federal income tax brackets

Tax rate on ordinary income Single Tax rate on qualified dividends and long term capital gains
over to
10% $0 $9,225 0%
15% $9,225 $37,450 0%
25% $37,450 $90,750 15%
28% $90,750 $189,300 15%
33% $189,300 $411,500 15%
35% $411,500 $413,200 15%
39.60% $413,200 20%
   Married filing jointly /
Qualifying widow or widower
over to
10% $0 $18,450 0%
15% $18,450 $74,900 0%
25% $74,900 $151,200 15%
28% $151,200 $230,450 15%
33% $230,450 $411,500 15%
35% $411,500 $464,850 15%
 39.60% $464,850 20%

Source: IRS.

Payroll and Medicare taxes

Payroll taxes for Social Security benefits are collected under the authority of the Federal Insurance Contributions Act (FICA), which is why they’re often referred to as the FICA tax. While Social Security (Old-Age, Survivors and Disability Insurance, or OASDI) withholding remains 6.2%, the wage base limit was increased to $118,500. That means a maximum of $7,347 per employee will be withheld in 2015 ($118,500 × .062).

The wage base for Medicare withholding remains unlimited (employee tax rate of 1.45%), but healthcare reform legislation  in 2013 increased Medicare payroll withholding by 0.9% to 2.35% for amounts over $200,000 (single filers) or $250,000 (married filing jointly). Also, an additional 3.8% surtax applies to net investment income for taxpayers with AGI over $200,000 (single filers) or $250,000 (married filing jointly).

If you’re married, filing jointly and pay excess Medicare taxes, you’ll be eligible for a credit when you file your tax return—you can’t just ask your employer to stop withholding the extra tax during the year. For example, let’s say you’re the only earner in a married couple. You make $225,000 in the course of the year, and your employer automatically withholds the additional 0.9% tax on your wages between $200,000 and $225,000. You’ll be eligible for a credit when you file, because your total income falls below the $250,000 threshold for married joint filers.

For more information on these and other changes, please see the article on inflation adjustments on the IRS website or read about Social Security cost-of-living adjustments at

Long-term capital gains and qualified dividends

A top rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $413,200 ($464,850 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are now taxed at a rate of 20%.

EXAMPLE: If a married couple already has $464,850 of taxable income and an additional $100,000 in long-term capital gains and qualified dividends, the entire $100,000 would be subject to the 20% rate. If, however, they only had $400,000 of taxable income and $100,000 in long-term capital gains and qualified dividends, then $64,850 of the additional amount would be taxed at 15% and $35,150 would be taxed at 20%.

Phase-out of itemized deductions and exemptions

The phase-out of certain itemized deductions and exemptions applies to single taxpayers with adjusted gross income (AGI) above $258,250 and married taxpayers filing jointly with AGI above $309,900. Many itemized deductions (such as mortgage interest expense, charitable contributions and state and local taxes) are reduced by 3% of the amount by which the AGI exceeds the threshold, with a maximum of 80% of itemized deductions. The personal exemption phase-out applies at a rate of 2% for each $2,500 increment over the threshold up to a maximum of 100% elimination of personal and dependent exemptions.

See if you’re exempt from the Alternative Minimum Tax (AMT)

The AMT income exemption amounts increase in 2015 to $83,400 for married couples filing jointly and $53,600 for single filers.

 Take advantage of lower tax rates for children

In 2015, children under 19 will pay no federal income tax on the first $1,050 of unearned income (such as capital gains or interest) and will be taxed at their own rate on the next $1,050. However, they will be taxed at their parents’ tax rate on unearned income in excess of $2,100. (This will also be the case for full-time college students under age 24, unless their earned income is greater than one-half of their parents’ support.)

Individuals age 19 and older (and dependent full-time college students age 24 and older) pay taxes at their own rate.

Boost your retirement savings and potentially enjoy tax benefits

 2015 federal limits for retirement accounts

Account Contribution limit Additional catch-up contribution for people age 50 and older
401(k), 403(b) and 457 $18,000 $6,000
SIMPLE IRA $12,500 $3,000
QRP/Keogh and SEP-IRA 20% of net self-employment income
(or 25% of compensation) up to $53,000
Individual 401(k) 20% of net self-employment income
(or 25% of compensation)
plus $18,000, up to $53,000
Traditional IRA
and Roth IRA
$5,500 $1,000

Source: IRS.

A few things to note about contribution limits:

  • Traditional IRAs. Money you put in a traditional IRA is generally tax-deductible unless you’re an active participant in a qualified workplace retirement plan, such as a 401(k) or 403(b). In that case, restrictions apply. If you’re a single filer, your contribution is partially deductible if your modified adjusted gross income (MAGI) is between $61,000 and $71,000. If you’re a married couple filing jointly, your 2015 contribution is partially deductible if your MAGI is $98,000 to $118,000. If you don’t participate in a retirement plan at work (but your spouse does) and you file jointly, your contribution is partially deductible if your MAGI is $183,000 to $193,0002.
  • Roth IRAs. If you’re a single filer and your MAGI is $116,000 or less, your contribution limit is $5,500 (or $6,500 if you’re 50 or older) in 2015. The contribution limit is gradually reduced for those with MAGIs of $116,000 to $131,000. If you’re a married couple filing jointly and your MAGI is $183,000 or less, your contribution limit is $5,500 ($6,500 if you’re 50 or older). That contribution limit is gradually reduced for those with MAGIs of $183,000 to $193,000.

Anyone can convert all or part of a traditional IRA to a Roth IRA, regardless of income level or filing status. Converting could be advantageous if you expect to be in the same or higher tax bracket when you withdraw the money, have a reasonably long time horizon and can afford to pay the conversion tax from a source other than your IRA at the time of conversion.

Manage college expenses with these nifty tax benefits

Consider these tax-favored ways to pay for college costs:

  • A Coverdell Education Savings Account. If you’re a single filer, you may make a maximum contribution of $2,000 per year per child, subject to income limitations. Be careful if accounts are established by different family members for the same child. Total contributions may not exceed $2,000 in any one year.
  • A 529 college savings plan. Although there’s no limit to how much you can contribute each year, each state’s plan has its own lifetime limit—typically more than $200,000 per designated beneficiary3. You can also treat a 529 contribution as being made over five years for gift tax purposes. For example, a married couple could contribute up to $140,000 per child up front without using any of their lifetime gift tax credit (see below).
  • Tax credits. The American Opportunity Tax Credit is a modification of the Hope Credit and makes the credit available to a broader range of taxpayers. You may claim up to $2,500 on eligible college expenses paid from a non-529 account, subject to income limitations.
  • Tax deductions. You may be able to deduct up to $2,500 of student loan interest, subject to income limitations.

Plan your gifts and estate to make the most of these tax breaks 

The gift tax annual exclusion amount remains $14,000 for 2015. That means you generally can give up to $14,000 every year (or $28,000 for spouses splitting gifts) to any number of people without those gifts being taxed. You can also give unlimited amounts toward tuition or medical expenses if you pay the provider directly. Beyond that, the lifetime gift and estate tax exemption will apply  (see table below).

 Estate and gift tax for 2015

Estate Tax Gift Tax
Highest rate Exemption Highest rate Exemption
40% $5.43 million* 40% $5.43 million*

*Adjusted annually for inflation

1. In some instances, modified adjusted gross income (MAGI) may be used to determine eligibility for certain deductions. MAGI calculations vary, so consult your tax professional.

2. Within certain AGI (or MAGI) phase-out ranges, you receive partial deductibility (or eligibility to contribute, in some cases) for certain tax breaks. At or below the low end of the range, you can receive full deductibility (or eligibility), but at or above the high end of the range, you lose deductibility (or eligibility).

3. As with any investment, it is possible to lose money investing in any investment and in a 529 plan. Before investing, carefully consider your investment objectives  and any plan’s investment objectives, risks, charges and expenses. Additionally, if you are investing in a 529 plan outside the state in which you pay taxes, you should consider your own state’s 529 plan to determine if you can obtain any tax or other benefits offered by your own state’s plan.

4. The Investment Advisor LLC is not an accounting firm and does not provided tax advice. All information presented in this post is for advisory purposes only. You may want to consider consulting with your CPA and Accountant to determine the impact of this information on your tax situation.



Posted by & filed under The Economy.

Released October 2nd 2015 for SEPTEMBER 2015

The Bureau of Labor Statistics reported Total Nonfarm Payroll Employment Increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent, Job gains occurred in health care and information, while mining employment fell.

Household Survey Data:

In September, the unemployment rate held at 5.1 percent, and the number of unemployed people (7.9 million) was little change. Over the year, the unemployment rate and the number of unemployed people were down by 0.8 percentage point and 1.3 million, respectively.

Among the major worker groups, the unemployment rates for adult men (4.7 percent), adult women (4.6 percent), teenagers (16.3 percent), whites (4.4 percent), blacks (9.2 percent), Asians (3.6 percent), and Hispanics (6.4 percent) showed little or no change in September. The number of people unemployed for less than 5 weeks increased by 268,000 to 2.4 million in September, partially offsetting a decline in August. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 2.1 million in September and accounted for 26.6 percent of the unemployed. The civilian labor force participation rate declined to 62.4 percent in September; the rate had been 62.6 percent for the prior 3 months. The employment-population ratio edged down to 59.2 percent in September, after showing little movement for the first 8 months of the year. The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) declined by 447,000 to 6.0 million in September.These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job. Over the past 12 months, the number of persons employed part time for economic reasons declined by 1.0 million.

In September, 1.9 million persons were marginally attached to the labor force, down by 305,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 635,000 discouraged workers in September, little changed from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force in September had not searched for work for reasons such as school attendance or family responsibilities.

Establishment Survey Data:

Total nonfarm payroll employment increased by 142,000 in September. Thus far in 2015, job growth has averaged 198,000 per month, compared with an average monthly gain of 260,000 in 2014. In September, job gains occurred in health care and information, while employment in mining continued to decline.

Health care added 34,000 jobs in September, in line with the average increase of 38,000 jobs per month over the prior 12 months. Hospitals accounted for 16,000 of the jobs gained in September, and employment in ambulatory health care services continued to trend up (+13,000).

Employment in information increased by 12,000 in September and has increased by 44,000 over the year.

Employment in professional and business services continued to trend up in September (+31,000). Job growth has averaged 45,000 per month thus far in 2015, compared with an average monthly gain of 59,000 in 2014. In September, job gains occurred in computer systems design and related services (+7,000) and in legal services (+5,000).

Retail trade employment trended up in September (+24,000), in line with its average monthly gain over the prior 12 months (+27,000). In September, employment rose in general merchandise stores (+10,000) and automobile dealers (+5,000).

Employment in food services and drinking places continued on an upward trend in September (+21,000). Over the year, this industry has added 349,000 jobs.

Employment in mining continued to decline in September (-10,000), with losses concentrated in support activities for mining (-7,000). Mining employment has declined by 102,000 since reaching a peak in December 2014.

Employment in other major industries, including construction, manufacturing, wholesale trade, transportation and warehousing, financial activities, and government, showed little or no change over the month.

The average workweek for all employees on private nonfarm payrolls declined by 0.1 hour to 34.5 hours in September. The manufacturing workweek decreased by 0.2 hour to 40.6 hours, and factory overtime declined by 0.2 hour to 3.1 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls decreased by 0.1 hour to 33.6 hours.

In September, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in August. Hourly earnings have risen by 2.2 percent over the year. Average hourly earnings of private-sector production and nonsupervisory employees were unchanged at $21.08 in September.

The change in total nonfarm payroll employment for July was revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported. Over the past 3 months, job gains have averaged 167,000 per month.

The Employment Situation Report for October is scheduled to be released on Friday, November 6, 2015, at 8:30 a.m. (EST).

How Will You Pay for Your Children’s Education, Grow Your Assets, Ensure Your Retirement, Create Income and Bullet Proof Your Net Worth From Potential Creditors?

Posted by & filed under Portfolio Management.

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What Makes The Investment Advisor a Firm You Want to Advise You?


1.  Low (Almost Unheard Of) Asset Management Fee of 1/10th of 1% ($25 Monthly Minimum) (Offer Valid Through 04/15/2016)


2.  The Investment Advisor LLC Offers Third Party, Impartial and Objective Investment Advice Designed for Your Circumstances


3.  A Firm Which Puts Your Interests Ahead of It’s Own


4.  A Focus on Capital Preservation, Growth and Income


5.  Financial Planning to Help You Meet Your Goals


6.  Custody Your Assets and Investments at Any Financial Institution of Your Choice


7.  No Minimum Investment Required (Subject to Selected Investment Vehicle Minimums)


8.  A Registered Investment Advisory Firm Exclusively Serving Pennsylvanians


Helping Families, Individuals, Small and Medium Sized Business, Non Profit Organizations, Retirement Plans, Trusts and Estates in Pennsylvania 

 Schedule Your No Cost Consultation by Phone: 877-414-9021      


Or on the Website of The Investment Advisor at



Investment Portfolio Management for Less

Posted by & filed under Investment Portfolio Management for Less.

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Investment Portfolio Management for Less (Offer Valid Through April 15, 2016)

  1. 1/10th of 1%


  1. Impartial, Third Party, Objective and Personalized Investment Advice. Recommendations for Your Circumstances
  2. Non -Discretionary-You Retain Control and Final Decision Making Authority Over the Construction,  Monitoring and Maintenance of Your Investment Portfolio
  3. Custody of Your Assets at the Financial Institution of Your Choice
  4. Utilize the Business Relationship The Investment Advisor Maintains with Shareholders Service Group Who Will Hold Your Assets at Pershing, A Division of Bank of New York Mellon
  5. $25 Minimum Fee Per Month
  6. No Restrictions Due to Account Type or Size
  7. Includes: Investment Planning, Retirement Planning, Education Planning, Estate Planning, Asset Protection, Retirement Plan Consulting.

*401k/403b Retirement Plan Feasibility Study-$ 500.00 One Time Charge if Not Engaged to Manage Retirement Plan

* Financial Planning Without Investment Management-$100.00 per Category, $500.00 All Categories

* Financial Planning for Company or Non-Profit Organization Retirement Plan Participants -$100.00 per Employee

* Account Fees, Trading Commissions, Mutual Fund, Investment Vehicle and Other Fees Not Charged Directly by The Investment Advisor May Apply. Investment minimums May Apply. Ask for The Investment Advisor’s Form ADV Part II for Full Disclosure.

Schedule Your Initial No Cost Consultation on the Request Consultation page of This Website or call 877-414-9021





Pennsylvania Natural Gas Development

Posted by & filed under On the Pennsylvania Economy.

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PennEast Pipeline Company Recently Announced Plans to Construct a 100-Mile Natural Gas Pipeline That Will Begin in Luzerne County, PA and End at the Trenton-Woodbury Interconnection in New Jersey. The Pipeline is Designed to Provide Natural Gas Service to About 4.7 million Homes, Up to 1 Bcf Per Day, Which Will Offer Consumers Savings Through Lower Energy and Gas Transportation Costs. The Costs in the Pipeline Will be About $1 billion, with UGI Energy Services Managing the Project’s Development and Operation.

Investment Risk-A Matter of Great Importance

Posted by & filed under Portfolio Management.

Your Future Small

Are You Concerned About Your Level of Risk in Your #Retirement Plan, Your Son’s and Daughter’s #Education Fund and Your #Investments in Your Personal Accounts? As Volatility Rises and the Markets React to Geo-Political Events Two Camps of Thought Regarding the Direction of the Markets Have Emerged.  Doomsayers such as Mark Faber and Others Predict a Dramatic Market Drop Coinciding With the Unparalleled Increase in US Debt. This Doomsday Scenario Calls for a Severe Market Drop, Dramatic Increases in Unemployment and High Inflation.

On the Other Side of the Coin a Bull Market Case is Being Made Which Advocates That a New Leg of the Bull Market is Taking Shape Based on an Improving Job market, the Strength of the Underlying Economy and Inflation Close to the Fed’s Target of 2%. Therefore, the Federal Reserve Has Been Able to Taper Back the Stimulus of Quantitative Easing Which Has Propelled the Huge Run up in Asset Prices, Which in Turn Has Also Helped Fuel the Economic Recovery. This Bull Market Case Asserts the Accelerating US Economy Will Lead the Fed to Raise Short Term Interest Rates Further Validating the Economic Recovery.

The Degree to Which the Markets Meteoric Rise Since We Hit the Depths of the Financial Crises in 2008 and 2009 Has Helped the Country and Whom is Still Up for Debate. However, What has Been Missing From the Equation Since the Country’s $800 Billion Fiscal Stimulus in 2009 (Which Many Credit for Breaking the Financial Free Fall the Country Was In) Has Been a Coherent, Integrated and Coordinated  Fiscal Response by Congress and the President to Combine with the Monetary One. Gridlock Over the Direction the Country’s Policies Should Take Persists as We Enter the Mid-Term Elections This Fall. Yet, One Could Argue it is Precisely This Gridlock Which May Have Acted as a Brake Upon the Democrats From Creating a Budget Large Enough to Overwhelm the Country and Prevented the Republicans from Legislating Austerity Which May Have Created Another Great Depression. Thus, Allowing Enough Resources to be Allocated to Deal with the Problem without Going over the Brink.

Enclosed Below are Two Articles Which Illustrate These Two Opposing Streams of Thought. Are the Markets Over Leveraged to the Point Asset Valuations are Unsustainable?  Or is the Country on the Road to Long Term Recovery and Therefore Requires Your Participation in the Markets to Achieve Your Financial Goals

I am Interested in Hearing on What Side of the Debate You Fall and How I Can Help?


Lou Wolkenstein

Managing Principal
The Investment Advisor

570-815-0770 Cell

570-299-7416 Office

June 19, 2012

Posted by & filed under Library.

June 19, 2012

30,000 Foot View

To every action there is an equal and opposite reaction. Such is the case in physics. Such is also the case on Wall Street, Main Street and Washington. From the markets recent upswing and subsequent swoon, from the Tea Party’s rise to Occupy Wall Street’s sit ins, from Bush to Obama to Romney, the Housing Crisis, Apple’s ascension to the largest company by market cap and unemployment there remains a dichotomy between where we are and what we want. The controversy over the recall elections in Wisconsin, the Supreme Court decision about Obama’s Health Care Law and Dodd-Frank clearly shows how the United States is in the throes of deciding the relationships the institutions of our country have to each other. Are we up to the task of solving the problems of our nation?

Gale Force Headwinds

The issues are clear. A large out of control national debt, high unemployment, a housing and banking crises, the fate of the social safety net as embodied by Social Security, Medicare and Medicaid, a complicated tax system, high energy costs and a well maintained military need to be balanced against the essential requirements to update our infrastructure, clean up the environment, educate the country, create jobs and regulate the financial system to compete in a global 21st century economy. The nation’s debt now stands at 16 trillion dollars with threats of yet another credit downgrade should we fail to get our fiscal house in order and reduce the national debt.

Europe’s fiscal and monetary crisis has erupted as a socialist backlash against austerity and has raised serious reservations and fears around global systemic risk. A falling Euro, a rising dollar, low trading volumes, credit downgrades, steep intra and inter day market swings, falling bond yields and rising gold prices show how the events in Europe affect our markets here at home. Europe remains mired with economies that could fail. The Eurozone and China effectively demonstrates global connectedness underscoring the importance of large economies to the world. Greece’s possible exit from the Euro and contagion to Portugal, Spain and Italy gives life to these fears.

The interconnectedness of the world’s financial system raises serious issues for the United States banking system as the recent multi-billion dollar loss at JP Morgan Chase demonstrates. The restructuring of the nation’s financial and banking system can be seen in the capital requirements of Basel III, the Volcker Rule and the regulations of Dodd-Frank as they are implemented.

Add to this the technological revolution of the glass age revolving around the internet. Smart phones, tablets, social media such as Facebook and robotics is disrupting and changing the economics of business. Ask Best Buy, K-Mart, Sears, Barnes and Noble, Amazon, Circuit City, Ebay, Pay Pal, Visa, MasterCard, the newspaper business and the manufacturing industry how technology has affected them. Technology is changing the nature and meaning of what constitutes commerce, taxation, employment, privacy and what type of speech is constitutionally protected. Is the equilibrium that holds the fabric of our society together tearing or will we as a nation come together to create stability? Has scarcity led us to the politics of inaction?

The Context Surrounding the Numbers

Is it any wonder economic malaise rules the day? This is where the United States finds itself. Much better than financial crises but not good. We no longer have credit markets that don’t work. Bank lending has increased. Markets rose in the 1st quarter of 2012. Yet, quantitative easing is back on the table. Slow anemic growth has been the watchword for several years now. In the quarter ending March 31st of this year GDP (Gross Domestic Product) after its first revision came in at 1.9%. GDP for all of 2011 was 1.7%. In 2010 it was 3%. So what is holding us back?

In one word uncertainty. The election this November is a referendum on the direction the country will take. Political gridlock in Washington has effectively put the recovery on hold. Remember last summer’s debate over extending the debt ceiling. The loss of the United States AAA credit rating. The failure to reach the grand bargain. The political arguments over every piece of fiscal, tax and stimulative piece of legislation. It may be time to make your voice heard at the ballot.

We have only the Fed to steer the economy. After two rounds of quantitative easing the Federal Reserve initiated Operation Twist in the fall of last year. If you remember this is where the Federal Reserve sells short term treasuries on its balance sheet to buy long term treasuries. This is done for the purpose of keeping long term rates low to promote stability for long term planning. Operation twist has continued into this year. The yield on the 10 Year Treasury fell to an historical low of 1.45% as investors have looked for safety from the volatility of the markets. The yield on the 10 Year Treasury has since moved higher and now stands at 1.62%. The yield on the 30 Year Treasury stands at 2.73%. What is particularly troublesome is that the purpose of low yields is to stimulate capital investment, promote hiring and help to facilitate the purchase of residential real estate. Not only has this not happened but in fact quite the opposite. Business investment has slowed, real estate values as measured by the national composite Case-Shiller Home Price Index fell 2% in the first quarter of 2012 and was down 1.9% versus the first quarter of 2011. In May the unemployment rate rose to 8.2%. One can only conclude that capital has been parked in risk free assets as recent events have unfolded. Inflation as measured by the CPI (Consumer Price Index) was 2.3% in April. For May it was 1.7%. The CPI has been hovering between 2.9% and 1.7% for 2012. Therefore, the assets parked in risk free assets such as treasuries are either marginally above or below real rates of return when accounting for inflation.

At the same time the index of economic indicators had risen through March of this year. Representing 6 straight months of increases. In April the index fell. US companies are maintaining fortress balance sheets and do not see a climate worth investing in. From their perspective keeping their costs low has been a winning formula for making money. As earnings were reported for the 1st quarter of 2012 67% of those companies have beaten expectations. Companies are concerned about investing when the number of customers who can buy their products has shrunk. Individuals are concerned about the uncertainty that comes from a lack of jobs.

The recent run up in both the stock and bond markets have given way to the sustainability of such gains. The U.S. stock market through March 31st 2012 as measured by the S&P 500 gained 12.59%, The Dow 8.84%, and the Nasdaq 18.67%. The Russell 2000 illustrative of the small cap market was up 12.44% for the same period. The markets have since wiped out and retraced some of these gains. The S&P 500 now stands positive for the year at 7.98%, the Dow 5.07%, the NASDAQ 12.46% and the Russell 2000 6.14%.


Commodity prices have risen and fallen this year. Oil spiked to over $100 a barrel and recently has fallen back to $84 per barrel. The National average for a gallon of gas is at $3.51 per gallon. At the same time the rise of emerging markets such as Brazil, India, China the Middle East and Russia and the competition that has evolved for the consumption of the world’s resources ranging from oil to gold to agricultural commodities continues to pressure the price of these commodities upwards. Only recession in Europe and slower growth in China and the United States have capped the rise in the prices of these commodities.


Ordinarily low interest rates act as a catalyst for upward moves in the markets. Indeed, the Major market indexes such as the S&P 500, the Dow, and NASDAQ have risen. However, the combination of Greece’s potential exit from the Euro, the rise in US unemployment and political uncertainty has shocked the financial system causing a decline in major market indexes from their peaks in March.

Bond Holders have made money as interest rates have fallen as shown by the volatility of treasury yields. The yield on the 10 Year Treasury has dropped from a high of 2.45% in March to a low of 1.45% and now sits at 1.62%. Consequently, secondary market values have risen. The Investment Advisor believes while rates may not go much higher in the short term they will not fall much lower than the 1.45% low until we get clarity on Europe and further numbers on the direction of the U.S. Economy.

The Investment Advisor believes the Federal Reserve will continue the Twist past its expiration at the end of June. The Fed may inject more liquidity into the economy by adding additional quantitative easing. Numbers from the economic calendar being reported show both retail and manufacturing declining in May for a second month in a row. The recent drop in commodity prices suggests the potential for a deflationary trend. The recent rise in unemployment and the crises in Europe will prompt the Fed to action. This Fed has a history of reacting to problems with unemployment, deflation and systemic risk. Low interest rates are here to stay as Bernanke previously announced last year he would continue a low interest rate policy until 2014. The Issue still remains as Bernanke mentioned in his most recent testimony on the hill additional quantitative easing may not be as effective as the first several rounds as each successive round is less effective than the previous one.

From a macro- economic perspective Europe, China and the United States are the economic drivers of global demand for goods and services. The United Kingdom is in recession. Keep your eyes on the performance of each of these players. Their collective performance good or bad will set the backdrop for the performance of the U.S. markets and commodities for the immediate future.

To put this in perspective there have been three periods in post war history that have combined recession with a crises in the banking and financial system. Specifically, the Latin American Banking Crises of 1975-1982, the recession of 1990-1992 which coincided with the Savings and Loan Crises and the current problems we find ourselves in which showed their first rumblings in 2006 and 2007.

The Latin American lending crises was created by bank over lending to Latin American countries who could not pay their debts. This, combined with the spillover of high oil prices from the 1970′s created economic stagflation (high interest rates, inflation and falling Gross Domestic Product) with interest rates approaching 20%.

The Savings and Loan Crises resulted in the need to recapitalize investment banks, the market crash of 1989 following the crash of 1987 and the formation of the Resolution Trust Corporation to restructure the balance sheets of the savings and loan institutions. This episode contributed significantly to the recession of 1990-1992. Recession combined with or caused by systemic issues with the banking system take much longer to heal than cyclical recessions.

The recession of 1973-1975 caused by a shock to the economy from the dramatic rise in the price of oil as a result of the Arab Oil Embargo and the rise of OPEC resulted in wage and price controls. The Price of oil went from 3.00 per barrel to about $12.00. Gasoline went from 25 cents a gallon in 1973 to $1.35 by 1981.

This malaise we find ourselves in combines elements of all these periods. Balance sheet issues for the Banking Industry resulting from poor mortgage lending decisions and losses in proprietary trading and derivatives creating counter party risks. Large spikes in the price of oil, gasoline and other commodities of which the price of gold is a symptom. We also know we have extracted half of the world’s oil. The last half will be more expensive to obtain. This is what is fueling the demand for natural gas and alternative energy sources such as wind, solar, geothermal and nuclear.

The one real difference is Globalization. The degree to which economic performance in one country or region ties the fate of all the countries of the world together. How political gridlock in any one country can hold the world hostage.

Hence assets move in the same direction together as opposed to moving in different directions at the same time. A classic break down in the asset allocation model and the idea of investing in uncorrelated assets. This happens during times of economic volatility and extremes. We have seen this before in modern history. Once for a 3 month period during the Long Term Capital debacle in the 90′s and the internet bubble which burst in 2000.

From a national view of the United States volatility will be much higher for at least the last half of the year. The low valuation of the market as a whole has the potential to create buying opportunities in individual securities. With regards to real estate the large number of foreclosures in the pipeline will continue to act as a cap on the price of real estate. We have yet to deal with the government sponsored enterprises of Fannie Mae and Freddie Mac. Prior to their extraordinary losses these organizations provided liquidity by creating a secondary market for mortgages. This type of market has yet to be re-created.

Investment Strategy, What this means for Your Investment Portfolio:

Given this backdrop The Investment Advisor recommends a market neutral strategy for your portfolio. This is not the time to attempt to pick a direction of the markets or interest rates. Political decisions are much too unpredictable. High volatility may create inefficiencies in the prices of individual securities and reveal bargains with solid fundamentals. Many companies have either raised their dividend payouts or have begun paying dividends. Historically low interest rates have created buying opportunities in the stock market, real estate and assets generally for both growth and income investors. For those with long time horizons these investments may pay off over the longer term.

The Investment Advisor recommends higher levels of cash and cash equivalents over the short term to preserve capital and take advantage of bargains as they appear. Given the uncertainty surrounding the Fiscal Cliff The Investment Advisor recommends putting in place a strategy to help you decide whether to take unrealized gains or losses this year or push them into the following year. The Fiscal Cliff comprises the expiration of the Bush Tax Cuts (capital Gains, dividends, the alternative minimum tax), the payroll tax cut and the sequester of domestic and defense spending amounting to 1.2 trillion dollars of spending cuts. The Investment Advisor will work with both you and your accountant to form and implement this strategy.

The Investment Advisor believes account types that offer tax deferral such as IRA’s, 401k’s and retirement plans generally will continue to be protected despite the move towards Tax Reform as a consequence of the election. The only caveat to this being if your level of income exempts you from taking full advantage of this deferral regardless of who wins the election this fall.

The Investment Advisor seeks to help you navigate these currents and headwinds in ways which will empower you in making decisions about your investments and finances. We believe providing you with information across multiple disciplines will help you put events in context and will help you leverage information to achieve your investment goals.

The pages of this site are designed to give you insight into our process for creating and organizing investment information. We encourage you to review the pages of this site. We believe you may find them useful in understanding how we look at Portfolios and Investments. We welcome your feedback.