Welcome to the Halftime Report

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WELCOME TO THE
Half - time
REPORT
And wine social
Denver, CO / Newport Beach, CA / Naples, FL
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Lets Warm Up Your Brain
By owning a well-diversified portfolio, you can
a) Reduce both systematic and non-systematic
risk. b) Reduce systematic, but not
non-systematic risk. c) Reduce neither systematic
nor non-systematic risk. d) Reduce non-systematic
risk, but not systematic risk.
Answer D
Source Florida State University
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Lets Warm Up Your Brain
What were the first publicly traded securities in
the U.S.?
Answer 80 million in U.S. Government bonds
that were issued in 1790 to refinance
Revolutionary War debt.
Source www.stockmarkettrivia.com
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Lets Warm Up Your Brain
What has been the longest-listed company on the
NYSE?
Answer Con Edison, which was listed in 1824 as
the New York Gas Light Company
Source www.stockmarkettrivia.com
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What Did the Pundits Predict for Stocks in 2008?
Source Business Week Past performance is no
guarantee of future results.  Indexes are
unmanaged and cannot be invested into directly.
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Where Are We So Far in 2008?
The Dow Jones Industrial Average closed at
11,350 on June 30
which represents a decline of 14.4 for the
first 6 months of 2008
Source MarketWatch
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What Did the Pundits Predict For
The Economy In 2008?
Source BusinessWeek, Past performance is no
guarantee of future results.  Indexes are
unmanaged and cannot be invested into directly.
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Where Are We So Far in 2008?
The nations real GDP grew 1 in the first
quarter, which is below the forecast of a 2.1
for full-year 2008 from the BusinessWeek survey
Source MarketWatch
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Where Are We So Far in 2008?
Earnings growth is projected to come in at 4.0
for 2008, inline with the BusinessWeek projection
Source Zacks Investment Research
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Where Are We So Far in 2008?
CPI Inflation rose 4.2 for the 12 months ending
May 2008, which is above the full-year 2008 2.4
BusinessWeek forecast
Source Bureau of Labor Statistics
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Where Are We So Far in 2008?
The Fed Funds rate was 2.0 on June 30, which is
below the BusinessWeek forecast of 3.9 for
yearend 2008
Source Federal Reserve
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Where Are We So Far in 2008?
The 10-year Treasury yield was 4.0 on June 30,
which is below the BusinessWeek forecast of 4.5
for yearend 2008
Source Yahoo! Finance
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Where Are We So Far in 2008?
The jobless rate was 5.5 for the month of June,
which is above the BusinessWeek forecast of 5.1
for yearend 2008
Source MarketWatch
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Where Are We So Far in 2008?
The one-year home price change as of May 2008 was
-15.3, which is worse than the BusinessWeek
forecast of -7.1 for yearend 2008
Source Standard Poors
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Where Are We So Far in 2008?
YTD June 30, 2007 Return 2008
Return Stocks Dow Jones Industrial
Average 6.4 -14.4 Standard Poors
500 3.5 -12.9 Nasdaq Composite 9.8 -13.6 Jap
an Nikkei-225 -11.1 -11.9 Britain FTSE
100 3.8 -12.9 Bonds Fed Funds Rate
decreased by 19.0 52.9 10-Year Treasury yield
decreased by . . . 14.3 1.4 Commodities Nymex
Oil 57.2 45.9 Comex Gold 31.3 10.8 Cur
rencies U.S. Dollar Index -8.6 -5.1
Sources WSJ Markets Data Group, MarketWatch,
MSN Money, Federal Reserve Past performance is
no guarantee of future results.  Indexes are
unmanaged and cannot be invested into directly.
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Factors Affecting 2008 Financial Markets
Soaring Oil and Gas Prices
Why?

• Oil prices up nearly 46 in 2008 through June 30

Supply/demand issues Geopolitical concerns Weak
dollar Speculation

• Nationwide average for gallon of gas was 4.086
  on June 30, up 40 from one year ago

Source MarketWatch
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Factors Affecting 2008 Financial Markets
Soaring Precious Metal Prices
Why?

• Gold, silver, copper and platinum are up about
  11, 17, 27 and 35 respectively in 2008
  through June 30

Supply/demand issues Hedge against
inflation Geopolitical concerns Weak
dollar Speculation
Source MarketWatch
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Factors Affecting 2008 Financial Markets
Rising Inflation

• Partially driven by rising oil prices

• Some companies dramatically raising prices, e.g.,
  Dow Chemical announced two price increases
  totaling more than 40 this year

• Food costs and transportation costs in particular
  are on the rise
• Food riots in some parts of the world
• Corn prices up 60 in 2008 through June 30
• Overall food prices have risen 75 since 2000,
  according to World Bank and DECPG
• Workers protest high fuel prices all across Europe

Sources Bureau of Labor Statistics, World Bank,
International Herald Tribune, MarketWatch
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Factors Affecting 2008 Financial Markets
Tight Credit Conditions

• Subprime problems caused lenders to curtail some
  of their lending
• In the second quarter, total bank loans, leases
  and securities holdings have fallen at an annual
  rate of 9.1 percent, its fastest decline since
  1973
• Lending standards have also tightened

Source MarketWatch, New York Times
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Factors Affecting 2008 Financial Markets
Financial Companies Are Hurting

• Banks, brokers and other financial institutions
  took write downs of about 400 billion dollars
  due to credit-related issues
• Raised billions in new capital to shore up their
  balance sheets but raising new capital is getting
  more expensive

Source MarketWatch, New York Times
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Factors Affecting 2008 Financial Markets
Rising Unemployment

• Job losses in first 6 months of 2008 totaled
  438,000
• Unemployment rate at 5.5 in June, a 4-year high

Source MarketWatch
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Factors Affecting 2008 Financial Markets
Bear Sterns Collapses Fed Opens Lending to
Broker Dealers

• Bear Stearns sale to JP Morgan averts potential
  market disruption
• Financial stocks recover on the news only to fall
  again later in the quarter
• Fed allows broker dealers to borrow from them to
  help shore up the marketsunprecedented action

Source MarketWatch
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Factors Affecting 2008 Financial Markets
Housing Prices Continue Declining

• 20-City Composite index published by
  SP/Case-Shiller shows 15.3 year-over-year
  decline as of April 2008
• Inventory of unsold homes on the market
  translates to a very high 10.8 month supply based
  on May 2008 sales rate
• Weak housing ripples through several other
  industries, thus causing a domino effect

Source Standard Poors, MarketWatch
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Factors Affecting 2008 Financial Markets
Uncertain Corporate Profits

• Thomson Reuters expects Q2 earnings to fall by 13
  percent -- compared with expectations of a 2
  percent fall at the beginning of April.
• Looking at big drops in financials and consumer
  discretionaries
• However, 7 out of 10 SP 500 sectors are still
  expected to show earnings gains led by energy
  and technology
• Global economy slowing down too which may affect
  U.S. companies earnings

Sources Reuters, Bespoke Investment Group,
Bloomberg, Wall Street Journal
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Factors Affecting 2008 Financial Markets
Political Drama

• Bruising primary campaign between Obama and
  Clinton
• Talk about raising taxes may have spooked the
  markets

Source CNN
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Factors Affecting 2008 Financial Markets
Continued Dollar Weakness

• U.S. Dollar index dropped 5.1 for the first 6
  months of 2008
• Good for exports
• Bad for imports
• Good for multi-national companies
• Bad for oil prices
• May contribute to inflation

Source MSN MoneyCentral
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Putting the Markets Ups and Downs in Perspective
Since 1926
The SP 500 had 59 up years and 23 down years
The 59 up years averaged 21.95
The 23 down years averaged -12.60
Source Invesco AIM
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Putting the Markets Ups and Downs in Perspective
Of the 23 down years since 1926
5 had a loss of up to 5
8 had a loss between 5 10
7 had a loss between 10 25
3 had a loss more than 25
Source Invesco AIM
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Putting the Markets Ups and Downs in Perspective
Of the 59 up years since 1926
13 had a gain up to 10
16 had a gain between 10 21
17 had a gain between 21 32
13 had a gain greater than to 32
Source Invesco AIM
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Bear Market Refresher
Looking at the Last 10 Bear Markets
Shortest duration 2.9 months from July 1990 to
October 1990
Longest duration 30.5 months from March 2000
to October 2002
Average duration 14.1 months
Smallest decline 19.9 percent from July 1990 to
October 1990 (while this is less than 20
percent, Vanguard included it in the list)
Largest decline 49.1 percent from March 2000 to
October 2002
Average decline 30.4 percent
Source Vanguard Investments
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Bear Market Refresher

• Since this bear market started on October 10,
  2007,
• the SP 500 is down __ as of ___________

Source MarketWatch
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Heres What Were Doing in Light of the Current
Market Situation
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• Reaffirmed our commitment to Modern Portfolio
  Theory and actively managed asset allocated
  accounts.
• Moved 30 to 40 of stock and bond portfolios to
  low leverage, short-term commercial real estate.
• 3. Reduced exposure to the energy sector.
• 4. Moved 10 to 20 of stock and bond portfolios
  to oil and gas drilling.

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• 4. Increased emerging market stock and bond
  allocation.
• 5. Thinking about over-weighting portfolios in
  value stock.
• 6.Took small positions in natural resources.
• 7. Tax harvesting In December 2008.
• Thinking that the price of gas will stay high,
  the credit crunch will continue until mid 2009,
  the Fed will start to raise interest rates in
  early 2009.

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Parting Thought
This too shall pass.
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THANK YOU FOR YOUR
continued
SUPPORT
Denver, CO / Newport Beach, CA / Naples, FL