Hey Windows 8, Where Do I Start?

September 30, 2012 — Sam H. Fawaz

For as long as I can remember, Microsoft’s releases of operating systems (OS) have been primarily designed around the personal computer environment.  Shortly after release, Microsoft then “shoe-horns” the OS into other devices such as smart phones, earlier versions of tablet PC’s and personal digital assistants.  As a result, users’ biggest complaints in the past have been slow or sluggish responsiveness, poor user interface design and incompatibility of the OS with small devices and screens.

Now with Windows 8 scheduled for an official release date of October 26 2012, about three years after the release of Windows 7, Microsoft (MS) has turned the “one size fits all” OS paradigm into the “lowest common denominator” paradigm.  That is to say, it’s almost as if MS has taken the interface, first introduced in the failed Zune music player, then refined for the Windows Smart Phone 7, and has scaled it up for the PC and modern tablet environment.

In this article, I’ll give you the highlights of my experience working with the new OS over the past couple of month and my thoughts on them.  In many respects, Windows 8 builds on Windows 7 with a few user interface changes, feature enhancements and under the hood upgrades.  In addition, I found that compatibility of hardware devices and software with Windows 7 carried over to Windows 8 with few exceptions.

Installation & Initial Impressions

The release to manufacture (RTM) version of Windows 8, a 3.5 GB DVD ISO image, downloaded to my Lenovo ThinkPad W500 notebook without any issues. After burning the image to an installation DVD, I was ready for the install.

The Windows 8 install routine follows the same script as Windows 7.  The installation wizard asked very few questions and proceeded to install Windows 7 without a hitch.  In fact, the only real choice to make during installation is whether to upgrade the existing operating system (assuming one exists) or to perform a fresh install.

In my case, the laptop I was using had two hard drives installed; one with Windows 7 running on it and another empty hard drive. In the majority of cases, I highly recommend backing up your computer and data, testing the backup, and then doing a fresh install (which reformats the hard drive and overwrites the old operating system).  This process, while more time consuming and labor intensive, ensures that your install goes more smoothly and your computer won’t be slowed down with old remnants and “trash” files, hidden malware, and a bloated registry from your previous Windows installation.  Obviously this means reinstalling all of your applications, finding your software keys, and re-registering the applications, so be ready for that.

For a fresh install, the entire process took about 20 minutes, even on my older hardware.  If the installation fails on your hardware, it’s more than likely a hardware or driver compatibility issue. Sometimes merely re-starting the install process after failure gets it to work.

After the installation and reboot were complete, and since I still had Windows 7 installed on the secondary drive, a Windows dual-boot menu came up allowing me to choose Windows 7 or Windows 8. If you do a fresh install over your existing operating system, you won’t have this choice. I chose Windows 8.

One of the new features of Windows 8 is a universal “network” login. While in the past each PC user had a local account to log onto each PC he or she owned, MS now understands that users have multiple devices (laptop, desktop, tablet, smart-phone) and would prefer not to have to create separate logins, internet favorites, desktop settings, etc. for each device.  This is akin to having a “network” or domain controller at the office monitoring and granting access to employee PC’s.  While this is optional, I highly recommend it since it also integrates your social networking accounts and Microsoft store access with the operating system.

By having users create a Microsoft “cloud” user account, using either a Hotmail or MSN e-mail address (or your own primary 3rd party e-mail address), Microsoft can store these settings in the cloud for use with any device you log into with that e-mail address.  That way, every device you log into will look, work and feel the same no matter where you are.  Of course, that means Microsoft can sell you apps and other devices in their digital “ecosystem”, not unlike Apple’s approach to locking you into their digital ecosystem.  It also means that you get 7 GB of online SkyDrive storage free for use to store and share documents and other files.  SkyDrive aware applications can conveniently take advantage of this storage (e.g., Office 2013)

Once you set up your user account, first-time setup asks you which WiFi network you want to connect to (assuming one is nearby) and what settings you want to use for Microsoft updates (i.e., automatic, ask, download then ask.)  New in Windows 8, you can choose your color scheme and background “tattoo” for your working environment (which of course can be changed anytime).  After a few seconds, the new Windows 8 “Metro” interface appears with a background picture of the infamous Seattle space needle. This is where the fun starts!

Before I continue describing my experience, I should mention that at one point shortly after installing Windows 8 (and a few applications), the system inexplicably crashed badly and couldn’t be recovered. Even the repair facility on the Windows 8 install disc was unable to recover the system. Worse, the Windows 7 partition would not boot up either, even though the data contained therein was intact. Only a full installation, this time without the Windows 7 drive in place (my choice), would get me up and running again.  Perhaps this was a hardware issue or an issue with this RTM version; I may never know. But suffice to say, in the future, I will not attempt another dual boot install of Windows 8 with another computer, lest it render both OS’s unusable (thankfully my data was still safe, but I still have to reinstall Windows 7 to get that partition running again).

User Unfriendly Interface?

Even though Windows 8 is not officially released, the new Metro interface (start screen) has already generated a considerable amount of controversy and, let’s just say, outright hatred.  Booting up to the start screen brings you to a tablet or smart-phone style interface with live “tiles” for pre-installed applications (apps) like maps, internet explorer, mail, games, store, music, camera, video, etc.  These apps update the desktop automatically (think gadgets) with information like the weather, incoming mail, social network updates, etc.  Double clicking one of the tiles launches the full-screen app.  Install an application of your own and a launch tile is created for you on the desktop.  But gone in Metro are the comfy and familiar task bar and Start button we’re all accustomed to.  In my opinion, the graphical interface is far inferior to that found in Apple’s OS and seemed a bit like child’s play.  The tiles themselves seemed to be low resolution and quite plain.

From here, things get a little nebulous.  Click on an app tile and it’s quite unclear what you need to do to close the app, launch another one, bring up the app menu, or simply get back to the start screen. I really hope that Microsoft ships the OS with a start-up tutorial for new Windows 8 users to demonstrate how to navigate the OS.  Without something like that, you’re just plain lost.  The first time I rebooted the computer, I had my desktop bitmap background displayed with no clue how to bring up the log in screen (hint: press any key!)

In Microsoft’s effort to create a single operating system intended for use with a keyboard and mouse as well as with finger swipes, they have created needless complexity and confusion for the user.  While I pride myself on digging deep under the hood in every operating system I unwrap, I felt somewhat lost and dumbfounded with my non-touch laptop screen when trying to navigate the OS.  Click up, right-click, click down, click right, click left, double-click, triple click; I tried everything to try and learn how to navigate the interface. Frustrated doesn’t begin to describe how I felt until I figured things out.

The fact is, without some help from the web, I wouldn’t have figured out how to navigate the interface.  By accident, I discovered that pressing the Windows key brought up the traditional Window 7 like task bar and interface (but still no Start button.) Pressing it again takes you back to the Metro interface.  Talk about feeling dumb.

To save you some time and frustration, here’s a little cheat sheet: The upper and lower edges of your screen are reserved for application menus and functionality.  The right and left edges of your screen are reserved for the operating system functionality. You move your mouse (or finger on a tablet) to the screen edges to bring up and use the selections that appear.

Moving your cursor to the upper left-hand corner brings up the thumbnails of all the running applications and a thumbnail of the start desktop.  Moving your cursor to the upper right-hand corner brings up the Windows 8 palate of buttons (called charms): search, share, start, devices and settings.  I won’t take the time to describe them since their name and clicking on each of them makes their functionality obvious.

Launch a traditional (non-Metro) application like MS-Word and you find yourself in the familiar desktop world, a la Windows 7. Launch a Windows 8 compatible application and you’re in the Metro world. At times, it felt like each of these two types of apps were on separate islands, if not like being on a dual boot system with two disparate operating systems. Figuring out how to get from one app to another took some guessing. Fortunately, the Alt-Tab and Windows-Tab key combinations still work. Nonetheless, it definitely takes some getting used to.

Though I didn’t have a touch-screen system to test it, Windows 8 is optimized for touch-screen PCs and tablets.  With the success of the iPhone and other tablet devices, having these capabilities built-in will make the user experience much more pleasant and interactive. Microsoft has made great strides in this area.

New Features and Enhancements

Like all previous iterations of Windows, Microsoft touts the security, performance and resource enhancements brought about by a new “architecture” in Windows 8.  Each version seems to always promise to use less memory, employ processors more efficiently, and need less disk space.  The disk space claims had better be true since solid-state drives (which I don’t have except on my iPad) are somewhat space constrained and quite expensive in the short term.  In addition, to be a truly mobile operating system, it would have to be truly memory and processor efficient. The new trusted boot is supposed to prevent malware from loading before the operating system, thereby making it more secure.

Windows 8 touts much faster start-up time. Is it faster than Windows 7? Yes it is. Is it much faster? No, not in my opinion, at least not on my laptop.

Windows 8 also claims to have longer battery life and faster graphics and text rendering. In my limited testing, I wasn’t able to validate these claims (especially since I don’t have a test work bench). I can however attest to the fact that I was able to connect and reconnect to Wi-Fi networks faster.

Windows 8 comes with the new Internet Explorer 10 as a Metro type application.  The menu and URL bar are moved to the bottom and Microsoft claims that it’s not only faster than previous versions, it has far better support for HTML5 standards.  Using IE 10 is like having a “clean full sheet” view, something that took some getting used to. But I found that I really liked how it looked and felt.  Nonetheless, the first application I installed on Windows 8 was Firefox (and of course my favorite app, RoboForm).

For some reason I’m unable to explain, I was not able to fully test the multi-monitor support touted in Windows 8.  Among Windows 8’s features for handling multiple monitors is the new ability to adjust and set the location of the task bar.  In my case, Windows 8 simply refused to recognize my 30” monitor (perhaps an incompatible driver). But if you’re using multiple monitors, setting the location of the task bar is a nice and long overdue enhancement.

As mentioned above, many apps ship pre-installed on Windows 8 with access to thousands more in the Microsoft app store.  If you’ve ever used a tablet PC or smart phone, you know exactly what I’m talking about.  One annoying aspect of apps are their minimalist approach to giving help and user options.  You often waste time hunting for a button, a menu, something to help you do what you need to do.  Sometimes too little of a good thing (options) is just as bad as too much of it.

My Experience, Comments & Editions

In day-to-day use, there was not much about Windows 8 that struck me as being radically different than Windows 7.  The speed and performance were similar as were the application and hardware compatibilities.  Most hardware manufacturers won’t have to rush out new compatible Windows 8 drivers, but some will.  Since the old Windows registry unfortunately lives on with Windows 8, backwards compatibility is assured, but so are the legacy issues, performance and problems inherent with it.

One important decision you’ll have to make is whether to trust your PC security (anti-virus, malware, firewall, spam, etc.) to Microsoft’s built-in capabilities and forgo a third party security suite or ante up for one. There’s no guarantee that your existing Windows 7 security suite will be compatible with Windows 8, so you may have to upgrade to a newer version. My decision is easy: let the security experts take care of my PC security, so I’ll spring for a third party compatible application.

As for my overall impression, Windows 8 strikes me as the next trouble spot for Microsoft a la Windows Vista.  The Metro interface will be discussed ad nausea and I suspect will continue to be bashed in the media.  In general, while I am happy with the Windows 8 upgrade, I don’t feel compelled, as I did with Windows 7, to rush out and upgrade my Windows 7 PC’s. However, if you’re ordering a new PC soon, then I highly recommend one with a touch screen. For that, Windows 8 is a must have.

As of this writing, Microsoft has announced four editions of Windows 8 with varying feature sets (e.g., Windows 8, Pro, Enterprise, and RT) with pricing from $14.99 (for Windows 7 computers purchased after June 1, 2012) to $39.99. For more details on the various editions, feature comparisons and upgrade paths, check out http://en.wikipedia.org/wiki/Windows_8_editions.

Windows 8 runs on any hardware that can run Windows 7. It will also be able to run any programs that run under Windows 7, unless you opt for a Windows RT tablet, which will only run new-style (Metro) Windows 8 apps.

After using Windows 8 for a period of time, it became readily apparent why Windows 8 upgrade pricing is so inexpensive: Microsoft expects users to make a lot of purchases from the Microsoft store. Towards that end, the store is somewhat “in your face” more often than you might like.

Like Windows 7, I once again expect a very slow and cautious corporate approach to upgrading to Windows 8, with many companies waiting until the first service pack is released before committing to deployment.  While the operating system is more secure, I don’t see many compelling corporate features to cause many companies to rush into upgrading.  Windows 7 is simply good enough.

Because of the learning curve involved, and because there is currently no option to disable the Metro interface, I suspect that many IT departments will shelve this upgrade until Microsoft is pressured enough to make the Metro interface optional and bring back the Start button and traditional Win 7 interface as the default. I’m not sure that’ll happen, but a slow corporate OS upgrade cycle might convince Microsoft to do so.

If you’ve been playing with the consumer preview or RTM versions of Windows 8, I would love to hear your feedback or questions.

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Bond Market Outlook: Points to Ponder

June 6, 2012 — Sam H. Fawaz

During the past decade, many long-term fundamentals of investing have been turned upside down and one example is the performance of U.S. stocks compared with bonds. Over longer time periods, such as 20 or 30 years, stocks exhibited higher average annual returns along with greater volatility.1 Bonds, in contrast, presented lower long-term returns along with fewer ups and downs.

But the 10-year period ending December 31, 2011, has shown the opposite, with the average annual return of investment-grade bonds exceeding stocks by a margin of 5.8% compared with 2.9%.1 No one knows for sure whether the recent outperformance of bonds will continue, but events currently present in the U.S. economy are causing observers to question the outlook in the years ahead.

Interest Rates The Federal Reserve has maintained the federal funds rate between 0.0% and 0.25% with the goal of stimulating the economy. Given how low short-term interest rates are, it is likely that they will turn upward at some point, which would present challenges for bondholders. Historically, higher interest rates have caused the prices of existing bonds to fall as investors have pursued newly issued bonds paying higher rates. This scenario presents the potential for losses for existing bondholders.

Inflation During 2011, inflation averaged 3.2%, close to the historical average of 2.9%.2 But if inflation were to increase even higher, an investor would lose money on a bond with a yield lower than the rate of inflation. Some observers believe that if the U.S. economy begins generating stronger growth, inflation could once again spike upward.

Federal Spending Sizeable federal deficits are almost old news as the government looks for ways to stimulate the country’s economic engines. While economic growth is a laudable objective, outsized federal spending may impact the financial markets. If the federal government is forced to pay higher interest rates to entice investors to fund the debt, this action could lead to higher interest rates on other types of bonds as well in response to investor demand.

Bonds can help investors balance a portfolio weighted to stock funds or other assets. When making decisions about investments, it is important to weigh both the benefits and the risks associated with bonds and any other assets that you own.

Source/Disclaimer:

1Sources: Standard & Poor’s; Barclays Capital. Stocks are represented by the Standard & Poor’s 500 Index, bonds by the Barclays Aggregate Bond Index, volatility by standard deviation. Results are for the 30-year period ending December 31, 2011. You cannot invest directly in an index. Past performance does not guarantee future results. Investing in stocks involves risks, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

2Source: U.S. Bureau of Labor Statistics. Inflation is represented by the Consumer Price Index. Historical average is for the period between 1926 and 2011.

June 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by YDream Financial Services,a local member of FPA.

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Hooked on the iPad

December 17, 2011 — Sam H. Fawaz

Most people who know me quickly realize that my tolerance for electronic gadgets that don’t work properly or don’t justify their hefty cost is pretty low. I still use a Palm 680 Smartphone and hold onto my computers much longer than their useful life. Shiny and new aren’t on my top requirement list as much as utility, durability and value are.

Store return policies appear at the top of my list when considering a vendor for a new electronic gadget, and restocking fees are definitely my enemy. So when I purchased my first tablet PC to try out, based on all the positive feedback and reviews, the generous return policy at Target (90 days) was just the ticket to figure out whether a tablet would fit into my computing life. As it turned out, I didn’t need the return policy and the Apple iPad 2 goes with me nearly everywhere I go.

While tons of ink has been spilled about the tablet space and the iPad, I wanted to share my thoughts and experience of living with an iPad for over four months. Despite owning two desktop computers, two laptops and a smartphone, I find myself going back to the iPad time and time again whenever I need a totally portable and light device on-the-go.

Several models of the iPad are available. They differ by color (black or white-I chose white), memory size (16 GB, 32 GB or 64 GB) and wireless capability (Wi-Fi or cellular). For my own purposes, I chose the 64 GB version to ensure that I never run out of storage space, given that the iPad has no on-board expansion capabilities. While many might question the need for this much memory, I know that it can be quickly filled up with documents, e-books, music and video. I took the approach that you can never have too much space; just like with computer hard drives, you always manage to fill them up at some point, especially with so many apps available these days.

Some may argue that with the Apple iCloud (and other online storage services), the online storage and backup facility recently launched, more than a nominal amount of local storage is no longer necessary. My response is that, while Wi-Fi and cellular data reception may be ubiquitous, it’s when you really need that video or document that you find yourself with an online connection that’s unavailable, too slow or unreliable. Internet access hasn’t, in my opinion, reached the reliability or overall availability as much as say, electricity.

This brings me to my next choice: Wi-Fi or cellular internet access. I’ll say up front, I’m too budget-minded when it comes to paying for even more internet access (via cellular) when I’m already paying for it twice: once on my smart phone and once at home (after all I am a financial planner). I just couldn’t see spending another $30 or more monthly for an additional plan that I would use only where Wi-Fi is not available. Also, if I were to “spring” for another wireless connection, I’d go for one of the portable cellular Wi-Fi routing devices that can make internet access available for more than one device (à la the Verizon MiFi). This way I’m not limiting my cellular internet access to one device; I could also use it with my laptops.

In my experience, cellular access on my iPad would have been handy at times where Wi-Fi was not available for my iPad, but those instances have been only a few. Also, keep in mind that, even when only Wi-Fi is available, it may not be free (airports, airplanes, etc.) And obviously a cellular data modem can’t be used on an airplane.

For someone who has used an iPhone or iPod Touch, getting used to the multi-touch screen and iOS interface is second nature. For someone like me, who never owned either, learning the navigation of the interface and various finger gestures was very simple and intuitive. Within minutes I became comfortable opening and navigating applications, though it took some getting used to. Being so PC and Windows centric, this was also my first experience with an Apple computing device (other than an iPod of course).

Since I’m well versed in using iTunes software, the synchronization interface for the iPad with your computer, getting started setting up the iPad was relatively easy. While I was anxious to sync, view and listen to my music and videos on the iPad, I really viewed the primary purpose of the iPad as an e-reader and lightweight e-mail and internet browsing device. Everyone knows about the hundreds of thousands of “apps” available for the iPad, and I was curious which ones I would gravitate towards or incorporate into my daily life.

An online Apple account is essential if you plan to use iCloud, download apps or buy anything from the iTunes store. Anyone who has purchased music or media from Apple already has an account. If not, setting one up is easy and free; even if you never purchase a thing from Apple, and are only interested in the free apps, you’ll need an online Apple account.

During set-up, the iPad asks if you wish to establish a 4 digit passcode to protect your iPad and contents. I can unequivocally say that you must do this immediately and set a short time-out for it. It will help protect your device and data from unauthorized access and spying eyes, and will not allow use until after you input the passcode. You can even set the maximum number of failed attempts to unlock the iPad, after which it will erase all the data from the device as a safety precaution.

One of the first apps that came “standard” on the iPad was “Find iPhone”. This allows you to remotely track down your device via GPS should it become lost or stolen. I set this up right away just in case this happened. Although a clever thief can likely find a way around it, it’s a second line of defense (after the passcode) to retrieve or wipe your data should the iPad fall into the wrong hands. And as I get a bit older, it may even help me find my device around the house in case I misplace it like my keys.

Without any USB ports or memory card slots, one wonders how you get data back and forth to the device. As alluded to above, the iCloud can act as a data hub to shuttle files and documents to the iPad. In addition, e-mail and internet attachments (most commonly PDF’s) are opened and displayed without any extra effort, using the preinstalled iBook application.

Speaking of e-mail, setting up an internet e-mail account (in my case Google’s Gmail) was straightforward and effortless. The iPad uses the IMAP protocol to sync messages with the server and makes e-mail processing a breeze. Tapping out short e-mails with the on-screen keyboard became easier over time, though I splurged on a $99 Logitech Bluetooth keyboard/cover combo device. The keyboard doubles as a hard screen cover when not in use. The keyboard, while a bit small, is much easier to type on than the virtual screen keyboard and makes short work of typing longer documents or e-mails. The keyboard/cover also doubles as an iPad stand turning the iPad into a mini convertible notebook.

Internet browsing using the Safari browser worked flawlessly, though Internet Explorer or Firefox users may take some time to get used to Safari. Of course, as many iPad users learn quickly, Apple does not run the ubiquitous Adobe Flash applications or videos. Over time, this has become less of an issue as more and more video content is being converted to HTML 5.0. While the majority of web videos are in Flash, a large portion of YouTube and other web video content is available in HTML 5.0.

So once I had mastered the e-mail, internet, e-reader and video playback capabilities, it was time to explore the available apps that would make me more productive on my iPad. Regular readers of my columns know that the most useful app on my computer is RoboForm, my form filling and password management software of choice. RoboForm is available for the iPad, though the form filling capabilities are all but muted in this early version. It really acts as a lookup repository for web sites, ID’s and passwords, which is what I really need when on I’m on the road. RoboForm syncs online with RoboForm To Go for those signed up ($19 annually), so your ID’s and passwords are always up-to-date.

I also like the idea of being able to remote control my PC’s with my iPad, so I bought and downloaded the LogMeIn Ignition iPad app to be able to remote control my PC’s ($30). While the iPad screen is a bit small to display my 30-inch screen at home, the app performed flawlessly to remote control and access my home PC. It takes a little getting used to, that is, using the finger gestures to navigate, but this works fairly well. There are no extra fees for this access beyond the fees you may pay for the LogMeIn services (they have free and paid plans).

Reading books, newspapers and magazines on the iPad is a pleasure and a great convenience. I converted my Wall Street Journal, Barron’s, Business Week and Investor’s Business Daily paper subscriptions to electronic ones and I’ll never go back to ink stained fingers. I’ve also had an electronic PC Magazine subscription ever since they ceased their print edition, so I now get that “pushed” to my iPad on the day of release. Any further renewals of magazine subscriptions will be electronic to help reduce magazine clutter creep at home. I know my wife appreciates it and can’t wait for this to happen.

The calendar, contacts, notes and reminders (to-do) can all sync with Outlook or Google Apps. While I still use Commence RM as my favorite personal information manager, I can sync Commence with Outlook or Google Apps and therefore my personal information is available to me on my iPad. And with the iCloud, once I move to a “current decade” smartphone like the iPhone, I’ll find that information there as well. Using the Mint app, I can keep track of my spending, credit card bills and budgets. I also downloaded the Microsoft OneNote app to sync with my online and desktop OneNote databases, a very handy and quite useful app.

I used iCloud to back up the iPad and it worked on the first try without a hitch. Though the allotted free space is limited to 5 GB, you can buy additional space for a fee. All of your Apple purchased content and media is stored for free and doesn’t count against your paid and free space. Be aware that, for a limited time, box.net offers 50 GB of free space to anyone who downloads their free iPad cloud storage app.

Battery life of the iPad is about 8-12 hours, so you can work with it all day long without carrying a charger. My only disappointment with charging the iPad is that my laptops’ and desktops’ USB ports were not powerful enough to charge this iPad. This seems like a device flaw or “bug” to me. Even an iPod charger was not powerful enough, which was a curiosity.

I spent several days (not consecutive) trying to use the iPad as my primary and only computing device, but never made it through the day. That’s because, even with the accessory keyboard, I found it cramped and a bit tiring to work on for hours at a time. For conference note taking, the iPad was quite handy and lightweight to carry around all day long. Given that iOS is an Apple operating system, many PC based apps (such as Commence RM and Microsoft Office applications) won’t work on the iPad. Obviously, running a robust database application or tax compliance software is currently out of the question, until someone “ports” their apps to the iPad. So I won’t be selling my laptops anytime soon.

I found surprisingly very little to complain about when it came to the iPad. Obviously the price of the iPad, just like other Apple products, is at a premium to other tablets, but I believe that this will change very soon as competition heats up. When it came to some Adobe Flash based web sites, obviously it was disappointing not to be able to call them up on the iPad.

When some applications continuously crashed for apparently no reason, I had to uninstall then reinstall them to fix the problem. Unlike a Microsoft Windows application which displays a cryptic error message when it crashes, when an iOS application crashes, it merely closes without prior notice or message. But the recovery is quite elegant and rarely caused a reboot of the iPad.

Without a cover or protective film, the iPad can easily slip out of one’s hand and fall to the ground. I used and recommend a Zagg brand clear film cover on the front and back to protect the screen and improve the grip.

With Android based tablets hitting the market in droves in the next year, the next act for the iPad will be to stay one step ahead. Apple’s share of the tablet market has already taken a hit, and unless Apple enhances the next iPad with new features not found on the other less expensive tablets, the iPad will become one of many others competing for consumers’ attention and dollars. The design, simplicity and elegance of the iPad set it apart; only time will tell whether buyers will continue to pay a premium for it. For me, the bar is set high, so competitors will need to really show their mettle to get me to switch. I’m hooked. I’d be delighted to hear your feedback and useful applications that you can’t live without.

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What’s Going on in the Markets-August 4, 2011

August 4, 2011 — Sam H. Fawaz

I probably don’t have to re-hash for you what’s been happening in the markets over the past couple of weeks as we’ve suffered what feels like the worst decline in the markets since they recovered in March 2009. The media does a pretty good job of instilling fear and I don’t expect the newspaper headlines to be happy ones on Friday morning. So let me give you my take on what’s going on and what I’m expecting.

Coming into this week amid the uncertainty over the passage of the debt ceiling vote in Congress, we had already endured about seven days of selling in the markets that seemed to pick up steam on Monday. The euphoria on Sunday evening over a possible debt deal in Congress was over within minutes of Monday’s market open and the selling began in earnest. So what gives? If a deal was such a good thing, why did the markets sell off on the news and passage of the increase in the debt ceiling?

In reality, the significance of the debt ceiling vote was elevated by the media, and while it added to market anxiety, many were actually more concerned about the signs of slowing in the economy. The usual concerns over jobs, housing, spending and overall goverment regulation of business have been weighing on consumer and business confidence for a few months now. Downward revisions in the gross domestic product for past and future quarters haven’t help encourage companies to hire or spend on capital improvements. Once the focus was taken off the debt ceiling issue, the economic concerns were brought to the forefront.

Another Recession Already?
You’ll hear talk in the media about whether we’re heading for another recession this year, whether we’re already in a new recession or whether the recession never ended. As for the last two assertions, the economic statistics simply don’t support the notion that we’re in a recession. As for whether we’re heading for another recession in 2011, so far, the economic statistics don’t support that either (though some unfortunate members of the unemployed or those under water on their mortgages may not agree.) While we’re seeing a slowing of economic output, hiring and capital spending, we have not seen any evidence of negative or no growth. Could we see one in 2012? Anything’s possible, but no one can predict this; not even me.

My take on all this is that while the recovery has been anemic, I don’t believe that we’re heading for a recession this year. While I’m no economist, the Japan earthquake, Eurorpean and U.S. debt “crises” and other weather related factors have really thrown 2011 for an economic loop. When you consider that fiscal stimulus takes 18-24 months to make it out of the capital markets into capital spending, we may just be experiencing a temporary slowdown in growth.

As an example, commercial traders of lumber futures deny a slowdown in demand, and that usually doesn’t happen if a recession is around the corner. Corporate profits are at record highs (thanks to a dearth of hiring) and many are raising estimates of earnings for the next quarter. Credit is cheap and readily available, and companies are buying other companies and their own stock back at record levels. With the Federal Reserve on the side of the consumer, you’d be hard pressed to bed against them. So I believe that reports of an impending recession may be a bit exaggerated.

So What Happened Today?
To be honest, I came into my office today fully expecting an “up” day in the markets since we finally “bounced” yesterday. All technical indicators pointed to a severely “oversold” market (a market where selling is exhausted in the short term) that we were ready to bounce higher. In fact, I had prepared and positioned for it.

But overnight, Japan intervened in the capital markets to stem the seemingly unstoppable rise in the value of the Yen (which adversely affects their exports) right after Switzerland lowered their short-term interest rates to near zero yesterday (just like the United States). In addition, brewing concerns over Italian and other European debt problems were not helped by ambiguous comments made by the head of the European Central Bank on how they are dealing with their crisis. Suffice to say, with a 400,000 print in the weekly unemployment figures reported today, we were down from the start and never looked back.

As so often happens on a day when everyone starts to sell, the selling feeds upon itself and others join in. While we didn’t see any moments of panic, the selling was steady and relentless all day. What started out with gold and silver making highs in the morning ended the day with both at their lows.

Why? I believe it was because of forced selling and margin calls. When margin account balances need to be replenished, the most liquid of assets (like gold, silver and even Apple Stock) get sold off to cover the margin. So while there is nothing fundamentally wrong with many stocks and funds, they get sold along with everything else to raise cash for margin calls and for mutual fund shareholder requests for liquidations.

So Now What?
Despite the intense selling over the past couple of weeks, the S&P 500 is only 10% from the highs this year, just right in correction territory. You may recall that the markets corrected 16% last summer, and that’s never fun. Many then were predicting a double-dip recession around the corner and a return to a bear market. Neither of those happened; instead we moved up 30% to new highs in May. While past performance is no guaranteee of future results, I still don’t see any impending techincal signs that we are entering into a new bear market phase right now. If I did, I would be taking appropriate action. However, though this could change on any particular day, I believe this bull market still deserves the benefit of the doubt.

At the moment, as alluded to above, the market is extremely oversold and should bounce over the next few days. After that, it’s anyone’s guess what might happen, but I suspect that the remainder of the summer and into early fall will remain choppy, volatile and “lean” with a negative bias. While I expect more short-term downside, I don’t think panic selling is the right response now. While you may choose to cull some profitable positions, it may already be too late to sell most. As always, you should check with your financial advisor (or us) about the right course of action for your portfolio. Remember, no one can guess how high or low a market can go.

To be certain, I was not expecting the kind of response that we got from the market this week. But I could not foresee the actions and responses from central banks around the world either.

For our client portfolios, I’ve been keeping a good portion of investable funds in cash and had liquidated some positions ahead of this decline. Of course, I wish I had liquidated more, but alas, my crystal ball is still in the shop.

I’ve been wanting to put on some hedges via inverse ETF’s for some time now. But those funds are “too hot to handle” right now and with an oversold bounce overdue, they would only compound losses in the short term. Other hedges are also way too expensive right now as volatility is at 52 week highs. I usually like to wait for a bounce in the markets before putting on hedges, but the only bounce we got yesterday was a bit tepid and shorter than expected. I will look to put them on as soon as market conditions allow. If the selling continues in the short term as I expect, then I’ll look to lighten up other positions as appropriate as well.

On Friday, we’ll get the monthly jobs report for July, which is widely expected to be lousy and show a continued unemployment rate of 9.2%. Any selling that transpires in the morning will more likely result from margin call covering rather than a reaction the jobs number (or if we get more bad news overnight from Europe).

Please be sure to contact me if you have any questions or concerns about the markets. I’ll be happy to help, but please don’t take action based on the contents of this message. It’s not my intent to render actionable financial advice to anyone pursuant to investment advisor restrictions and regulations.

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How to Choose a Financial Advisor

March 31, 2011 — Sam H. Fawaz

You know the importance of saving for retirement, but do you have the time and know-how to accomplish your financial goals? In an increasingly busy world, it’s possible that keeping close tabs on your investment accounts isn’t exactly realistic.

Seeking the help of financial professionals has become more important to investors according to a recent survey conducted by Harris Interactive on behalf of TD Ameritrade Holding Corporation, as nearly one quarter (22 percent) of investors report relying more on a professional investment advisor following the recession.

Even if you have a good handle on your investments, you may find that hiring a financial advisor — who can put the time and energy into making sure you and your family plan for a secure financial future — may be a worthwhile investment. By hiring an independent registered investment advisor — commonly referred to as an RIA — you can make sure your investments are managed on a full-time basis by a professional advisor, while still having control.

Of course deciding to put someone in charge of your hard-earned money is not a process to be taken lightly.  Our preferred custodian, TD Ameritrade,  and we offer these tips to consider as you choose an independent financial advisor or RIA:

* Just as it is wise to do research on the background of anyone who would take care of your children, you should investigate the person or company you enlist to handle your money. The Securities and Exchange Commission, Inc. (www.adviserinfo.sec.gov), Financial Industry Regulatory Authority (www.finra.org), Certified Financial Planner Board of Standards (www.cfp.net), National Association of Personal Financial Advisors (findanadvisor.napfa.org/Home.aspx), and Financial Planning Association (http://www.fpanet.org/PlannerSearch/PlannerSearch.aspx), as well as your own state securities agency all collect background information on financial professionals that can be accessed through their websites. Use these sites to make sure the advisors you are considering haven’t faced disciplinary action for dishonest practices and are in good standing with regulators.

* Know the difference between working with an independent RIA and a stock broker, or other financial services provider. Independent RIAs, for example, are bound by law to act in their clients’ best interest. Brokers, on the other hand, are held to a “suitability” standard, meaning the advice they give must be suitable to that client’s situation. If you are looking for objective, comprehensive money management, you might want to consider an RIA.

* While RIAs are required by law to act in your best interest, there are other ways that you can ensure they will do what is best for you. One is to ask how they are compensated. Fee-only compensation generally minimizes conflicts of interest and means that your advisor is paid only for the management services and advice he or she offers, and only by you, not by investment product providers. When an advisor is paid on commission, there’s a greater chance he or she will make choices with your money that serve not only your interests, but their own as well. That’s not to say that advisors do not work fairly under this model, but potential conflicts of interest are something to consider as you choose an advisor.

* When looking for referrals from friends or relatives, the most valuable referrals may come from those in similar situations. It’s also a good idea to ask potential advisors if they specialize in working with certain types of clients and choose one that fits your unique profile.

* A third party custodian should also handle all your deposits, to ensure checks and balances. An independent custodian like TD Ameritrade can help ensure the safety and security of your assets, and will provide you with a clear, concise statement every month. A duplicate monthly statement is also sent to your advisor. Make sure this is also a legitimate and upstanding business.

Working with a trusted independent fee-only RIA can help you realize your financial goals, while allowing you to spend less time worrying about and managing your investments. If you need help and would like to talk to a fee-only planner with no sales pressure, cost  or obligation, please visit our web site at http://www.ydfs.com or call YDream Financial Services, Inc. at (615) 395-2010 or (734) 447-5305.

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What’s Going on With the Markets-March 10, 2011

March 10, 2011 — Sam H. Fawaz

Since the beginning of last September, the stock markets have enjoyed a nearly uninterrupted bull uptrend which has been unprecedented in market history.  Fueled by improving economics and Federal Reserve actions, the uptrend has withstood many geopolitical, fiscal and news driven setbacks.  But today the political unrest in the Middle East, issues with Spanish debt repayment and a higher than expected weekly first-time unemployment claim number (497,000) were the 1-2-3 punch that the markets could not recover from and therefore we suffered a 1.5-2.5% setback.  Be it stocks, gold, silver or oil today, they were all down today.

Normally, up-trending bull markets such as the one we’re in take rest periods, or “corrections” as they’re called, every couple of months while individuals and institutions take profits on stock positions and reset stock prices back to normal levels. Corrections (usually 10-20% of an index value such as the S&P 500) are healthy for the market and while uncomfortable if you watch them unfold from day to day, allow the markets to set up for the next leg up.  Two years to the day yesterday into this bull run have seen us move up about 100% from the March 9, 2009 lows on the S&P 500 index. Without a doubt, this has been an incredible run and I hope you’ve been participating.

As I’ve discussed with clients and prospects recently, a correction in the market has been long overdue and anticipated.  While today was the first big down day where we really tested key levels in the indexes, there have been several signs of exhaustion in the market. Despite this, I cannot say with certainty whether we’ve definitively entered into a correction period (technically we have, but it needs to be confirmed with follow-through on Friday and next week.)  If the bulls get their act together tomorrow and “rescue” the market by pushing it back up through heavy volume buying, then this decline may be “all she wrote.”  If not, we could head down to test the 1275 level of the S&P 500 index (we closed at 1295 today).  A failure to hold the 1275 level means that large institutions have decided to continue selling and a drop to 1240 may need to exhaust sellers.

With the “Day of Rage” demonstrations scheduled for Friday in Saudi Arabia, rocketing oil prices and sovereign debt issues, the odds of avoiding a deeper correction are not very high.  Besides, this correction is long overdue and may occur regardless of how peacefully the Middle East situation is resolved or even if oil prices come back down to earth.

What do I think? As I’ve mentioned before, the Federal Reserve has made investing in anything but the stock market earn near zero returns. That is, the government wants us to buy equities, push the stock market (and IRA’s and 401(k)’s) higher, to make us feel richer and more confident and therefore spend more.  Spending more creates demand which in turn creates jobs and so on.  So I believe that the gentle (if somewhat invisible) hand will come in to help support the market and avoid a protracted decline that might scare off the latest entrants into the market. While my crystal ball is still in the shop, I believe that a decline beyond 1275 in the S&P 500 (another 1.5%) is a stretch.  While that would make it a very shallow correction, it may be enough to breathe new life into the stock market and help resume the uptrend.

So what should you do now in light of a possible correction?  Basically, you shouldn’t do much if anything since nothing is confirmed.  If you’re investing on your own, trying to time your “in’s and out’s” of the markets is nearly impossible and not recommended unless you’re an experienced trader.  If you have a profitable position and worry about it turning into a loss, you may decide to sell a portion or all of it.  More savvy investors may be able to hedge their positions with options or inverse ETF’s if the decline proves to be protracted.  From our end for our clients, I’m watching the market technical levels on a daily basis like a hawk and already have begun to harvest some profits and protect some positions. If a protracted downturn does materialize, I may also hedge portfolios with inverse ETF’s and selectively liquidate partial positions.  But we’re not there yet and I’m not making any recommendations.  And by no means do I think we’re entering another bear market (by definition, a bear market begins when we decline 20% from the last peak in a major index).  Non-clients should consult their current advisor (or me) if you’re unsure what to do in the event of a protracted decline and should not treat this as a recommendation to buy or sell anything (see disclaimer below).

Last year we declined nearly 15% from May through August amid sovereign debt worries and economic uncertainty and then proceeded to push up nearly 25% over the next six months. I still believe that we will end 2011 with double-digit gains in the markets as this economy matures from recovery to expansion.  All economic indicators point positively and last month we even added nearly 200,000 new jobs.  We may even see housing perk up a bit later this year.  Without a doubt, sustained oil prices above $125 per barrel and $4 gasoline for an extended period (6 months or more), will put a crimp into the expansion, but I don’t believe we’re heading for a long term spike in oil prices.  Let’s just say that the oil producing countries learned what supply constraints and speculation did to oil demand the last time oil spiked to $145 a barrel. More electric and hybrid cars is just one example of how we are learning to live with less demand for foreign oil.

I hope this message helps alleviate any anxiety over the recent down days in the market.  Remember that the media loves good negative stories to help sell newspapers and advertising. Avoid the noise and try to keep your sanity during the days when it seems like there’s always something bad going on in the world.  Middle Eastern concerns have been a worry for decades, if not centuries now, and likely won’t be resolved during our lifetimes.  Like every other world incident, the markets get back to normal and we get through them.

Enjoy the upcoming weekend and don’t hesitate to contact me if I can be of any help.  If you’re not a client, your consultation with me is complimentary, no-pressure and with no obligation.  I’d love to talk to you whether or not you’re considering hiring a financial planner or money manager.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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Update on Extension of Bush Era Tax Cuts

December 7, 2010 — Sam H. Fawaz

I promised to update you on progress in changes to income tax legislation that affects all of us in 2011.  As you may recall, the Bush-era tax cuts were scheduled to expire after 2010, which essentially amounts to a tax increase if Congress didn’t act to extend them.

After the stock market close yesterday, President Obama, in a televised speech, announced a compromise with Republicans in Congress which, if passed into law, would amount to a much bigger fiscal package in 2011 than virtually anyone expected. In addition to a two-year extension of the Bush-era tax cuts, he added a one-year reduction in the payroll tax and a huge investment tax credit.  While the ultimate bill that gets passed may be different than detailed below, I wanted to get you some details right away.

I would expect that the proposal will be signed and turned into law in the next couple of weeks.  Among the highlights of the proposed bill are:

— A two year extension of tax cuts for all income levels.   The 15% rate on capital gains and dividend income would also be extended as part of the deal. The president also proposes a 35% estate tax rate, with a $5 million exemption.  It appears that the President traded tax extensions for the “rich” for unemployment benefit extensions and the below payroll tax deduction.

— Payroll tax deduction. This would reduce the 6.2% Social Security payroll tax applied to employee wages by 2 percentage points.

— Renewal of emergency unemployment benefits through the end of 2011. This would be more than the three-month extension most analysts had expected. It puts around $60 billion in the hands of unemployed citizens, which is much more than the consensus expected.

— ARRA tax cut extensions. Several small tax cuts in the American Recovery and Reinvestment Act, passed in 2009, will be extended, including an expanded earned income tax credit, and various education-related tax breaks.

— Full expensing of business investments in 2011.  This would allow the expensing of business investment in 2011, similar to the policy that the president proposed in September.  It will allow companies to deduct the entire cost of capital expenditures on their taxes rather than depreciate them.

Congress and the White House will need to work out the details, but I expect this tax bill to pass. It’s not likely that this lame duck Congress would leave for the holidays until this is sent to the President for his signature.  It’s rare that I pity the Internal Revenue Service, but with tax forms to revamp and guidance and rules to formulate, they will be behind the curve on getting this out.  I would expect some delays of 2010 income tax refunds for returns filed early, but none that are terribly lengthy.

The stock markets have been expecting this, and some of it already factored into current levels, but I still expect market reaction to be positive and further bolster any Santa Claus rally we may have coming.  This is essentially another huge fiscal stimulus plan, perhaps larger than any of us have been expecting or realize.

I’ve been saying all along that Congress will “hem and haw”, posture for their constituents, and pretend to be against tax cuts and for fiscal responsibility.  But ultimately the economy is too fragile to be saddled with a tax increase this year or next. Even I am a bit surprised by the depth and breadth of the bill, but I could not see Congress not doing something before year-end. Failing to pass something would have amounted to a quantitative easing neutralizer (i.e., rendering quantitative easing worthless).

I will keep my eyes and ears peeled open for more details about this bill and its ultimate passage and will let you know what ultimately gets passed. If you, a family member, friend or colleague would like more information about this or just need to talk about a financial situation, please feel free to forward a link to this post to them and suggest they get in touch with me (http://www.ydfs.com).  I will be sure to take good care of them.  As always, I’m available for any questions you may have and welcome your comments.

Have a great holiday season and look for my year-end and 2011 Economic and Market Outlook letter later this month.

Posted in General, investing, Taxes. Tags: , , , , . 1 Comment »

Happy Thanksgiving and a Quick Market Update

November 26, 2010 — Sam H. Fawaz

I just wanted to post a quick note to wish you and yours a very Happy Thanksgiving Holiday.  Here’s hoping that you are celebrating it in good health surrounded by family and friends.  Without both, life would be such a drag.

I am thankful for my family and friends, good health and the best clients and readers in the world.  I can’t imagine myself doing anything else that I would enjoy more in life than what I’m doing now.  I hope that you feel the same way about what you do, and if not, I hope you’ll take steps in your life to move closer to the activities that bring you joy and happiness.  It’s really about getting what you need and want out of the day rather than getting through the day.

A Quick Stock Market Update

The last few weeks have been quite volatile in the stock markets, and to be honest with you, it was really all my fault.  Right after I sent out my last newsletter update about the Federal Reserve pumping up the markets, we entered into a long overdue correction (a decline in prices).  As I had mentioned, the markets had gone straight up during September, October and early November, so it was no surprise that a correction was coming. We have swung up and down and sideways without much upside and thankfully without much downside either.

In some cases, I took advantage of this correction to “prune” (sell) certain client positions to lock in profits or avoid losses.  This past Tuesday, a day when everything was trending downward and things looked like they were about to fall apart (a day where about 90% of all asset classes were down) due to the events in Europe and South Korea, I took 95% of our available cash and invested it at the lows of the recent market range.  We were immediately rewarded yesterday as all the markets were up “big” to kick off what I hope to be a great year-end Santa Claus rally.  Seasonally, this period of the year tends to be the strongest for gains in the markets.  While we are technically still in a correction phase, I expect the uptrend to resume soon (but my crystal ball is still in the shop).  Recent economic news has been very positive, some much better than expected, and first time unemployment claims this week surprised nicely to the downside.

I still remain optimistic about a positive finish to the year and the rally continuing into 2011 as the economy recovers.  I believe that this is the best time to be invested in the markets as Uncle Sam has told us that he wants the markets higher. Consider taking advantage of this recent market correction to dip your toes into the market.  I like that most are pessimistic about the markets since that tends to propel them higher.  Yes, we have economic worries, future inflation, high unemployment and a moribund housing market, but those problems didn’t develop overnight, so they won’t be solved overnight either.  We are making progress, and that’s what really counts.

Later in December, I will send out my 2011 market and economic outlook newsletter.  In the meantime, year-end tax planning is in full swing and hopefully you’ve benefitted from my year-end tax planning newsletter and tips.  Remember, if you’re thinking about an IRA to Roth conversion in 2010, you only have about five weeks to complete it.  Don’t hesitate to contact us to discuss whether this option is appropriate for you. I am also available to help with your year-end financial or tax planning.

Enjoy your holiday weekend and please let me know if I can be of any help.  And remember: 50%+ off sales are great, but the best sales are those that save you more than 100% (that is, when you save and invest the money instead..sorry I couldn’t resist).  By the way, I was recently quoted in another online financial story-see the link below about Six Ways to Gift Money to Family.

New: 6 Ways To Gift Money to Family http://bit.ly/aDG90W

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Posted in General, investing, markets, retirement. Tags: , , , . Leave a Comment »

What’s Going on in the Markets?

November 8, 2010 — Sam H. Fawaz

What a great couple of weeks it has been in the stock markets! We just had the mid-term elections, an important Federal Reserve Meeting and the October 2010 monthly jobs report.  Most were expecting this past week to be one where the markets took a breather and pulled back a bit. Instead, the markets powered higher to levels not seen since 2008 and better than our April 2010 highs.  The NASDAQ market is up by double digits for the year and the DJIA and S&P500 indexes are near double digits.  With the announced quantitative easing (QE2) by the Federal Reserve this week (simply translated, the government is going to print more money to avoid deflation), more funds will find their way to the stock markets.  Therefore I believe that the markets are headed higher over the next 6-12 months (obviously, my crystal ball may be broken, but Federal Reserve Chairman Ben Bernanke came out and said that higher stock markets is one of his main objectives to stimulate spending and the economy.) Please read more about that below.  If you read nothing else in this message, please at least read “The Bottom Line” below.

 

Quantitative Easing 2-It’s HUGE!

With inflation at historic lows and prices at risk of descending into deflation, Dr. Bernanke is determined to avoid Japan’s lost two decades due to inaction to stimulate inflation.  In an environment of deflation (falling prices), spending stagnates because no one buys anything because they expect prices to be lower in the future.  So yes, I said it: Dr. Bernanke wants to manufacture inflation, believe it or not. By printing greenbacks ($$$), we increase the money supply, cause the dollar to fall in value (and thereby increase exports), which in turn causes stocks and commodities to rise in price, which causes people to feel better about their investments and retirement plans, which in turn gives them the confidence to spend, which spurs more manufacturing and hiring and so on…you get the picture.  Or at least that’s what he’s expecting and hoping to happen.  This round of quantitative easing has been dubbed QE2 since it’s the second time since the great recession began that we’ve embarked on a similar stimulative program.  This program will add $600 billion of money into the system at the rate of $75 billion for eight months to try and jump start inflation. If this doesn’t work, some analysts think that we should expect QE3 or even QE4, and by then, we may have as much as $2 trillion of money printing when all is said and done.  A trillion here and a trillion there and soon you’re talking about some real money (remember when a billion used to be a huge sum of money?)

 

One impact of the new QE2 program hasn’t received much attention.  That is, it almost guarantees that short-term interest rates will remain near zero for quite some time, perhaps for the next couple of years.  Keep that in mind if you’re one of those people who collectively still have about $3 trillion invested in money-market funds.  Has the memory of 2008 (-37% on the S&P500) kept you from earning +26.5% in 2009 and possibly +15% or so in 2010?  Then Dr. Bernanke’s program is aimed squarely at you to get you to take some risk again.  If you are still scared of the markets, then maybe you should be talking to us.

 

As expected, the value of the U. S. dollar dropped with the announcement of the QE2 program.  Printing lots of money lowers the value of any currency, even the mighty greenback.  On cue with the decline in the dollar, the value of oil, gold, and other commodities increased. The weaker dollar should help to boost American exports, reduce imports, and lessen our trade deficit with the rest of the world.  Obviously, the rest of the world – our major trading partners – aren’t too happy about it.  The risk of a worldwide “currency war” is higher as a result.

 

October Jobs Report-Much Better than Expected

The October 2010 jobs report was very positive and showed growth in jobs of about 151,000 (story below), but an unemployment rate that is still stubbornly high at 9.6%.  This was far higher than the 60,000-90,000 jobs growth expected.  Of course, at this rate it will take several years to get back to where we were in 2007, but this is indeed positive for a recovery that is likely to be disappointingly slow and painful for those who are still unemployed or are at risk of losing their homes.  Nonetheless, I will repeat what I’ve said in the past: many of the 5M+ jobs lost over the past three years are gone and will never be coming back due to technology advances, outsourcing and higher productivity.  Although many would like to see a return to 5-6% unemployment, we may be stuck with 7-8% unemployment as the norm in the future.

 

There have been numerous positive economic reports over the past several weeks that have all but put speculation of a double-dip recession to rest.  As I’ve said several times since the spring and summer, every recovery from a recession as deep as the one we’ve experienced has felt like a jobless one and real estate prices take much longer than expected to recover.  There was one report on CNBC the other day that said that Florida had an 18-year supply of condos on the market, and if you hurry you just might get one, but only if you can pay cash since most lenders are not loaning money against them.  Obviously, the housing market is not coming back any time soon, and talks of 2020 as the soonest timeframe are abound. I personally believe that’s far too pessimistic, and that by 2013, the lower supply of homes (due to low current new home construction rates) will necessitate increased building and help boost prices once again.

 

Year-end Tax Planning & 2010 Roth IRA Conversions

I’ve delayed my year-end tax planning letter this year due to all the uncertainty about what will be happening with the expiration of the Bush-era tax cuts. My expectation is that with President Obama extending an olive branch to the newly Republican controlled House of Representatives, we will see a two-year extension for everyone, not just the poor and middle-class.  The president doesn’t want to be responsible for counter-acting the QE2 program with increased taxes, especially during such a feeble recovery.  Look for my year-end tax planning letter in a week to ten days. For all my financial planning clients, I am making appointments or encouraging you to send in your year-end pay stubs and financial estimates so we can get your tax planning underway before mid-December.  This is a complimentary and year-round service for all our financial planning and money management clients.

 

2010 is the only year that you can convert all or part of your traditional or rollover IRA and spread the resultant income over 2011 and 2012. If you decide to do so and the value of your converted assets goes down by October 15, 2011 (and you’ve extended your 2010 tax return), you can undo the conversion. Beginning in 2011 (and all years thereafter), you can convert your IRA but the two year spread of income is not available to you—you will have to report all conversion income in the year of conversion.  The decision to convert your assets is a very important and complicated one, and should only be undertaken with a detailed analysis of your taxes and finances. Anyone who tells you to convert or not convert without a full evaluation or knowledge of your individual finances and future tax rates is not giving you an informed decision. Please discuss with me or your tax advisor if a Roth conversion in 2010 makes sense for you.

 

The Bottom Line

You may hate what’s happening in Washington, what the Federal Reserve is doing, how high the unemployment rate is, how terrible the housing market is, how much Washington’s spending, how we are debasing our beloved greenback, how inflation is going to be hyperbolic, and how this country is going to heck in a hand-basket.  But if you focus on those things you will miss out on what is likely to be a continuation of the current stock market rally.  The government has told us that it wants the stock market to go higher and you may have heard the expression that “You can’t fight the Fed.”  For the next 6-12 months, perhaps longer, money will find its way into the stock market and surely push prices higher.  Sure there will be bumps along the way, periods of sideways movement, and some corrections, but I believe that the ultimate direction is upward. 

 

We can debate whether the government will be successful in its objectives, but that won’t increase the value of your investments, IRA or 401(k).  If you are on the sidelines, or are considering investing money in the markets, I urge you to talk to a planner or advisor who can help you sooner rather than later.  It’s not often that the government tells you that it will help and actually does help you make money on your investments.  I believe that we’ll look back on this time period in hindsight and realize what an great investment opportunity it was.

Of course, my prognostication would not be complete without a proper disclaimer: my crystal ball is in the shop, so any forward looking statements I make should be discounted and evaluated in the context of your own financial plan and should be discussed with your financial planner.  As we all know, anything can happen and usually does to trip up the smart and dumb money in the markets.  But right now, the smart money tells me that the best place to be right now is in high quality equities, bonds and commodities.  If you have money on the sidelines waiting to be invested, you can put it to work now if it’s planned to be invested for the long term (five or more years) or wait for an inevitable short-term market correction to get in.  However, the thing about dips lately is that they’ve been quite shallow and are bought up quickly.  If you’re concerned, you can start slow, invest a little and invest a little more on inevitable corrections.

 

In my role as a fiduciary planner, I will also plainly disclose that encouraging you to invest (more) money in the stock or bond markets is a direct conflict-of-interest for me (at least for my clients and prospects) since I charge fees based on assets managed.  However, regardless of how or where you invest, I just want to see you participating and getting your share of the government’s current “asset re-inflation program.”

 

In Closing

Finally, as you can no doubt tell, I still haven’t figured out how to be brief in these newsletters. While I’ve tried to explain in as few details as possible what is going on, I’m willing to discuss in depth any of the topics discussed above with you in person or on the phone.  If you or anyone you know is struggling with their financial plans or just deciding to get back into this market, we can help them get back on track.  It is not too late to get in, and this rally, in my opinion, is not even close to being over.  Please call me at (615) 395-2010 or (734) 447-5305, visit my web site or send me an e-mail. I’m happy to help.

 

I’ve included a few links below to stories that I thought you might be interested from the past week. If you have any feedback on this newsletter, its length or the frequency that it is published please let me know.  Have a great and profitable week!

 

Market Update For Week Ending 11/5/2010
Index Close Net Change % Change YTD YTD %
DJIA 11,444.08         +325.59         2.93         +1,016.03         9.74        
NASDAQ 2,578.98         +71.57         2.85         +309.83         13.65        
S&P500 1,225.85         +42.59         3.60         +110.75         9.93        
Russell 2000 736.59         +33.24         4.73         +111.20         17.78        
International 1,671.56         +55.15         3.41         +90.77         5.74        
10-year bond 2.53%        -0.08%          -1.28%          
30-year T-bond 4.12%        +0.12%          -0.57%          
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index. Market Wrap
An unusually eventful week in the global markets left global equity benchmarks surging and Treasury yields mixed. On Wall Street, the growth-sensitive small-cap Russell 2000 fared best among major benchmarks, up 4.73% on the prospect of continued Federal Reserve action to stimulate the U.S. economy. The broad S&P 500 gained 3.6% and the blue-chip Dow industrials surged 2.93%, while the technology-rich NASDAQ added 2.85%. Foreign shares kept pace, up 3.41% in dollar-denominated terms. News that the Federal Reserve will buy up to $600 billion more short-term Treasury securities sent money down the yield curve in the bond markets, pushing 10-year yields down and 30-year yields higher. For more, please read:
http://money.cnn.com/2010/11/05/markets/markets_newyorkGlobal Markets Applaud The Fed
Wednesday’s news that the Federal Reserve had decided to step back into the bond market to buy up to $600 billion in Treasury securities won worldwide applause from stock markets, although the move was controversial in some quarters. Called “quantitative easing,” the bond-buying campaign aims to suppress long-term interest rates by creating a new source of demand for Treasury debt. The hope is that this will both encourage banks to keep lending and drive return-hungry investors into potentially higher-yielding vehicles like stocks. For more on the Fed’s maneuver and varied reactions to it, please read:
http://www.forbes.com/2010/11/04/europe-briefing-fed-markets-equities-600-billio
n-asia.html

Job Report Better Than Expected
The week was so filled with data and announcements that the normally closely watched monthly payrolls report seemed almost like a footnote to some market watchers. Still, news that the U.S. economy added 151,000 jobs in October came as a welcome surprise for economists who had expected a much gloomier number. The August and September reports were also revised to reflect apparently better-than-suspected conditions in the job market during those months. For more on the latest economic numbers and what they tell us, please read:
http://www.cnbc.com/id/40024584

 

 

Best regards,

Sam

 

Sam H. Fawaz CPA, CFP®

YDream Financial Services, Inc.

(734) 447-5305

(615) 395-2010

http://www.ydfs.com

 

 

Please check out my January-February 2010 Money Magazine Portfolio Makeover-Can I retire Early? http://bit.ly/5aGwIO

 

Have a small business?  Don’t miss out on these business tax deductions http://bit.ly/a49I1K

 

Follow me on Twitter at http://twitter.com/TheMoneyGeek for relevant personal finance advice and tips on great deals.

 

Read our blog: http://themoneygeek.com

 

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

Posted in General. 1 Comment »

What’s Going On With Gold Part 2

July 5, 2010 — Sam H. Fawaz

Back on November 18, 2009, I wrote for the first time about what’s going on with gold as an investment.  Since that date, gold has appreciated 8.4% while the S&P 500 index (a proxy for stocks) has declined 7.1%.  All indications are that the price of gold will continue to rise.

To date, I have personally not been able to bring myself to invest any of my own money in gold, and I remain a bit skeptical of it as an investable asset class.  However, as I’ve said before, I cannot ignore the fact that the uptrend that started in March 2009 has continued and has every indication that it will continue until the trend is broken.

In the past, the price of gold has appreciated while inflation was a threat or was marching upward (an inflation hedge.)  The price of gold usually continues to increase up until the point when the Federal Reserve raises interest rates enough to no longer make gold an attractive alternative; that is, until the actual interest rate paid on money market funds is something greater than the current 0.01%.  But today, we are facing the opposite environment: a potential deflationary environment in light of high unemployment, plenty of available factory capacity and low consumer demand.  Gold is not supposed to go up in this type of environment, but with governments around the world running sky high deficits and debasing their currencies (through either printing money or deficit spending), gold seems to have become a de facto currency in of itself.  Several legendary hedge fund managers and institutional investors have invested significant sums of money in gold and countries and central banks around the world continue to accumulate it.

Here’s what a fellow trusted investment writer and money manager Jon D. Markman wrote about a recent Credit Suisse report on gold:

Investment banker Credit Suisse (CS) recently increased its long-range forecast, arguing in a new report that gold should remain near current levels for at least the next four years. CS analysts’ 2014 target is now $1,300, vs. their previous forecast of $1,120, as investors have become more supportive of the yellow metal.  That may not seem like a very brave forecast since gold is already trading at $1,242, or less than $60 under the long-term forecast, but it’s likely that the estimate will go further up.

The rationale for the change: Credit Suisse believes there is an 80% chance of a renewal of quantitative easing — or money printing — due either to a full-blown sovereign debt crisis or a new recession. This enthusiastic and inflationary activity would rev up the safe haven buying that has pushed gold prices up over the past few years. The feeling is that companies and government officials may cheat and lie, but gold is steady as a rock as an irrefutable, trusted source of value.

Also, the ultra-low interest rate policy of the world’s central banks will keep gold prices on the move. Historically, gold prices tend to rise when short-term interest rates are below 2%. This relationship has been particularly strong over the last few years. With the Fed likely to stay on hold through 2012, and the potential for inflation-adjusted interest rates to move further into negative territory with another round of quantitative easing, there’s little reason to think gold’s run higher will end anytime soon.

Complicating matters has been the decline in new gold production. Global gold production has been falling since 2001 at an average rate of 1.3% per year. Increased demand and less supply equals higher prices. Credit Suisse research in 2003 and 2005 indicated that the decline was being caused by a reduction in exploration targets and exploration efficiency. In other words, it was becoming harder and more expensive to find new untapped sources of gold.

While a number of new projects are about to get started, the long-term picture looks tight. From 2013 onward, CS predicts global production to fall at an annual rate of 2.5%. Gold has always had its allure based on scarcity value. Well folks, it’s about to get a heck of a lot scarcer.

Now gold doesn’t pay any dividends or generate any income, has limited industrial uses, has not kept up with inflation, and garners unfavorable ordinary income tax (not capital gain) treatment outside of retirement accounts.  You’ve probably seen and heard the ads on TV and radio of companies trying to sell you gold coins or buy your unwanted gold jewelry (you can safely ignore them.)  In some countries, you can now buy gold bars from a vending machine, and right here in the “good ole’ U.S. of A”, department stores are hocking gold bars like perfume and cologne.  Normally this would indicate a top in the price of gold, but all evidence to date indicates that the buyers of gold have been mostly institutional, not retail (consumer) buyers.  Of course, like any other investment, gold has the potential to go parabolic and become a bubble (and it likely will), but we’re not there yet.  My worst fear about gold would be to wake up one morning and find out that the price has dropped $200-$400 an ounce overnight.

Fun gold fact: Just last week, a 200 pound Canadian collectible leaf gold coin (face value $1 million) was auctioned off for $4 million at exactly, you guessed it, the spot price of gold at the time of sale. http://news.bbc.co.uk/2/hi/world/europe/10425194.stm

If you are interested in investing in gold, I would look into the price of the SPDR Gold Trust GS (Ticker symbol: GLD) and invest on any weakness like we saw last week, and I would keep it on a “tight leash.”  I would say to invest no more than 2-10% of your investable portfolio in this commodity and be prepared for wide price swings (volatility).  It’s possible to use options to hedge the position to mitigate the risk of a sudden sharp decline or a mass exodus.  With weakness in the price of gold last week, you may be able to take advantage of a good entry price, but this article is by no means a suggestion, recommendation or an advisory to buy gold.  Some believe that the unwinding of Euro currency short interests that were invested in gold may have caused last week’s weakness (i.e., investors bought back borrowed Euro’s with the gold that they sold last week to cover their short interests).

I would appreciate your thoughts, feedback and inclination to invest in this commodity.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner ( CFP ), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.
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