Fagan Associates Newsroom

Conspicuous consumption is about as welcome in 2009 America as a houseguest straight from a Mexican vacation. Frugality is in. Americans are returning bottles for the deposit instead of sipping Grey Goose on the rocks and after decades of spending more than we earn, we are actually saving more than we are spending.

We applaud this newfound American penny-pincher but think, to a certain extent he is s short lived.

Both stock and bond markets are sensing an improving economy and acting accordingly. Yields on ten-year U.S. Treasury Notes have risen dramatically over the past two months. These notes, that at one point in time over the past year yielded less than two percent, have now climbed more than fifty percent to yield north of three percent. Up until recently, U.S. Treasury bills, notes and bonds, an appealing investment for the risk-adverse, had been in strong demand. However, given the much talked-about "green shoots" of perhaps signaling a turnaround in the economy, investors have begun to look at other investments either within the fixed income area or back into equities. This reallocation of assets has reduced demand for treasuries, at a time when additional supply in order to service the ballooning U.S. budget deficit has come on to the market, a combination that has sent yields higher, as noted above.

A further indicator that, at least temporarily, things are looking up is the nearly thirty percent rally in the U.S. stock market. After an abysmal start to 2009, stocks are basically flat for the year.

Regular readers of our column will note that we nearly always proponents of investors striking a balance between risk and safety. We continually talk about taking measured moves, thinking long-term and not getting caught up in the emotions of the investment world. Now is no different. At the current time, our research indicates that the small, retail investor is underinvested in the riskier areas of the market. He is clinging to money markets, cash and Certificates of Deposit, accepting low returns for peace of mind and a perception of safety. These are parking places and not historically an area that will help you achieve your financial objectives.

Ironically, we believe that the gulf has never been wider between what investors are most comfortable doing and what they should be doing.

THE BOTTOM LINE. The stock market has come a long way in a short time so investors should be careful "taking the plunge" in a wholesale fashion. Use pullbacks of more than ten percent to add to mutual funds or individual securities. That said, many opportunities abound for investors with a two for five year horizon. Although possibly quite modestly, we believe that the American economy is getting ready to grow again, perhaps as early as the third quarter of this year. Prior to this, the stock market will move, as it generally anticipates changes in the direction of the economy by six to nine months. After that perhaps, we can say goodbye to the "frugal" American. Candidly, it was no fun while it lasted.

May 10, 2009 ...During the early part of this past October, along with others we were asked by WRGB Channel 6 to be a part of their "Answers Team," a group of individuals in the financial services industry put together to meet most Wednesday evenings from five until seven p.m., answering questions of callers, helping them get through these tough economic times. Our job was to field calls that generally pertained to investing and financial planning. We have met continually through the heart of this recession, the past seven months or so, fielding hundreds of calls. With this in mind, we thought it might be a good idea to relate some of the questions we received to our readers, hoping that perhaps the answers to these questions might help you navigate through this difficult economic period. Please note that the questions are paraphrased and italicized. The responses are not italicized and are for general information purposes only. All individuals should check with their investment advisor, tax advisor or financial planner prior to making any decisions.

Given the fact that my investments in my 401(k) has declined by so much, is it a good idea to stop contributing? No, unless there are extenuating circumstances such as debt that you are unable to service, it is a very bad. In addition to the federal and state tax deduction you are receiving on your contributions, you are also dollar cost averaging (saving a consistent amount on a regular basis) into your plan for retirement. Too many people focus on the day-to-day fluctuations in the stock and bond markets, thus losing sight on their ultimate goal, financial independence. For many, the decline in the stock market has offered them the ability to buy low over time. Take advantage of it.

I have credit card debt totaling $25,000. The interest rate was just bumped up from ten percent to twenty-five percent. What are my options? If you are unable to pay the monthly required amount, you have to determine if there are other sources of assets available to pay off the credit card(s)? Do you have equity in your home that you can tap? Do you have investments that you can liquidate? Are there assets available for a loan from your 401(k) or 403(b)? Perhaps you have to look for a second job. If you are able to pay the monthly required amount, start with the lowest card, pay that one off as quickly as possible, paying the minimum on the other cards. Then, once that first one is paid take the amount that you were paying on that one and now add that to the new card with the lowest balance and work on paying that one off. Continue on this path until all are paid off. Do not get into this mess again.

I currently receive Social Security. Do I qualify for a stimulus check and, if so when will it arrive? All of the approximately fifty-two million people receiving Social Security payments will receive a one-time check in the amount of $250 beginning in early May and continuing through early June, 2009.

When do you think is a good time to refinance my mortgage? Will interest rates go lower? With interest rates on both the fifteen and thirty-year mortgages below five percent, NOW is the perfect time to refinance, convert from an adjustable-rate to a fixed or consolidate your primary and home-equity into a new mortgage. Sure, interest rates may go a bit lower, but there is a greater chance that over the next year or two they will move higher, much higher. Look at the risk you are taking relative to the potential reward. Refi now!

April 26, 2009 ...Over the past few days there have been illuminating comments from several leaders either from government, business or the international finance community detailing the origins of the current economic mess, where we are now or the repercussions of the crisis. We thought you might find them helpful in determining how to invest your hard-earned money.

The first comment comes from the transcript of a press conference that included Jose Vinals, Counsellor and Director of the International Monetary Fund's (IMF) Monetary and Capital Markets Department. Mr. Vinals noted that "based on the broadening credit deterioration, we have increased our estimated writedowns, actual and potential writedowns, on U.S. originated assets from $2.2 trillion in our interim update in January to about $2.7 trillion in the current report." It was only last October that the losses projected by the IMF was less than one-half the current figure. According to Mr. Vinals, "of the writedowns that are pending for the banking system, about one-third has already been incurred in 2007 and 2008, and two-thirds are potential writedowns for the period 2009 and 2010."

The IMF estimated that approximately two-thirds of the losses would be borne by banks with the balance by insurance companies, hedge funds and pension funds absorbing the balance. Of the total, the IMF estimated that U.S. banks have written down about one-half of what they will ultimately end up doing.

Despite the ominous and mind-numbing numbers referenced by Mr. Vinals, at least at this point and absent a revision upward, the equity markets seem to have priced in these writedowns.

In describing the depth of the current recession, the IMF said in its latest World Economic Outlook that "this downturn represents by far the deepest global recession since the Great Depression." The report also projected that the global economic output will shrink during 2009, the first annual decline in more than six decades.

Calling the public and private infusions of capital into financial institutions thus far "piecemeal and reactive," the IMF recommended that due to the "current inability to attract private money suggests the crisis has deepened to the point where governments need to take bolder steps and not shrink from capital injections in the form of common shares even if it means taking majority, or even complete, control of institutions."

Should this above paragraph come to pass as the IMF, along with others have alluded to the possibility, at least at this time, it would mark the end of capitalism in the United States as we know it. Some investors might welcome this change. However, we think, long-term it would be detrimental to the financial well-being as well as to the standard of living in America.

As noted above in a narrower context, we do believe that the stock market has priced in the majority, if not all of the current economic slowdown. We therefore believe that after the more than twenty-five percent move off the bottom and a necessary consolidation of some of those gains, stocks should move higher.

April 19, 2009 ...Experience is very underrated by those that do not have any! Needless to say, these past few years have been a time that provided many lessons to those of us that have been in the financial services business a long time (too long to mention) as well as those that are still wet behind the ears. There is an old saying on Wall Street that goes as follows, "investors make money during bull markets and learn during bear markets." That said, we thought now might be a good time to reflect on some of the lessons we have learned over the past few years.

An investor buys perceived potential and sells a lack thereof. What did you do when the stock you bought ran up to ludicrous levels? Or, what did you do when the stock you purchase began to tumble as the potential for future growth declined? Have strict buy and sell disciplines. The most important lesson that we have learned from this bear market is that a sell discipline is more important than a buy discipline! Don't chase hot stocks. Look for stocks with solid, long-term growth potential.

When investing, don't look to get the final ten percent of a stock's move upward or believe that you can buy within ten percent of the bottom. Rather look to capture that middle eighty percent move! We believe that we are well on our way through that "middle eighty percent" noted above.

"Stay on the offensive. Always look for good ideas and push out the mediocre ones. If every week you find a couple good things and say, 'stock number thirty-one in the portfolio is okay, but these are better. Sell number thirty-one!'" (Peter Lynch, legendary manager of the Fidelity Magellan Fund). Don't fall in love with a particular stock or sector! Continually challenge your ideas among yourself as well as your peers. Change when it is appropriate. Don't carry negative baggage around!

We know that it is impossible to be right all of the time. We just want to be right over time. Recognize that there are many times when you may be wrong! Remember, a .300 hitter is in the hall of fame. However, that batter gets out over seventy percent of the time! The key is when you make a mistake, sell and move on.

Excessive optimism doesn't yield stock prices at attractive levels, excessive pessimism does. There exists a lot of skepticism about the current rally in the stock market. That is good. The markets climb a wall of worry. Remember during 1999 when excessive optimism reigned? Look what that wrought! Now, there is adequate pessimism! We believe that this pessimism as well as solid economic fundamentals bode well for the market over the next twelve to eighteen months.

"I did so by never becoming too confident in having made the right decision." (Former Treasury Secretary Robert Rubin, upon his retirement and in response to the question of how he lasted so long) As mentioned above, always challenge your ideas. Be concerned with the downside. The upside will take care of itself.

"I work in a humbling business. That's what Wall Street is all about. If you are afraid to be humbled by the market, stop reading and go buy a bond." (Market Analyst, James Cramer). Self explanatory.

"Try not to react too much to the market because the market is reacting to things you don't want to react to. Keep your eyes on the horizon and ask yourself, 'which stocks will I be kicking myself over if I don't own those stocks five year from now.'" (Kevin Landis, Fund Manager, First Hand Technology Value Fund) We believe that those stocks you will be kicking yourself five years from now if you don't own operate in the power generation, energy, health care and financial services industries.

"Once a bull market get under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, the people superimpose an 'I can't miss the party' factor on top of the fundamental factors that drive the market." (Warren Buffett, C.E.O., Berkshire Hathaway). That said, at the end of a bear market, stocks are held by their rightful owners. That is where we are now, fundamentals will rule. Never again be suckered into buying a stock just because it is going up! Do the research. Know your holdings.

"An investor doesn't pull up his turnips every day to find out if they are growing." (U.S. Treasury Secretary, Paul O'Neill). What do you do? Do you check your portfolio every day over the internet? If so, relax and let some time pass! If you purchased a security for the long haul, don't check on it every minute. Remember, "a watched pot never boils."

We hope these little tidbits of information brings into perspective how you view your investments. Perhaps you have fallen into some of the traps noted above. If so, don't carry around that baggage. Make an investment plan now! Act now! The beginnings of a bull market are opportune times to take some action.

April 12, 2009 ...In just one short month, the stock market as measured by the Standard & Poor's 500 has advanced nearly twenty-two percent, closing at 825.16 this past Wednesday, up from 676.53 one month prior.

Meanwhile, investors who had been cowering in corners, wondering if the stock market would ever stop dropping are now looking for the next home run. Questions of the week include "when will General Electric get back to $20" and "do you like Bank of America" at these levels. Much like Americans facing a recession and looking for deals at dollar stores, investors are scouring bargain bins for single digit stocks. Regarding this trend, we strongly advise caution and restraint.

This is not a commentary on the merits of any particular company. In fact, we have recently purchased shares of General Electric as well as Bank of America for clients. However, ironically, many of the same investors who were in a state of panic one month ago are those that are now looking to recoup all of the bear market losses in one fell swoop. This doesn't make sense. We urge investors to work on developing a strategically sound investment plan, one that is appropriate for your goals and objectives and, while reviewing periodically, stick to it. Keep in mind that even the most sound investment plans have lost money over the past years. Nonetheless, balance and patience will win out over hastily made decisions to purchase the bargain "stock du jour."

There are plenty of data to suggest that the downward trajectory of the economy has begun to level off. Just recently, we have been treated to encouraging (or at least not discouraging ) data from the housing market, the manufacturing sector and have witnessed a slight uptick in consumer sentiment. Furthermore, President Obama has begun to materially tackle the economic issues at hand without appearing like "Chicken Little" and without daily lambasting the business sector. On top of all this, mortgage rates are at or near record lows. The stock market, long a predictive barometer of future economic activity, has made a breath taking advances over the past four weeks.

Speculation can have a part in many portfolios but diversification and quality will see you through this volatility.

March 22, 2009 ...Somewhere in between the emotion of fear that investors felt just a couple of weeks ago when the Dow Jones Industrial Average hovered around 6,500 and the greed during the latter part of 2007 when the Dow peaked at over 14,100 there exists a time where investors can act in a rational manner, a place like now. At this time, it is critical to make an intelligent evaluation of your financial picture, unencumbered by emotion, to determine the right course of action. Some steps you might want to take, not in any particular order, include.

Redefine your financial objectives. This should be done before and after you take an evaluation of your current financial position. A look before may include "perhaps we will have to work until age sixty-five rather than age sixty-two" or "perhaps we will not be able to pay off our home in twelve years, but rather it may take fifteen." Redefining or reevaluating your financial objectives prior to determining your current position allows one to weigh the merits of that redefinition. It also may help you to look at alternatives as your financial picture emerges. For example, your initial thought that you might need to work three more years may end up being modified to "perhaps we will need to work part-time from age sixty-two until sixty-five." Regardless, if you redefine your financial goals up front it will help you to recognize the sacrifice necessary to accomplish those goals.

Calculate the value of all of your current assets. As one would do prior to making a journey, before you can determine the best route to take to reach your destination, you first have to determine your starting point. Many individuals can readily sum up their bank accounts, Certificates of Deposit, Individual Retirement Accounts, Brokerage Accounts, Stock Holdings, and Employer Sponsored Plans such as their 401(k), 403(b) or Deferred Compensation, but do not have a handle on their Defined Benefit Plan (monthly income that some employers provide to their retirees), a projection of Social Security Benefits, the cash value of life insurance policies or an approximation of the current value of their home, all of which can be sources of income.

Calculate your liabilities, including how much do you owe on revolving debt such as credit cards as well as non-revolving debt such as your mortgage or automobile loan. Furthermore, perhaps you are paying on a student loan from one of your children. Although theoretically this is not your debt, if you are paying it, it should be considered as yours for this purpose.

There it is, a simple balance sheet. Assets minus liabilities equals your net worth, your starting point. No, we are not considering the value of your car or household items as they will most likely depreciate down to little or no value. However, if you have accumulated any such items as investments with an intention of ultimately selling, then go ahead and estimate their value and add them to your personal balance sheet.

Determine your monthly living expenses. Be liberal and include vacations, entertainment, car repairs, home improvement and holiday gifts. Once having done so, establish a budget and then keep track of your expenses over the next three months to get a better handle on your actual expenses. Be sure to enter everything. If you're like us, you are spending way too much on day-to-day expenses such as going out to eat rather than eating home. This begs the question, which is more important going out to dinner several times a week or reaching your goals. Quality of life versus achieving your financial objectives is a personal decision and one that you will most likely wrestle with constantly. We do.

Estimate the amount of money you will need to save on a monthly basic to achieve your goals assuming an annual return of no more than five percent. Don't go out on a limb. Be conservative in your growth projections and most likely, from these levels in the stock market, you will be happily surprised rather than disappointed in the ultimate outcome. That said, we suggest using an inflation rate of three percent or so to help you take into consideration the negative impact of inflation. There are a number of websites that you can go to, put in the current value of your investments, enter an amount that you are saving monthly and a rate of return on that investment. The website will provide you with a balance at your prescribed time.

Finally, with all of this information at hand, take another look at your financial objectives. Perhaps they will need to be modified or perhaps you will need to modify some of the discretionary items you buy. That's up to you, but at least you will now have your roadmap to get you where you want to go. The only question is how long it will take to get there. Either way, enjoy the ride! After all, we only go around once in life.

March 8, 2009 ...After listening to talking-head after talking-head tell us how this is the worst economy since the Great Depression, we took a brief look and compared then versus now. Unemployment during the Great Depression peaked at more than 25% versus today's rate of 7.6%. Furthermore, the Gross Domestic Product of the United States shrunk by 50% during the Great Depression versus a total of 6% thus far during this "Great Recession." Therefore, there is no comparison.

We then went on to take a look at a more recent period of time, the 1970's, to determine what the economy was like then versus now and before we jump off the bridge over today's economic worries, let us be reminded that the 1970's were highlighted by double-digit Unemployment, double-digit inflation and mortgage rates above 15%, all numbers that make this recession look like a walk in the park.

What is it then that makes this recession that much more frightening? In addition to many other issues, we believe that there is a pervasive lack of confidence/faith/trust in our business leaders as well as political leaders. We also place some of the blame on the media, whom recognizing that some 70% of Americans are invested in the stock market, has stoked our fears and played us like a finely-tuned violin. In fact, a major business network, promoting one of its shows, starts ne with "with the economy in freefall; your investments on the brink..." We call this fear-mongering to say the least and sadly suggest that the race for ratings has outrun ethics.

Many business leaders have also let down the American public in their never-ending search for profits. Like some in the media, they have forsaken ethics, putting themselves before their shareholders and before their country. What a nice segway to how Congress and the Bush Administration, the bodies that should have been our watchdogs, turned a blind eye to the wrongdoing that was rampant over the past five years or so. Perhaps lobbyists got the best of these entities. Now, with the value of investor accounts cut in half, both the Republicans and Democrats squabble like young children in front of the cameras, once again placing their own interests above those of our country.

Finally, let's look in the mirror. Is it our "right" to own a flat-screen television? Is it our right to travel to Florida every year when we all used to go camping when young? Is it our right to own a home? Why is it that we all have much larger homes, but smaller families? Have we, as individuals, lost our moral compass?

The bottom line is that most Americans bear some responsibility for this financial mess that we have gotten ourselves into and we'll all have to pull together to get ourselves out. Hmm, sounds like we need to care more about each other and less about ourselves, more about our families and less about what toys we can acquire over time. It will take time, but we firmly believe that America will right itself and so will the stock market.

February 20, 2009 ...Interest rates are doing the financial markets version of the limbo. Lower, lower, lower in a back wrenching display of fear-driven buying of riskless short-term U.S. Treasuries and Certificates of Deposit. These short U.S. Treasuries with no risk of principal or interest rate movement have rallied tremendously over the past months. As we write this a 3-month Treasury bill is yielding 0.31%, a 6-month returns 0.50% and a 2-year U.S. Treasury note only has a yield of 0.99%. This search for safety has worked its way into the money market yields that investors cherish as short-term havens for their "safe and liquid" monies. A year or ago, many of these money markets were offering yields of 4.6% to 4.8% and they are now somewhere in the range of 0.5% to 0.75%.

The rally in the Treasury market, debt instruments backed by the full faith and credit of the U.S. Government, has coincided with volatility in the stock market and general uneasiness in the Federal Agency, Corporate and Municipal credit markets.

First, let's take a look at some of the basics of bond investing. Generally speaking, three factors affect the value of your bonds, the maturity date, the interest rate and the credit quality. Quite often, these three factors influence each other and do not act independently. Issues to remember when investing in bonds include. When an investor extends the maturity date of a bond or of a bond portfolio, changes in interest rates or changes in the perception of the ability of the issuer to pay off the bondholder upon maturity, will have a greater impact upon the current value of the bond. Two, when interest rates decline, the current value of a bond generally appreciates. There is therefore an inverse relationship between interest rates and bond prices. Declining credit quality or downgrades of credit rating is always a concern to the owner of a bond. Three, the further away the maturity date of a bond is from now, the more volatile the price of the bond will be.

Currently, we strongly advise that bond investors have a close eye on both the average maturity of their bond portfolio as well as the credit quality. As noted above, longer duration bonds are generally more volatile than shorter ones and if interest rates should rise, investors who make longer commitments at these levels will not be happy with the interest rates that they receive. These are the pitfalls of longer-dated maturities.

On the flip side, the danger with short maturities is that when the bond matures and it comes time to renew, investors are now facing issues with lower rates. What is a bond investor to do? Clearly the appropriate strategy in this environment is to ladder your maturities, which requires that an investor buys bonds over a series of maturities. For example, an investor with $100,000 to invest can create a "ladder" by purchasing ten bonds, each for $10,000 that mature over an equal period of one to ten years. This may sound obvious and many investors may balk at making longer commitments at lower interest rates BUT there are no rules that demand interest rates move higher from these historically low levels. Playing it safe makes sense with interest rates as volatile as they have been lately.

Another possibility is to consider dividend playing stocks for a portion of your fixed income assets. Granted, this asset class offers no FDIC insurance or government guarantee but does provide investors which competitive income. Another advantage with equities/stocks is many of them have histories of boosting their annual dividend payouts. This strategy is not for the investor who desires no risk of principal or fluctuation but does make a ton of sense for investors seeking total return over longer periods of time, perhaps three years or more.

January 30, 2009 ...On May14th, Bruce Springsteen will be at the Times Union Center in Albany, NY. Springsteen has just released his new album "Working on a Dream". Tickets for the concert will be $97 and $67 with the Albany arena seating a maximum of 17,500.

In April 1976, while attending Colgate University, I saw Bruce Springsteen along with 4,000 other fans at their hockey arena, Starr Rink. My ticket was approximately $5. As an aside, Springsteen played his usual array of "Tenth Avenue Freeze Out," "Jungleland," and "Rosalita." Needless to say, this was a concert to remember and in hindsight the beginning of a budding music legend. By the way, the price of a gallon of gasoline averaged $0.60 per gallon during 1976.

Let me preface the balance of this column with the statement that Bruce Springsteen is my favorite musician. I am however, tired of being lectured by entertainers, sports stars and celebrities of all nature on how I should think and vote. Springsteen through his music and his off-stage statements has positioned himself as the defender of the "little guy" causing, in part, companies like ExxonMobil to continually defend itself against the title of "destroyer of the environment and bastion of corporate greed."

Now to the crux of this article, if a gallon of gas had appreciated in lockstep with one Springsteen concert ticket (16 fold over the same time frame), we would be paying almost $10 for one gallon of gas. Why is it that Americans rarely complain about the private jets that entertainers use or the tens of millions of dollars that movie stars command? Why is it that we listen attentively to what these people say as if we were listening to our priest, reverend or rabbi but reject, almost entirely, all that our political and business people espouse.

Many times we get caught up in greed and American capitalism. Certainly executive compensation has been insane and certainly there has been unethical and downright illegal deeds done by corporations. However, there has been an immense amount of greed emanating from the "artistic community." We think that this is hypocritical as many of these artists wax eloquently about how the rest of us should live our lives. Also, ironically, the media, rarely rails against the cost of Demi Moore’s latest movie or Bono’s latest concert.

Our thoughts are succinct. I'll pay for the move/concert and you keep your political views to yourselves.

January 25, 2009 ...Late Thursday night, having arrived home from work and spent time with what really matters in life, my family, I sat down to watch the business news, do some work-related reading and review the current day's carnage in the equity market. Ironically, after having read several articles both online and in hard copy, I couldn't help but chuckle over two things, the first being the extreme level of pessimism out there and the second being the number of adages being used! So, in order to lighten up another dismal week on Wall Street, here are a few.

Evidence of "a watched pot never boils" can be seen in the ratings and revenue generated from advertising on the financial networks. Seems as if investors who couldn't get enough of counting their money are now tuning back into real life, such as NCAA Basketball or the new episode of "Lost." By the way, when did all of these reality shows begin to appear? While this may be bad for the business networks, this is good for the mental well-being of investors and good for the financial markets.

Needless to say, we have spoken with many clients over the past few weeks, and more often than not they say that they "wish they had sold all of their stocks a year ago and that maybe they will sell them now." To that we respond, "why, so a year from now you will be saying that you wish you hadn't sold a year ago!" We believe that unlike the Japanese economy and stock market, this will not last forever. Unlike Japan, the United States government has taken relatively quick and ultimately overwhelming action both on a monetary and fiscal front to combat this deep recession. This will fuel the rebound in the economy as the inventory correction in the manufacturing sector gets worked off. By the way, the Japanese economy, which has been in recession for nearly two decades, just reported another quarter of zero economic growth.

"There's a tunnel at the end of the light." No, that is not a typographical error, but a quote contained within an article illustrating the level of pessimism out there. Pessimism and fear is running rampant leading to a high level of volatility in the markets. Usually, when volatility is high, the market turns. That said, it is important that the major stock indices hold at or around these levels.

"Be patient." Certainly, we have been using that statement a lot lately. But, it is true. Why is it that when there is a sale at your local grocery store, shoppers flock there like there is no tomorrow. However, when the stock market goes on sale, investors run for the exits. (Stop shouting! We agree that all of these shenanigans on Wall Street doesn't help and is probably keeping investors away.) Historically, bear markets turn when there is indiscriminate selling of market leaders. Perhaps we are there now. Perhaps we have a little while longer. After all, stock market bottoms are a process and not an event. Regardless, we smell a major sale and are not ignoring it. We are speaking specifically to investors with more than a two year time horizon and not a trader with a two-day time frame.

Enough of the adages! Quite seriously, don't buy into all of the negativity surrounding the current stock market. Recognize that in a down market you (and we) are going to make mistakes, and plenty of them. What we try to do is to identify those mistakes to learn from them going forward. One of the primary tenets of successful investing is not to beat yourself up over the mistakes, but as mentioned above, learn from them and look forward. Remember, a baseball player in the Hall of Fame only hits successfully thirty percent of the time meaning that he is unsuccessful seventy percent of the time!

This is now the time to look forward and, we believe, to perhaps buy another few shares of a company whose share price was much higher a year ago, but has come down, in part, due to the fear that investors are currently experiencing. Remember, buy low and sell high. Finally, don't continue to live in the past, but rather concentrate on those stocks that will benefit quickest when the economy turns and you will see that your portfolio will "rise like a Phoenix from the ashes." Oops, now there we go!

January 11, 2009 ...The year 2008 left investors gasping for breath, one that will go down as one of the worst years for investors. All investors, not just those invested in equities, are reeling from losses and are left scurrying for safety. Assets within money market funds and securities backed by our United States Treasury have ballooned as risk left the scene quicker than Elliot Spitzer.

We are confident that 2009 will be better (how can it not be?). Our projections for this coming year are based on a couple of assumptions, the first being that as the new year gets underway negativity will be in vogue at various points as the economic and corporate data that is released will paint a picture of an economy whose total output as measured by Gross Domestic Product will most likely shrink at an annualized rate of between six and ten percent during the first half of 2009. Any bouts of market upside will be met with skepticism. Skittish investors, those that believe it is different this time, will be scared out of the market again this year. That said, as sure as the sun rises after a cold, dark night, greed will eventually overtake panic and capitalism will once again win out.

Despite the sour economic news, a new sense of optimism will arrive along with the administration of President Barack Obama. Eventually, many who believe the glass is half empty will now look at that same glass as half-full. The psychology of the American economy and along with it the American Economy will improve as we progress throughout this New Year. Furthermore huge government infrastructure programs, meant to upgrade the bridges, roads, tunnels and schools of our nation, whose price tag will approach $1 trillion will mask economic weakness and create jobs.

Change is coming not only to Washington but throughout the United States. Last year around this time, consumers labored under $4 per gallon gasoline. Any discussion of lower energy prices was met with a lecture on supply and demand theory from economists. We even bought into the higher energy prices forever scenario. But, lo and behold, the unthinkable happened and gas prices tumbled. It is our belief that the unthinkable will happen again in 2009 and that is that the markets will make their way higher as the year progresses. We believe that slowly the pendulum is shifting and the risk will once again be with those that our out of the bond and stock markets rather than in them.

With the above in mind, the following represents our "Nine Investment Themes for 2009."

Number One, all good things must end. Absent economic Armageddon, the rally in U.S. Treasury prices has pushed the yield to levels that make them wholly unattractive. The yield on the ten-year U.S. Treasury is currently 2.37%. We believe that investors should sell longer dated Treasuries and invest the proceeds into corporate bond funds. They should consider Loomis Sayles Bond (LSBRX) as well as the Oppenheimer International Bond Fund (OIBAX), both of which were pummeled during 2008 along with the "non-treasury bond market" but have solid long term records. In addition, the Oppenheimer International Bond Fund may also benefit from a dollar that could weaken during the year as our national budget deficit mounts.

Our second investment theme for 2009 is "big is beautiful." We are both 6'4" and weigh over 200 pounds (please no scales)hence big is something we embrace. The economy has shredded the competition for some of America's larger companies, also known as "category killers." Consider Bed Bath and Beyond (BBBY) which has delivered a knockout punch to Linens 'N Things. Nike (NKE) continues to run circles around its competition as it benefits from a strong balance sheet and strong international sales. Finally consider Intel (INTC) as its balance sheet has $12 billion in cash, a seventy percent market share and is built to withstand a weak economy as its major competitor, Advanced Micro Devices (AMD) struggles.

Number three, don't get too comfortable. This market humbles everyone so it makes sense to get paid to wait. Dividends are an important component of total return with U.S. Treasury yields at these historically low levels and Certificates of Deposit yielding a nationwide average of barely two-percent for a one-year commitment. How about an investment in Verizon Communications (VZ) with a dividend of 5.3%? FIOS and the Blackberry Storm are providing some pizzazz in these tough times and we believe Verizon rides through difficult times with its somewhat recession resistant business model. Exchange Traded Funds (ETFs) also provide diversification so we believe the iShares S&P U.S. Preferred Stock Index (PFF) whose dividend yield exceeds ten percent as well as the iShares Dow Jones Select Dividend Index (DVY) whose dividend yield exceeds five percent may be appropriate for your investment portfolio. One note of caution is that the DVY has a forty-percent exposure to financials which could may provide unwanted volatility.

Number four, take some risk. It is ironic that many investors want to become more cautious AFTER stocks have already fallen forty-percent. They forget the time-tested adage of "buy low and sell high" choosing instead to lock in these losses and move to more conservative investments. Despite the fact that became the ultimate four-letter word in 2008, many solid companies that got pounded will survive and eventually thrive. Consider Manitowoc (MTW), the huge crane maker from Wisconsin, one of many companies that will surely benefit from President Obama's proposed stimulus package. Other similar companies include Chicago Bridge & Iron (CBI) and Shaw Group (SGR). Also, equity investors may be wise to consider an ETF that mirrors that NASDAQ 100, the Power Shares QQQ (QQQQ), a tech laden composite that is forty-plus percent from its fifty-two week high. Once again, the new administration seems to have made an upgrade to tech infrastructure a priority.

Number five, inflation will come back and it will be somewhat welcomed. During the first half of 2008 as Americans pumped $4 per gallon gas they moaned and complained. Food prices soared and gold spiked BUT (and this is a big but) the economy held up pretty well. Now nobody wants a return to $4 gas and rampant inflation but with the Federal Reserve printing money willy-nilly to combat this crisis, the dollar should weaken and long-term interest rates should rise. For this reason some exposure to commodities makes sense. Consider Exxon Mobil (XOM) the world's largest integrated oil company or the Energy Select SPDR (XLE) to benefit from rising energy prices. Oil service companies Schlumberger (SLB) and Halliburton (HAL) could also make some sense. Finally, take a look at the Vanguard Inflation Protected Securities Fund (VIPSX), a no-load, open-ended mutual fund that invests in inflation protected bonds. In a world of rising inflation these bonds could provide solid risk-adjusted returns.

Number six, "infrastructure" will become the buzz word of the new Obama administration much like energy independence was the buzz word during the latter years of the Bush administration. We believe that the infrastructure play might be a bit different than was initially viewed. Yes, traditional "shovel in ground plays" like those companies noted under number four above will benefit, but technology infrastructure and alternative energy plays may endure longer with more upside potential. For this, symbol QQQQ is interesting but so would Cisco Systems (CSCO), a company that provides the highway to the inter- as well as to the intranet. We may look back on the monetary commitment to the technology portion of President Obama's infrastructure investment much like that which was spend to get companies past "Y2K." Education, long an Obama focus, could make countrywide internet access a priority. John Chambers, CEO of Cisco Systems, has done an excellent job managing through this financial crisis and with $ 27 billion in cash, Cisco should ultimately thrive. Trinity Industries (TRN) has struggled recently as the economy has stalled. However, this heavy cyclical corporation, a leading manufacturer of rail cars, guardrails, barges and wind towers should be a major beneficiary of an infrastructure program. We believe that Trinity's stake in wind tower production has not been fully recognized by Wall Street. We can envision wind, that cheap, efficient and environmentally friendly source of power as a great alternative to carbon fuels for an administration aiming to be different and innovative.

Number seven, are you scared? A little bit of fear and adrenalin is never a bad thing. However, that historic level of fear that investors felt during 2008 will never be completely out of one's mind. The bitter taste of 2008 will linger throughout this year. What to do if you will not dare put even a toe back into the stock market but want better returns than the meager one to two-percent offered at your bank? First and foremost avoid the temptation of fixed-income investments of longer-dated maturities as you may discover that "interest rate risk," the risk that you are stuck in a low-yielding investment as interest rates climb, is as nasty as the principal risk shouldered by investors into the stock market. For that reason, we believe that the PIMCO Total Return Fund (PTDDX), a fund with a track record of eight up years over the last nine, a fund with a positive total return during 2008, might limit some of that risk for bond investors. With an average maturity of five years and a meaningful percentage of the assets of the fund sitting in cash, renowned fund manager William Gross, should be able to admirably navigate the rising waters of inflation. Want a stock that's relatively safe? ()notice the word 'relatively!')? Johnson and Johnson (JNJ) may be as close as you can get. This healthcare and consumer products company with its Band Aids, baby powder and diverse nutritional and OTC health care products may be the perfect antidote for an ailing economy. Its three-percent dividend makes JNJ even more attractive.

Number eight, we regress back to the mean, aka semi-normal times, when stock investors are compensated for taking risk and those out of the market are punished. Winston Churchhill once stated, "may you live in interesting times." To that we respond "C'mon Guvnor, gives us those boring but happy times that we loved so well and miss so much!" Any whiff of an economy that is stabilizing may send stocks sharply higher with some of the beneficiaries being JP Morgan Chase (JPM), Three M Company (MMM) and Deere (DE). These large companies have all been in both out of favor and exist in economically sensitive areas. However, they possess strong balance sheets, international exposure (for better or for worse) and at this time pay dividends that are generous and secure.

Finally, number nine, cash is king. But remember, so was George III and Marie Antoinette for the politically correct and we all know what happened to them. We believe that we are well in the midst of a bubble in cash as investors shun risk like the plague. That cash, now sitting in money markets, U.S. Treasuries and short-term Certificates of Deposit will eventually look for a new home, one whose return is not so meager. As investor appetite for risk returns, we believe this bubble in cash will burst resulting in a slowly accelerating exodus into first bonds and then stocks, ultimately helping these markets to begin to gradually repair themselves during 2009.

January 4, 2009 ...Some investors leave money on the table that is given to them, comes without risk and has nothing to do with investment returns, but rather with understanding how the tax code that pertains to your investments works as well as with keeping up with some changes that impact your lives. Over the past several weeks we have outlined several moves that you could have made by the end of 2008 to potentially save tax dollars. Now we turn to 2009 to identify the areas that are guaranteed to save investors tax dollars and are steps you should be taking (or not taking as we illustrate immediately below) now.

A portion of the Worker, Retiree, and Employer Recover Act of 2008 signed into law on December 17th, for calendar year 2009, suspends the Required Minimum Distribution for Individual Retirement Accounts. Generally, individuals are required to begin to withdraw from their IRA's every year by April 15th following the year they reach age 70 1/2. According to Bob Trinz, Senior Tax Analyst for the Tax & Accounting Business of Thomson Reuters, this waiver is "is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts. Suspending the mandatory withdrawal allows retirees to keep the money in their account if they choose, and possibly recover some losses. The suspension for 2009 also applies to beneficiaries of retirement plan accounts and IRA owners."

Another overlooked area that those employed can save taxes in is through investing in their company sponsored pension plan such as a 401(k), 403(b) or 457(b) plan. Given the precipitous drop in the stock market as well as the slowdown in the economy many investors are questioning whether or not they should continue depositing into one of these plans. In fact, several individuals have called our offices or contacted us on our radio show on 810 WGY with the intention of discontinuing their deposits. Assuming that there are no extenuating reasons for this action, we question them as to why they would stop depositing when the market is forty percent below where it was one year ago. We remind them that to "buy low and sell high" is the wish of all investors, but very few manage to accomplish this feat. Most tend to buy and then out of fear sell at a lower price, thus guaranteeing a lack of growth. Therefore, if you are investing in your company pension plan and are appropriately allocated for your objectives, keep on investing. Remember that you are dollar cost averaging at a historically low level as well as receiving a tax deduction on each dollar you contribute. Time will help you recover from these losses. Selling will only lock them in.

Moving away from steps you can take to minimize taxes and taking a look at a couple of issues that might impact your investment returns for 2009, we caution those investors that are currently investing into U.S. Treasury Securities or those considering such an investment. As the economy has come to a grinding halt, investors have fled most other types of securities designed for income such as corporate bonds, international bonds and preferred stock and rushed to U.S. Treasury Securities, thus pushing the yields down to record levels. For example, investors looking to lock up their money for ten years would receive only 2.23% on a U.S. Treasury Note. It is our belief that as this economic maelstrom passes, this "bubble" in U.S. Treasuries will deflate resulting in steep losses for unwary investors. We recommend that investors reposition some of their assets away from Treasuries and into more attractive fixed income securities such as Corporate Bonds, Municipal Bonds and Preferred Stock. We also believe that the U.S. dollar may weaken making international bond funds very attractive at this time.

Finally, given the drop in the stock market, many well-run mutual funds that were once closed are now open. We strongly recommend that investors take advantage of this window of opportunity to invest in one of these funds, as this window will not remain open forever. The Sequoia Fund (SEQUX) is one such example.

We realize this is a "mish-mash" of a column, but believe that if each issue that has been addressed above is tackled separately by the reader, a more successful 2009 will be your reward. From all of us at Fagan Associates to all of you, best wishes for a Happy, Healthy and Prosperous 2009!

This article is the third of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays during December in "The Record" and include, in order,"Year-End Tax Planning for Shareholders of Individual Stocks and Bonds" which appeared November 23rd; "Year-End Tax Planning for Shareholders of Mutual Funds" which appeared last week; this article and finally "Investment Portfolio Re-Balancing for the New Year" which will appear next Sunday. Following this series, we will immediately provide readers with a Review of 2008 and our Investment Outlook for 2009.

December 7, 2008 ...Given the nature of our business, in our opinion the most obvious and effective way to give to a charitable organization is through a gift of appreciated stock. This is a win-win situation for both the taxpayer and the charity. The taxpayer can deduct the market value of the stock on the date of the gift and the charity gets the donation. Furthermore, by donating the appreciated stock rather than selling the stock and donating the cash proceeds, the taxpayer also avoids any capital gains tax. Please note that this only will work with appreciated securities within taxable accounts. Should you hold a stock that has depreciated in value, it is generally wise to sell the stock and donate the cash proceeds. Utilizing this method, the taxpayer can write off the capital loss up to current IRS limitations.

Readers will note that the above paragraph does not pertain only to appreciated stock, but rather to all appreciated assets, including bonds, mutual funds and real estate.

This past October, President Bush extended a law that enables taxpayers age 70 1/2 to exclude from adjusted gross income qualified charitable contributions up to $100,000 per year from either a traditional or Roth IRA. Prior to the passing of this legislation, a taxpayer would have to first withdraw the money from his IRA and then make the contribution. Many times this withdrawal resulted in the taxation of the Social Security Benefits of the taxpayer, reductions in property tax assistance and reductions in other government sponsored programs. This law allows the taxpayer to circumvent this step thereby eliminating the prior pitfalls noted in the preceding sentence. Additional benefits to rolling over the IRA distribution directly to a qualifying charity is that this donation qualifies toward the owner's minimum required distribution, but does not count toward the IRA owner's maximum 50% cash contribution limit as a percentage of their adjusted gross income.

One final way to get into the charitable giving mood this holiday season is through gifts of life insurance policies. To accomplish this transfer, the current owner must name the qualified charitable as either the new owner or the irrevocable beneficiary. If the owner does one of these then he/she is able to obtain a tax deduction on the present value of the insurance contract or his/her accumulated premium payments, whichever is higher.

As always, please be sure to check with your tax advisor prior to making any sizable charitable contributions.

This article is the second of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays over the next four weeks in "The Record" and include, in order, "Year-End Tax Planning for Shareholders of Individual Stocks and Bonds" which appeared last week, this article, "Year-End Charitable Bequest Planning; and "Investment Portfolio Re-Balancing for the New Year." Following this series, we will immediately provide readers with a Review of 2008 and our Investment Outlook for 2009.

November 28, 2008 ...Prior to identifying those areas that can help you reduce your taxes regarding your mutual fund holdings, it is prudent to briefly review the IRS rules surrounding capital gains and losses, in general. If when comparing your realized (those securities sold or where the company has been purchased for cash by another company) gain with your realized loss, the net result is a loss, only up to $3,000 can be deducted from ordinary income. The balance can be carried forward, indefinitely. An additional component to consider prior to realizing a capital gain or loss in your portfolio is whether the transaction would trigger a long-term versus short-term capital gain/loss. Long-term transactions are defined as those in which the underlying security has been held for one year or longer and are taxed at either five percent for taxpayers in the ten or fifteen percent bracket or at fifteen percent for taxpayers in any higher bracket. Short-term transactions, those which the security has been held for less than one year are taxed as ordinary income and subject to the same tax rate as your wages or dividend income.

Number one, call your mutual fund and ask them if they are planning any year-end distributions. Keep in mind that capital gains declared by mutual funds are taxable regardless of whether you receive them in cash or reinvest in additional shares. Furthermore, there is no economic benefit to the distribution. It is the same as getting four taxable quarters in return for your non-taxable one dollar bill. Upon calling, should you learn that your mutual fund is intending to declare a capital gain, find out how much it will be on a per share basis and on what date it will be declared. This information will help you determine what steps, if any, need to be taken in order to minimize the impact of this declared gain.

Second, swap the mutual fund in which you have a taxable loss for a similar fund. Please note that your adjusted tax basis consists of your initial contribution to the fund plus any subsequent out-of-pocket contributions as well as any reinvested dividends or capital gains declared during prior calendar years less any withdrawals. Regardless of what others might say to the contrary, given the fact that there are over eight thousand mutual funds to choose from, there is always an appropriate alternative to your current fund. Do not think that your fund is "the best" or "one of a kind."

Be certain to check with your tax advisor prior to making any year-end portfolio transactions.

Good luck, pruning your portfolio for tax savings makes dollars and cents!

This article is the first of a four part series that pertains to year-end financial planning. The articles will appear on consecutive Sundays over the next four weeks in "The Record" and include, in order, this article, "Year-End Tax Planning for Shareholders of Mutual Funds"; "Year-End Charitable Bequest Planning" and "Investment Portfolio Re-Balancing for the New Year." Following this series, we will provide readers with a Review of 2008 and our Investment Outlook for 2009.

November 23, 2008 ...One of the least time consuming and most profitable tasks one can assume during December as it pertains to their investment portfolio is to attempt to offset realized capital gains with capital losses in your portfolio. Given the fact that 2008 has "blessed" us with one of the worst bear markets on records, investors that buy and sell individual securities, no doubt, have some that have declined in market value relative to their purchase price. Assuming that the shares of the depreciated security are held in a non-qualified taxable account (not an IRA or pension plan), one might sell these shares and claim the loss on Schedule D of Federal Filing Form 1040.

Please note the following important IRS regulation that pertains to Capital Gains and Losses. If when comparing your realized (those securities sold or where the company has been purchased for cash by another company) gain with your realized loss, the net result is a loss, only up to $3,000 can be deducted from ordinary income. The balance can be carried forward, indefinitely.

An additional component to consider prior to realizing a capital gain or loss in your portfolio is whether the transaction would trigger a long-term versus short-term capital gain/loss. Long-term transactions are defined as those in which the underlying security has been held for one year or longer and are taxed at either five percent for taxpayers in the ten or fifteen percent bracket or at fifteen percent for taxpayers in any higher bracket. Short-term transactions, those which the security has been held for less than one year are taxed as ordinary income and subject to the same tax rate as your wages or dividend income. For most taxpayers, the rate is twenty-eight percent for the Federal Government. In both instances, for taxpayers in New York State, long-term and short-term capital gains are taxed as ordinary income.

One final consideration prior to executing a stock or bond trade for tax purposes would be to determine if, by executing this trade, a wash sale would result. A wash sale exists when the transaction results in a loss and a "substantially identical security" is purchased within thirty days. If this should occur, the tax loss created by the sale would not be deductible. Please note that should the wash sale result in a gain, the gain is taxable.

As an aside, never forget that it is always prudent to consider the impact of selling a stock upon your portfolio. Simply put, it is seldom wise to make a transaction solely for the purpose of saving money on your tax return!

A sale or sales of appreciating and/or depreciated securities represent only one tactic an investor can deploy when tax planning at year end. Furthermore, please note that this decision must be made in conjunction with and in full knowledge of the resulting impact on your other investments, such as mutual funds. Be certain to check with your tax advisor prior to making any year-end portfolio transactions!

November 16, 2008 ...Given the current uncertainty surrounding the economy and the job market, many individuals continue to shy away from stocks, but are looking for opportunities elsewhere. May we suggest bonds and bond funds, which by any measure currently offer valuations relative to U.S. Treasuries, the likes of which we have not witnessed since the Great Depression. Consider the fact that investment grade corporate bonds yield more than eight percent while the ten-year U.S. Treasury Note hovers somewhere below four percent. This is true for bond funds as well. Also, consider the fact that high grade National Municipal General Obligation and reliable Revenue Bonds also are paying more than the above-referenced U.S. Treasury Note and are tax-exempt at the Federal and in many instances the state level as well. With this in mind, we thought that a briefing on the mechanics of bonds would be appropriate.

Let us begin by first stating that there are many different criteria to take into account when considering the purchase of an individual bond or bond fund. Some of these criteria are applicable to both and some only to bond owners. These include who the issuer is; the time period between the date or purchase and the date of maturity; whether or the bond is callable or non-callable; whether the bond is trading at a premium or a discount to par; what the interest rate will be and how often it will be paid. A final determining factor on the suitability of a bond purchase is, quite often, the most important. That is, the taxation of the income received from the bond and upon the sale of the security. It is this topic that we will address.

The vast majority of issuers of bonds can be classified into one of three categories. They include Corporations, the United States Government and its Agencies; and State or Local Municipalities.

When you buy an individual bond issued by a Corporation or purchase shares in an open-ended Corporate Bond Fund, the interest you receive is taxable as ordinary income in the year in which it is paid. Additionally, should you sell a bond that you originally purchased at a discount to par value (the price at which the interest rate equals the current yield), at or above the purchase price you would pay capital gains taxes on the difference. Conversely, should you sell the bond for a loss, that loss would be a capital loss.

Should you purchase an individual bond issued by the United States Government or one of its Agencies or an Open-Ended Mutual Fund that invests in these bonds, there is a difference in the taxation as compared to a Corporate Bond or Corporate Bond Fund. A Government Obligation, issued as U.S. Treasury Bills, U.S. Treasury Notes and U.S. Treasury Bonds are taxable at the Federal level, but exempt from State Income Tax. This also holds true for Open-Ended Mutual Funds. In addition, the treatment upon the sale of the bond or bond fund is exactly the same as a Corporate Bond or Corporate Bond Fund.

The final class of bond that we wish to discuss is one that is issued by a Municipality. A bond issued by a municipality is tax-exempt at the Federal level as well as in the State in which the bond is issued. This also holds true with a Municipal Bond Fund. The income is tax-exempt at the Federal level and tax-exempt for the proportion of the income derived from bonds issued within your state of residency. For example, should you own a Municipal Bond Fund that invests in bonds of other states as well as New York State (your assumed state of residency for income tax purposes), only the income from the bonds issued by New York Municipalities is tax-exempt at both the Federal and state levels. All other income is tax-exempt at the Federal level, but taxable at the state level.

Therefore, when deciding what type of bond bests suits your needs, you must first determine your Federal and State income tax brackets. Generally speaking, those in the 28% Federal income tax bracket would be well served by a Municipal Bond or Municipal Bond Fund. Your State income tax bracket would determine whether to invest in a New York State Municipal Bond/fund or one that invests nationally. Conversely, should you be in a 15% Federal income tax bracket, a Corporate or Treasury bond would be appropriate. Either way, check with your Financial and Tax Advisor for the bond that best suits your objectives. Remember, when investing in bonds, what counts is not what you earn but rather what you keep after taxes!

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

September 18, 2008 ... It was a little less than one year ago, October ninth to be exact, that the Standard & Poor's 500 last closed at a record high. Since that day when the S&P finished at 1565.15, as of the close of business this past Wednesday, this index has fallen 26.12% which is, by definition, a bear market. (The widely accepted definition of a bear market is a decline of twenty or more percent.) Furthermore, the Dow Jones Industrial Average has fallen 25.10%, once again marking a bear market. All of this carnage begs the question as to when it will all end.

It is safe to say that given the fact that we currently exist in a fear driven trading environment, much different from the commodities driven greed that existed a little over a year ago, nearly anything can happen. We have often pointed out that all trading in securities can be categorized in one of three ways. That is trading driven by greed, rational trading or fear driven trading. The reason why fear driven trading trumps the other two is that with fear comes concern for "self-preservation," the greatest force of all! Eventually though, reason will once again take hold and as a result the market will bottom and again move along a rational path. (Yes, we do consider the current depths to which the market has fallen, irrational, just as the events during the late 1990s were irrational.

Investors may find some solace in the fact that since World War II there have been nine bear markets and that the average decline in the S&P500 was thirty percent. In addition, the average bear market lasted fourteen months. Given the fact that the S&P500 has fallen over twenty-six percent these past twelve months, it stands to reason that we are in the vicinity of a bottom. That said, nobody has the ability to pinpoint the exact bottom. History will provide the answer.

Despite the elusive bottom, equity markets have tended to respond favorably over time to declining interest rates, rising money supply and tax cuts. One must assume that this bear market will ultimately succumb to these forces as well. One must also assume that, given the nature of the decline in the stock markets, we are much closer to a bottom than a top and opportunity exists for investors with a one to three year time horizon.

Meanwhile, what is an investor to do? First and foremost, if you are withdrawing money from your portfolio on a systematic basis, review your investments to make certain that you have two to three years of income in either fixed income or cash positions. Those that do not need income from their portfolios, your asset allocation depends upon a number of variables, including time horizon, risk tolerance, financial objectives, financial obligations, pension structure, social security projections, and so on.

Another important trait to help you weather this bear market is patience! The markets are not going to turn around over night. Remember, a watched pot never boils! Turn off the financial news networks (the negative impact these networks bring on the investors psyche is a story for another column!), stop valuing your portfolio on a daily, weekly or even monthly basis and enjoy life!

Do some research and as a result make a "wish" list of the investments that you want to buy and at the price you want to pay for them. Should they fall to these prices, double check your research and if still attractive, dollar cost average into them. Once again, don't expect them to skyrocket overnight.

Last, but not least, recognize that the stock market has many of the characteristics of a bully! It wants to inflict the most amount of pain on as many people as possible! Once it has accomplished this and stocks are in the hands of their rightful owners, it will end.

Learn from this market. We keep notes as to our accomplishments and errors. At some point in time, when the bear is back in hibernation, we will be certain to relate them to you in the form of a column.

During these difficult times, let us hope that we get some rational way of thinking into the market!

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

September 14, 2008 ... Two months ago most economists and investment gurus had written off the American consumer. The reason was simple, $4.00 a gallon gas was choking off everyone. Foreclosures were going to be more common place than a disgruntled Yankee fan. Corn prices were rising like blood pressure in a traffic jam. Everywhere you turned the consumer was dead.

It's amazing the difference a month or two and a $47 move down in a barrel of oil makes.

The hottest sectors over the past couple of months have been the retailers, the homebuilders, the restaurants, the transports and, surprisingly, the financials. Historically, these are precisely the sectors that perform best coming out of an economic slowdown. They are known as early cycle stocks.

As we have repeatedly noted within past columns, the stock market usually moves approximately six months prior to changes in the economy. Currently, stocks are forecasting a more consumer friendly environment during the first quarter of 2009. By "consumer friendly," we are referring to lower interest rates along with lower energy costs and lower food costs.

Despite the above, there are many false starts and investors should be careful not to jump on the sectors as many of the most known names in the consumer space are laden with debt. Recently, we have made purchases of DSW Warehouse recently, a discount shoe retailer with no debt and one that we believe would benefit even if the economy does not strengthen. Restaurant chain McDonald's is one of our fifteen largest holdings and it too balances between benefiting with a cost conscious consumer as well as an improving economy. We can suggest investors look into Exchange Traded Funds that invest in early cycle sectors such as the S&P Retail ETF, S&P Homebuilders ETF and the S&P Consumer Staples ETF. As always, check with your investment advisor prior to making any investment.

We strongly advise the novice investor to stay diversified and not try and time the markets. As the past few weeks have shown all, the stock market moves confound even the most seasoned investor. Take care and stay invested according to your objectives, tolerance to risk, time horizon and financial obligations. Sometimes the most blatantly direst of economic times produces the strongest of market advances. Timers can miss these moves waiting for a "safer" time to get into the market.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

September 5, 2008 ... With only three trading days having passed thus far in September, the Standard & Poor's 500 has already declined 3.59% confirming what investors have known for years, that September has historically been a challenging month for stocks. If this September is like past ones and, given the dismal Jobs Report released by the Labor Department this past Friday, there is little indication that this September will buck this historically downward trend.

In addition to the recent decline in payrolls noted above as well as the corresponding rising Unemployment Rate from 5.7% to 6.1%, there are many other issues dampening the bullish outlook for stocks. These issues, unknowns and concerns are like a "perfect storm" and include those of geopolitical, political and economic natures.

The geopolitical concerns weighing on the stock market include the ongoing potential threat of terrorism in the United States; the war on terrorism in Afghanistan and Iraq; the ever present threat of military conflagration between Israel and Iran in the Middle East; and Russia's encroachment into the country of Georgia and the repercussions for NATO and therefore the United States.

The political concern impacting the market is obvious, the upcoming Presidential Election and the potential for changes in the structure of how both individuals and corporations are taxed. Individuals may see changes in both earned income in the form of a higher marginal tax bracket and unearned income in the form of higher rates on realized capital gains and dividend income. Corporations may also see changes in how they are taxed with an appropriate emphasis on deductions or credits for those companies that are domiciled and hire in the United States.

During this election season it is appropriate that trumping all of the concerns noted above is a quote that former President Bill Clinton stated during his initial run for the presidency in 1992, "it's the economy stupid." It is painfully apparent that despite some progress and as a result of proactive action from both the U.S. Treasury Department and the Federal Reserve, the financial services industry as well as the housing sector remains in a deep funk. Obtaining credit, the lifeblood of the American economy is difficult, at best as lending institutions struggle to rebuild capital. The result has been a precipitous drop in demand for housing and therefore housing prices, a cessation of leasing by some automobile manufacturers and subsequent layoffs.

Thus far, declining oil prices have done little to help lift stock prices as many wonder whether oil moving from $145/bbl to $105/bbl is more a symptom of a sluggish global economy and therefore a decline in demand than anything else. If this is true, corporate earnings will remain weak.

After reading the above, one might wonder whether the glass is more than just half-empty. Despite our short-term concerns, investors must remember that stocks do "climb a wall of worry" and that they historically make a bottom during the months of September and October. Finally, some of the recent selling may be "forced liquidation" coming from hedge funds and those entities that must raise cash in order to meet redemptions. We are also experiencing a transferring of stock from weak hands to those that are willing to assume short-term risk for longer-term benefits.

First and foremost we recommend that investors allocate their assets between stocks, bonds and cash according to their needs and tolerance to risk. Secondly, as noted within past columns we urge investors to focus on the next two to five years rather than the next two to five months. If one is able to accomplish these tasks, we believe they will be well rewarded.

July 6, 2008 ... As of the market close this past Wednesday, the Dow Jones Industrial Average had crossed over from what is termed a "correction" and into "bear market territory," space that is reserved for market losses in excess of twenty-percent. These days, when the media wants you to stay tuned to every tick of a stock price, it pays to take a moment to become reacquainted with some sound investment principles. It pays to review your long term invest objectives and determine whether your portfolio is constructed appropriately to achieve those objectives.

Our first recommendation to the readers is to become an investor rather than a trader. Don't concern yourself with what will occur in the stock market over the next week, month or even quarter, but rather what do you believe will be the direction of stock prices over the next one to three years. Keep in mind that the media wants you to be a trader so that you will stay abreast of the markets on a daily basis. Become an investor. Tune out the "halftime report" of each trading day. Tune off "market wrap." Tune off news teasers like "you can't afford to miss these earnings releases."

Assuming that you agree and are an investor rather than a trader (trading may have worked during the last bull market, but is counter productive to long term growth of capital), make certain that your stock holdings are diversified across four to six different industries. You therefore are able to weather any unexpected downturns in a particular sector.

A third recommendation that may help you invest more profitably over time is to realize that you will not be right all of the time. However, the important factor is to be right over time. Once again, don't appraise your portfolio on a daily basis. It becomes not unlike weighing yourself every day. Given these market conditions over the past couple of years, you will never be happy, eventually become exasperated and give up. Measure your performance versus appropriate indices over time and recognize that you will make errors.

What matters during periods of consolidation (see bear market) is that you exit with the right portfolio. Simply put, when evaluating your portfolio you must assess the potential of your holdings as we exit the current economic malaise. Do you own the companies with earnings growth potential? Do you own the companies that are increasing their share of the market? Do you own the companies with a proprietary product or service?

Continue to dollar cost average, investing on a systematic basis through your company sponsored pension plan such as 401(k) or 403(b). Assuming that you are allocated appropriately between stocks and bonds to meet your long-term objectives, it is imperative that you do not make major changes to your investment patterns during this downturn. Use the "sale on stock prices" to continue to dollar cost average. Each dollar invested will now go a bit further in purchasing shares based upon their low net asset value.

Remember that excessive optimism does not yield stock prices at attractive levels, excessive pessimism does. Where do you think we are now?

During times like these it pays to upgrade your portfolio to industry leaders. Do not accept the marginal investments that you currently own. If they will not come out of this bear market as industry leaders, trade up to ones that will.

Once again, utilize this bear market to tailor your portfolio to what you believe the new bull market will consist of when it comes. Then, be patient recognizing that those who can ignore short-term volatility have the best chance of meeting their long-term objectives.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

March 2, 2008... The economic news could not have been worse over the last couple of weeks. At one point or another, reports and economic data have painted a picture of inflation, deflation, stagflation (basically every kind of "flation" imaginable). Housing prices have decreased, gas prices have risen and, if you listen, read and watch the news, the general sense is that the United States is bordering on economic collapse. To add insult to injury, Euros are now being accepted in many Manhattan shops.

The reality is that the economy of the United States is incredibly varied with certain regions in recession, just trying to keep their respective heads above water while others are thriving. All Americans are facing the rising costs of energy, but Iowa farmers have to be happy with corn prices while Miami real estate speculators are on suicide watch. In Upstate New York, we are somewhat isolated from the ravages of the sub-prime debacle but our own real estate market is fraying at the edges with gas/food costs weighing on consumption.

Out of the malaise of this economic slowdown/recession, historically, like a phoenix out of the ashes, bull markets in stocks have arisen. The dismal expectations of tough economic environments have generally been solid times to buy stocks. Closing your eyes and muting the television might be required before doing so, BUT it has produced positive returns for investors.

Dating back to 1954, as measured by the Standard & Poors 500, eight out of the last nine recessions have produced positive stock returns three years after the end of the recession. The only recession to not have a positive return after a period of three years was the recession during 2001. Not surprisingly, the terrorist attacks on September 11^th influenced these results.

Although all investors talk about "buying low and selling high," in reality few achieve this nirvana. Most tend to buy high and sell low. They buy on greed and sell on fear. A study from one large mutual fund family dating from 1982-2000 had not so surprising results. The S&P 500 (the largest 500 publicly companies domiciled in the United States) rose an average of thirteen percent per year while the average equity fund rose at an average of just under ten percent per year. However, the average investors netted out less than three percent per year! The reason is simple and noted above, most investors buy high and sell low. They become conservative when it is time to be aggressive and aggressive when it is time to pull in the reigns.

Investors need a game plan which includes an allocation of your investment assets between equities, fixed income, real estate and cash. However, prior to arriving at an appropriate asset allocation one needs to evaluate their own personal goals, objectives, concerns, family situation, tolerance to risk, and financial obligations. Once having completed this task and arrived at what percentage of your investment assets you want in stocks versus fixed income and cash, stick with this allocation regardless of the current investment climate unless one of the criteria noted immediately above changes.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

February 17, 2008... There is an old saying in the investment community that the average investor spends more time researching what toaster to buy than what mutual fund to invest in. With this in mind, we thought that it would be a good idea to identify some issues that should affect your investment decision regarding a specific mutual fund. Please keep in mind that by no means is this a complete list of considerations, but just some that an investor should be aware of.

Whether investing in mutual funds or individual securities, an investor must first identify their investment objectives, including the intended time horizon until reaching those objectives as well as the risk and volatility they are willing to assume along the way. Furthermore, an investor must decide whether they are going to require help when selecting specific investments. However, please keep in mind that even if you are going to require advice, that does not eliminate the responsibility of the investor in determining how their advisor is compensated and what charges, if any, will be levied by the mutual fund. An additional piece of investigatory work that an investor must do prior to putting their hard earned money to work is to review the prior returns of the specific mutual fund, keeping in mind the risk that the fund has taken in order to achieve those returns and then applying an appropriate benchmark to determine the relative returns; always keeping in mind that historical investment returns are not indicative of future investment results. Finally, prior to investing an individual should have enough cash on the sidelines for emergencies such as home repairs, short-term unemployment or health issues.

The answers to all of the questions noted above can be found on the internet either at the website of the family in which the mutual fund you are considering is a member, on a financial website such as Yahoo! Finance or at Morningstar.com. However, let's take a couple of paragraphs and determine that you will be looking for after arriving at one of these or a similar site.

The first consideration we noted was to make certain that the investment objective of the mutual fund matched that of the investor's. Prior to investing, it is imperative to determine the percentage of the fund that can, by prospectus, be invested in stocks, bonds, cash or other instruments. Generally speaking, the higher the percentage in stocks, the more volatile the fund. An investor who invests into a fund with more than 75% of its assets in the stock market is implying that he has a time horizon or ten or more years and is willing to accept the volatility along the way. An investor who chooses a fund with 50%-75% in the stock market is implying that he has a time horizon or five to ten years and is somewhat concerned with volatility and preservation of capital. Finally, an investor who chooses a fund with less than 50% is implying that preservation of the majority of their capital is a primary concern and that capital appreciation is secondary.

Volatility of a fund can be measured in several different ways, with the two most common being beta and standard deviation, both of which can be found on the internet or in the prospectus of the mutual fund. Simply put, the beta of the fund tells an investor how sensitive a fund is, in response to the movement of the stock market. The stock market always has a beta of 1.00 so if the beta of the mutual fund you are researching has a beta of 1.25 it means that the fund is 25% more volatile than the overall stock market. Therefore, it is safe to assume that if the stock market goes up 10%, you can expect 25% more gains from your fund. However, the opposite also holds true. Should the stock market fall 10%, one could expect a decline 25% greater than that. Standard deviation also measures the volatility of the fund in that it helps determine how often the fund has wild swings. According to Morningstar, a leading researcher of mutual funds, "approximately 68% of the time, the total returns of any given fund are expected to differ from its mean total return by more than plus or minus the standard deviation figure." In plain English, referring to standard deviation, the higher the number, the rockier the ride will be.

Regarding the cost of entering or exiting a fund, an investor must always remember that nobody works for free. So there is a cost. Ask your investment advisor the explicit or internal costs of investing in a particular fund. If he or she balks at your question, ask specifically how much the advisor is compensated as a result of a potential investment. If they are unwilling to answer, look for another advisor.

Finally, when reviewing past returns, as mentioned above, it pays to keep in mind the risk the fund has historically assumed to achieve their returns. It is important to look at the absolute total returns, but more important to look at the returns relative to an appropriate benchmark such as the S&P 500 or Morgan-Stanley Composite Index for the European, Australian and Far-East (MSCI/EAFE) markets. This number will tell you how the fund fared against its peers.

In conclusion, if you take the time to know what you are getting involved in prior to making an investment than you will be much more capable of making intelligent, rational decisions on perhaps when to make changes. This will ultimately help you reach your goals. Good luck!

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

February 10, 2008... In addition to meeting with our clients, and as part of a continuous effort to communicate with our clients, is included an annual year-ending letter detailing where we believe both the stock and bond markets are headed. Furthermore, we provide some details as to where we believe the opportunities lie. Due to the length of the letter, it is impossible to reprint it in its entirety so we have taken pertinent excerpts for this column. Please note that this letter was written on January 16, 2008 and begins in the following manner.

"Unlikely as it may seem and perhaps unbelievably as it may sound, after this rough start to 2008, we believe that the major stock indices, including dividends, will conform to longer term historical returns of between nine and twelve percent."

"In response to the recession affecting the housing market and the resulting weakness in the consumer sector, the Fed began cutting interest rates and has promised ‘substantive' measures in the future. Given these facts, we expect that the year will be back-end loaded with the best two quarters for equities being the third and fourth as the economy picks up steam in response to lower interest rates and perhaps some fiscal stimulus coming from Congress. If anything, we believe that these estimations are too optimistic and perhaps the market may not perform quite as well as we anticipate. That said, we nonetheless think stocks and stock-based mutual funds will outperform their fixed income brethren, given the fact that the 10-year U.S. Treasury Note is currently yielding only 4.00%." Currently, the 10-year U.S. Treasury Note is yielding 3.61%.

"Two sectors drove the stock market during 2007, namely Oil & Gas and Basic Materials. Oil & Gas has benefitted over the past several years from a rapidly expanding global economy causing more demand for petroleum based products than supply. Basic Materials also benefited from the above referenced global economic growth and from the fact that much of this growth emanated from the ‘BRIC' countries, Brazil, Russia, India and China. Other than these two sectors, 2007 proved an uninspiring year for stock investors. Furthermore, the problems with housing referenced several times above resulted in a twenty-percent decline in financial service companies. This will most likely linger into the first half of 2008."

"We believe that 2008 will result in solid over-performance in Health Care including large biotechnology companies, medical instrumentation and equipment as well as health maintenance organizations. We like those health care companies that help contain cost. As the Presidential Election draws near and the "rebuild America" theme grows louder, your large cap industrial stocks should benefit. However, because general economic weakness will trump this theme early in 2008, we urge you to be patient. Another theme that we like going into 2008 is ‘feed the world.' Once again, we are going to exhibit patience in this sector given the run-up during 2007, it is due for a breather. Other second half industries that we think will benefit from a reaccelerating domestic and global economies include technology, basic materials and, dare we say, financial service companies. Digging a little deeper, we believe the dollar remains relatively weak which should benefit those companies that export a relatively large percent of their overall revenue. We also continue to believe in investing in companies domiciled in other countries, specifically in Latin and South America, the Far East and Central Europe."

"On the interest rate front, we believe that the Fed will continue to lower interest rates, therefore choosing an emphasis of economic growth rather than one of inflation-fighting, at least for the foreseeable future. Should the Fed assume this posture, and we have no reason to believe that they won't, short-term rates will continue lower as will longer-term rates. Then, once the cuts take hold and economic growth accelerates, we would expect to see a normalized yield curve (one in which long-term rates are higher than short-term rates) as well as higher interest rates along the entire curve. We project that the yield spread (difference between the two and ten year treasury notes) to be between .75% and 1.50% by the end of 2008. It is for these reasons that we believe short-term bonds best suit our clients. The time will come when we can extend those maturities, just not now."

"We are NOT concerned about rampant inflation, noting that productivity growth in high-end industries such as technology and biotechnology in the United States remains strong and global competition for the commoditized industries is keen. This global competition quite often results in production overseas for many basic industries therefore keeping ‘wage push' inflation in check."

"The risks to the assumptions noted above are many, not the least of which include the ever-present threat of terrorism. Other risks include unanticipated actions by Iran, an unanticipated spike in energy prices, and the potential that the Fed will not be aggressive enough in cutting interest rates. Also, if the consumer shuts down their habits of consumption, it could further lengthen the recovery process. The question remains as to what Chairman Bernanke was referring to when he stated that the Fed was ready to take "substantive" action when fighting this economic slowdown. Time will tell. However, should Chairman Bernanke prove either unwilling or ineffective in fighting this economic slowdown, it may be a long year for the economy and the stock market."

"In conclusion, we have much greater confidence in the stock market providing solid returns through the end of calendar year 2008 relatively to the just concluded 2007. We also firmly believe that Chairman Bernanke will make the right decisions pertaining to interest rates. We also have a high degree of confidence in our enthusiasm regarding overseas markets and our estimate for interest rates. That said, we continue to be wary of geo-political events as well as the impact on the economy of the malaise in the housing market."

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

January 27, 2008... A week ago Friday, as we were shutting the doors to our offices on Hoosick Street, my brother and I both noted that we were looking forward to the long weekend as the markets would be closed the upcoming Monday in honor of Dr. Martin Luther King. One of us stated that, after three consecutive down weeks in which the Dow Jones Industrial Average had shed more than ten percent, "it would be nice to relax for that extra day and not have to worry about where stocks were headed." We knew that over the weekend we would hear all of the news reports on how stocks were off to their worst start in history and how the sky was falling. Little did we know was how that extra day off would make this past week feel like it lasted a month. (One quick note prior to our tale of the trials and tribulations of stock investors this past week: due to the time difference, markets, the Far East (India, Japan, Hong Kong, China et. al.) open first, then Europe and then the United States.)

After watching the beloved New York Giants squeak past the Green Bay Packers last Sunday night along with the rest of my family, I turned on the television to the Bloomberg Financial network which covers the global markets and noticed that the markets of the Far East were down nearly five percent in early trading and that the projection for the European markets was not much better. It was with this knowledge that, while continuing to watch the losses mount, I pulled out the computer and logged on to the internet to find out what was roiling the emerging markets and found that there was a rumor circulating that a major European bank was about to declare bankruptcy due to more than $45 billion in losses stemming from the global mortgage crisis. Needless to say, neither my brother nor I had a good night's sleep.

The next day, despite the fact the markets in the United States were closed, we came to work and pulled out our plan of action which includes, among other things, taking a look at all of our investments and all of our accounts to makecertain that we are holding securities which we believe will help our clients achieve their objectives over the long-run. That task being completed, we then evaluated what the impact of an acceleration of the subprime mortgage mess would mean to our stock and bond markets. The result was a list of the actions we would take should certain events transpire. In between, we met with a couple of clients. Late last Monday morning, the results were in and it wasn't pretty. The markets of Southeast Asia were down anywhere from five to ten percent while the European markets were down about five percent. Please remember that our stock market was closed. Sometimes the anticipation is worse than reality.

Monday night about ten o'clock, I once again checked the Bloomberg Financial Network and noticed that it was almost a repeat of the previous night with the markets of the Far East down five to ten percent and Europe pointing to a similar move downward. The rumor mill continued to whisper of a major European bank experiencing severe financial strain and perhaps bankruptcy. Once again, the result was a sleepless night.

Tuesday morning confirmed what we had feared most, which was for a projected 500 point drop in our stock market upon its opening at 9:30 a.m. However, at approximately 8:30 a.m. the Federal Reserve announced that it was cutting interest rates from 4.25% to 3.50%, the largest between regularly scheduled meeting rate cut in history citing that it was taking this action "in view of a weakening of the economic outlook and increasing downside risks to growth." The Dow Jones Industrial Average bent, but did not break like other global markets, ending down "only" 128 points as represented by the Dow.

Once again, Wednesday morning, stock futures pointed to a sharply downward opening and unlike Tuesday, this time the Dow did not disappoint dropping over 300 points during the morning and early afternoon as investors panicked. However, as usually happens when pessimism and panic reign, the market turns and turns with a vengeance. This time was no different as the Dow Jones Industrial Average made up those 300 points that it was down over the remainder of the afternoon and tacked on another 300 just for good measure.

Turn the page to this past Thursday morning. We woke up to the fact that the major European bank mentioned earlier in this article that was to be taken down by more than $45 billion in losses stemming from the mortgage misery was inaccurate, yet still astounding. The fact of the matter was that French banking giant, Societe Generale, had discovered losses of more than $7.5 billion as a result of bogus trades put forth by a rogue trader. Although devastating for investors in Societe Generale, the global stock market breathed another sigh of relief that the company was not writing off billions in response to losses in their mortgage investments and that this was a company specific problem.

After this tumultuous time, the question now becomes "was this a bear market rally, one which will fade fast with the downside reasserting itself" or "have stocks seen the worst of this nearly top to bottom twenty percent correction and will now begin moving back toward Dow 14,000?" Although too early to tell, we believe that we have seen the worst of this correction, but that stocks may certainly retest the low on the Dow of 11,645 set this past Wednesday. However, should a successful retest occur, the all clear bell will ring! Another scenario, which we deem possible, is that the monetary stimulus from the Federal Reserve along with the fiscal stimulus promised by the Bush Administration and Congress will now be interpreted positively by stock investors resulting in a bull market for stocks, one in which will not look back. Either way, we believe that after a long month this past week, more restful nights are ahead.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, please call 518-279-1044.

January 20, 2008... Exchange-Traded Funds (ETF) have become the rage over the last year or so. They have challenged mutual funds for investment dollars. ETFs provide investors with diversification like a mutual fund but also enable an investor to sell his position during the trading hours of the stock market. Mutual funds tabulate their positions at the end of the trading day and give investors the opportunity to buy and sell at that time, but only at the close of trading.

As with mutual funds, you can invest in an ETF for a myriad of objectives. Certain Exchange-traded funds will be conservative and buy only US government bonds while other of these funds find aggressive investments in emerging markets that gyrate wildly. Investors need to know what types of investments are in ETFs before blindly putting money into them. One ETF that seems to make sense to us right now is the iShares Dow Jones Select Dividend Index (DVY). This ETF is comprised of 100 of the highest yielding stocks in the Dow Jones Total Market Index ?" excluding real estate investment trusts. Dividends can be a cushioning factor in a difficult market environment. Through January 16^th, the S&P 500 was lower by 6.31% and the NASDAQ Composite was down over 10% while the DVY was off only 3.81%.

This ETF has a dividend yield of 3.66% and a low expense ratio of 0.40%. This makes it attractive for investors who want some income, a chance for growth and low expenses. The low turnover ratio of six percent also gives investors comfort in that "what you invest in is what you get." The ETF trades nearly twenty percent off its 52-week high of $75.82 at approximately $61.00 per share.

Some of the top 10 holdings (as of December 31, 2007) were Merck, AT&T, Altria Group and PNC Financial. There is a solid mix of dividend paying stocks ?" some having strong performance while others have suffered with the sub-prime crisis. This investment is appropriate for investors seeking current income, desiring diversification and willing to accept the risk of a stock investment.

Given the current stock market environment, one in which we would expect to continue well into 2008, the iShares Dow Jones Select Dividend Index is a good place to gain market exposure yet have the comfort of dividend income.

One word of caution when considering purchasing an Exchange-Traded Fund is that many of these funds are not broad stock market index funds as they were once intended to be. The majority of ETF's are either sector, industry, region or country specific and therefore carry additional risk other than stock-market risk.

One word regarding the current state of the stock market, please exercise caution. We do expect extreme volatility to continue as the positive catalyst that should come from the recent reduction in interest rates by the Federal Reserve has yet to impact the economy. Furthermore, any fiscal stimulus that the congress chooses to enact is also a month or two away. We therefore strongly recommend that investors keep a good chunk of "dry powder" on the sidelines in the form of cash.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, please call 518-279-1044.

January 13, 2008... This past Wednesday, in a note to clients, economists at renowned investment bank Goldman Sachs, the brokerage firm that was brilliantly shorting and therefore profiting from fixed-income products that were related to the subprime mortgage mess, predicted that the U.S. economy would enter into a modest recession during 2008. We couldn't agree more.

Most economists define a recession as two consecutive quarters of negative growth in Gross Domestic Product (GDP) which, also by definition, measures the expansion of contraction of the economy of a nation. Goldman Sachs predicts that "the recession is likely to last two to three quarters and should be relatively mild by historical standards, with a cumulative decline in GDP of only about a half percent," this according to Goldman Sachs economists' Jan Hatzius and Ed McKelvey. For all of 2008, Goldman Sachs expects GDP to rise by 0.8%. According to the two economists, keeping the recession "relatively mild" is the assumption that the Open Market Committee of the Federal Reserve, the body that determines the direction of short-term interest rates, will aggressively lower rates in order to provide liquidity to the credit markets and ease the credit crunch. Ultimately, the impact of this mild recession will be an increase in the unemployment rate from its current level of 5.0% to 6.25% by the end of this calendar year.

All of the above loudly begs the question, "fine, but what does this mean for my investments?" Simply put, we believe that the during the fourth quarter of 2007 the U.S. economy entered a period of slow to somewhat stagnant economic growth that will most likely last throughout the majority of 2008. Whether this is the slight majority or vast majority of 2008 has everything to do with just how aggressive the Fed is when it responds to interest rates. Thus far, we believe that the Fed has not acted aggressively enough when regarding interest rates and that the downturn in the economy, if one thinks of it as a moving car or other vehicle, has maintained its distance over the Fed. The Fed must do something to close this gap and to eventually move ahead of the economic downturn. It is with the efforts of the Fed, perhaps along with fiscal (tax) policy relief coming from congress and the Bush Administration that the economy will eventually turn for the better.

The Chairman of the Federal Reserve, Ben Bernanke, in a recent luncheon speech in Washington, D.C., stated that the Fed stands "ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks." The jury is still out as to what Chairman Bernanke defines as "substantive" when it comes to the action required to stem the economic downturn that is facing America.

To determine where the stock market may go one must look back at historical data. We did just that and found that during economic downturns when the Federal Reserve has lowered interest rates at three consecutive meetings, the stock market has responded favorably as measured by a time frame of one year. In fact, there have been thirteen times in which the Fed has cut interest rates at three consecutive meetings and the stock market has been higher one year later on every occasion, save one. That was during the early 1930's when the United States was on the verge of the Great Depression. Therefore, if you believe as we do, that we are not entering into an era of depression, stock investors have a golden opportunity to add to their holdings and reap capital gains one year hence. Unfortunately, during times like this it is very uncomfortable to invest in stocks, but we cannot see anything other type of investment that we would rather be in than equities. That said, maintain a disciplined investment approach and always have a plan for selling a position after making the purchase.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

January 6, 2008... According to Boston College's Center on Wealth and Philanthropy, baby boomers alone are positioned to inherit more than $7.2 trillion from assets in retirement accounts. Getting assets transferred after the death of the original IRA owner involves several issues that could affect the beneficiary's tax liability. Therefore, it is wise to involve your beneficiaries in the planning process.

When you inherit an IRA, choices on how to handle the transfer are based on the type of IRA (Traditional or Roth), the relationship of the beneficiary to the deceased (spouse, non-spouse, trust, estate, charity), and the age of the original account holder at the time of death.

For example, a traditional IRA with a spouse designated as sole beneficiary, can transfer assets into the spouse's own existing or new IRA after taking the required minimum distribution for the year of death, if the original account holder was over age 70 ½ at the time of death and did not previously take the distribution. In the case of multiple primary beneficiaries, assets must be transferred into separate Inherited IRAs.

Non-spouse beneficiaries have fewer options. Most significantly, they are not allowed to transfer the assets into their own IRA account. Non-spouse beneficiaries are required to transfer assets into an Inherited (five years or life expectancy) IRA and taxable distributions must begin within a certain amount of time. Check with your financial advisor for details.

When a trust is the beneficiary, it must be irrevocable; it must name identifiable beneficiaries; it must be valid under state law; and the custodian must have a certified copy of the trust. When an estate is the beneficiary, the executor can take a taxable lump sum distribution or open Inherited IRAs depending on the age of the original account holder.

Any beneficiary may also elect to take a lump sum distribution. However, while there is no 10% early withdrawal penalty, the beneficiary will need to pay income taxes on the distribution.

New wealth presents new opportunities and with any inheritance, it is likely that a beneficiary will want to reassess their total investment strategy. A meeting between the account holder, beneficiary, and financial advisor can avoid costly mistakes. Discuss what options are available to the beneficiary for taking the proceeds of the assets when the account holder dies as well as the tax and investment implications of each. Also, consider naming contingent beneficiaries in case the primary beneficiary is no longer alive when the account holder dies. These assets go to the beneficiary automatically instead of through the probate process. Beneficiary designation forms typically override a will therefore it is very important to keep beneficiary information up to date.

These are only some of the issues involved in beneficiary designations. Please contact your investment advisor or give us a call with any retirement planning questions.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.

December 23, 2007... One of the least time consuming and most profitable tasks one can assume during December as it pertains to their investment portfolio is to attempt to offset realized capital gains with capital losses in your portfolio. Given the level of volatility the stock market has dealt investors thus far during 2007, no doubt many of us have securities that have declined in market value relative to their purchase price. Assuming that the shares of the depreciated security are held in a non-qualified taxable account (not an IRA or pension plan), one might sell these shares and claim the loss on Schedule D of Federal Filing Form 1040.

Please note the following important IRS regulation that pertains to Capital Gains and Losses. If when comparing your realized (those securities sold or where the company has been purchased for cash by another company) gain with your realized loss, the net result is a loss, only up to $3,000 can be deducted from ordinary income. The balance can be carried forward, indefinitely.

An additional component to consider prior to realizing a capital gain or loss in your portfolio is whether the transaction would trigger a long-term versus short-term capital gain/loss. Long-term transactions are defined as those in which the underlying security has been held for one year or longer and are taxed at either five percent for taxpayers in the ten or fifteen percent bracket or at fifteen percent for taxpayers in any higher bracket. Short-term transactions, those which the security has been held for less than one year are taxed as ordinary income and subject to the same tax rate as your wages or dividend income. For most taxpayers, the rate is twenty-eight percent for the Federal Government. In both instances, for taxpayers in New York State, long-term and short-term capital gains are taxed as ordinary income.

One final consideration prior to executing a stock or bond trade for tax purposes would be to determine if, by executing this trade, a wash sale would result. A wash sale exists when the transaction results in a loss and a "substantially identical security" is purchased within thirty days. If this should occur, the tax loss created by the sale would not be deductible. Please note that should the wash sale result in a gain, the gain is taxable.

As an aside, never forget that it is always prudent to consider the impact of selling a stock upon your portfolio. Simply put, it is seldom wise to make a transaction solely for the purpose of saving money on your tax return!

Year-end tax planning also applies to your mutual fund investments. First and foremost, place a call to the service center of your mutual fund and ask them if they have declared or are planning to declare any year-end capital gain distributions.Keep in mind that capital gains declared by mutual funds are taxable regardless of whether you receive them in cash or reinvest in additional shares. Furthermore, there is no economic benefit to the distribution. It is the same as getting four taxable quarters in return for your non-taxable one dollar bill. Upon calling, should you learn that your mutual fund is intending to declare a capital gain, find out how much it will be on a per share basis and on what date it will be declared. This information will help you determine what steps, if any, need to be taken in order to minimize the impact of this declared gain.

Consider swapping the mutual fund in which you have a taxable loss for a similar fund. Please note that your adjusted tax basis consists of your initial contribution to the fund plus any subsequent out-of-pocket contributions as well as any reinvested dividends or capital gains declared during prior calendar years less any withdrawals. Regardless of what others might say to the contrary, given the fact that there are over eight thousand mutual funds to choose from, there is always an appropriate alternative to your current fund. Do not think that your fund is "the best" or "one of a kind."

A sale or sales of appreciating and/or depreciated securities represent only one tactic an investor can deploy when tax planning at year end. Furthermore, please note that this decision must be made in conjunction with and in full knowledge of the resulting impact on your other investments, such as mutual funds. Be certain to check with your tax advisor prior to making any year-end portfolio transactions!

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To schedule an initial consultation, please contact Fagan Associates, at 518-279-1044.

December 2, 2007... After a $7.5 billion cash infusion by the sovereign wealth fund of Abu Dhabi into Citigroup, comments by Federal Reserve Vice-Chairman Donald L. Kohn and a more than 500 point two-day run-up by the Dow Jones Industrial Average, investors must be asking, what next. Our response, let's tackle this question by looking at the headlines noted above that created the catalyst for this move.

Prior to this past Tuesday investors have expressed their concern about the value of many of our largest money center banks, including Citigroup, Bank of America, JP Morgan Chase, as well as our largest brokerage firms, by a stampede of selling which, in turn, sent the share price of those affected down by more than 20%, this during November alone. Those selling were doing so because of the uncertainty regarding the multi-billion dollar negative impact caused by the weakness in the housing market, an ever rising default rate on mortgages as well as home equity loans, and the perception that the malaise in the housing market is spreading into the entire credit market thereby creating a credit crunch and a resulting liquidity crisis. To the rescue, at least for the time being, rode the country of Abu Dhabi in the form of a $7.5 billion cash infusion into Citigroup, from its sovereign wealth fund, a fund created by the monarchy and funded, in great part by their export of oil reserves to the United States as well as other countries. The fund, whose value is estimated to be close to $900 billion, is meant to benefit the monarchy of Abu Dhabi, its ruling family as well as the citizens of this Middle Eastern country. That said, what does this mean to Citigroup? It means that, certainly after a tremendous amount of due diligence, a tremendous amount of "tire-kicking," an entity decided that Citigroup was worth an investment of $7.5 billion. Some might suggest that although $7.5 billion is not a lot of money, noting that it is "only" 8.3% of the value of this fund, implying that Abu Dhabi could afford to lose their investment. To the contrary, we suggest that Abu Dhabi is investing for the long-term, that they perceive long-term value in Citigroup shares at their current price and, stand ready to infuse more cash, if necessary. Time will tell who will ultimately prove correct in their analysis of Citigroup, the naysayers who suggest that Citigroup, the world's largest bank still has substantial downside, or, we, at Fagan Associates, that recommend investors dip their toes in the water with a small investment in these shares, recognizing that the shares may not have bottomed, but like the country of Abu Dhabi, stand ready to purchase a little more should the share price still move a bit downward in hopes of much higher shares prices one to five years hence.

Quite briefly, contained within the text of a speech entitled "Financial Markets and Central Banking" and under a section sub-titled "Moral Hazard," by Vice-Chairman of the Federal Reserve, Donald L. Kohn, was the following statement. "Losses were evident early in this decade in the case of many high-tech stocks, and they are in store for houses purchased at unsustainable prices for mortgages made on the assumption that house prices would rise indefinitely. To be sure, lowering interest rates to keep the economy on an even keel when adverse financial market developments occur will reduce the penalty incurred by some people who exercised poor judgment. But these people are still bearing the costs of their decisions and we should not hold the economy hostage to teach a small segment of the population a lesson." Simply put, we are not going to penalize the entire country to penalize a precious few. Bottom line, lower interest rates are on the way, perhaps when the Fed next meets on December 11^th (we believe this is the case), in an effort to stimulate a sluggish economy.

This vote of confidence in our financial system, ironically expressed by a sovereign fund of a foreign investor along with "dovish" comments by Vice-President Kohn suggesting lower interest rates are in store, in our opinion, will ultimately result in higher stock prices. Our recommendation, some "backing and filling" after the 500 point jump in the Dow is in order, but investors would be wise to accumulate stocks and/or stock based mutual funds should such weakness occur.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.

November 25, 2007... During this holiday shortened week of trading on Wall Street and amidst the recent carnage, indeed thus far a November the likes of which investors have not experienced since 1987, in a perverse manner investors should be ever cognizant for what to give thanks. It is with this in mind that we have created a short list of what, we as investment advisors are thankful for as we enter the final week of November.

The first thing we are thankful for is the fact that there remains only one trading week left to this miserable month! Going into trading this past Friday the Dow Jones Industrial Average had fallen 8.12% since the close of October. To find a month nearly as dismal we had to go back to 1987 when the Dow fell 8.02% during the entire month of November. One might ask, then why be thankful. It is with the belief that the next six months will be similar to the six months ending April 1988, a period of time that included that 8.02% plunge during November 1987. Those six months ended with the Dow Jones Industrial Average up nearly 11.00% from the lows set during that November! What would this mean for the Dow at their current levels? It would mean that the Dow would climb back neat its pre-correction drop of 14,190 by the end of April 2008.

The second thing that we, as investors are thankful for is the high degree of anxiety in the stock market as evidenced by the Chicago Board of Options Exchange Volatility Index affectionately known as the "VIX." This index measures the implied volatility of the S&P500 over the next thirty days. Furthermore, it is an inverse predictor of the direction of the stock market. In other words, the higher it goes the more likely the stock market is bottoming out. We took a look at the recent level of "30%" registered on registered at the close of trading on November 12^th and compared this reading to similar levels over the past seventeen years and discovered of the 286 times volatility was this high, or in other words investors were as pessimistic, twelve months later the Dow Jones Industrial Average was an average of nearly 19.00% higher. Furthermore the Dow advanced 248 of the 286 times or nearly 87% of the time. Interestingly of the 38 times where the VIX was at least 30% and the market fell over the next twelve months, 36 occurred during 2001 when we were in the midst of the worst bear market in more than twenty-five years! Therefore, if you don't think we're entering a period of prolonged recession, the increased VIX is reason for optimism.

The third thing that investors should be thankful for is the strong global economy and the fact that our economy now represents less than 40% of total global economic activity as compared to 70% one-quarter of a century ago. Long ago investors adhered to the belief that "when the United States sneezes, the rest of the world catches a cold." Although the recent economic slowdown in the U.S. is some cause for concern about the global economy, be thankful that we are less of 40% of global economic activity. The true engine of global economic activity is not the United States but rather the "BRIC" countries represented by Brazil, Russia, India and China, four countries whose total population exceed 2.75 billion people! The United States economy has a vested interest in moving these countries from third world to second world thereby creating a middle class. By helping to create a middle class in these countries through "fair trade" we are securing our own.

Finally, like all investment advisors, we are thankful for our men and women who are so valiantly serving in the military around the world, protecting our freedom. Being a history buff, this reminds me of that famous rallying cry of "freedom isn't free!" Best wishes for a Happy Thanksgiving weekend!

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.

November 18, 2007…I mmediately after purchasing a stock, it is imperative to establish, monitor and sometimes adjust upward (but rarely downward) the price at which you are willing to sell.

The following scenarios may be cause for concern.

The revenue and per share earnings of the company fail to live up to Wall Street estimates for a given quarter. Ours is an industry of expectations and should a company fail to live up to these expectations, chances are that for some time the stock will have a difficult time making headway until it re-establishes its credibility. We apply the cockroach theory inasmuch that where you find one cockroach, there are usually many more. Furthermore, quite often, one bad quarter begets another. Despite the above, what would cause us to hold on to a stock is if the stock price responds positively despite the bad quarter. This is typically a sign that the stock has bottomed out.

There is a shake-up in upper management. Reorganizations quite often precede bad news and such a shake-up could be a telltale sign that some bad news is coming. The accompanying press release usually states that "so-and-so is retiring to ‘spend more time with his/her family.'" Once again, watch how the price of the stock reacts to the news of a change in management. Be observant, quite often, this could be a time to buy.

The reddest of flags pertains to undefined or defined accounting issues. Should a company (see Enron, Worldcom or Tyco) announce that they are conducting an internal investigation or, more worrisome, that the Securities and Exchange Commission is conducting either an informal or formal investigation into the accounting practices of the company, run for the door. Remember, when you sell a stock, you are not saying "no to the investment forever," but rather "this doesn't make sense right now."

The final reason noted in this column pertains to the company changing its strategic direction. Quite often, when a company embarks in a new direction it is because the old direction was not working and that this new direction should be the panacea. However, this "new direction" is often laden with pot holes as the company finds its way. Better for an investor to step aside and take a wait and see approach rather than to continue on the same course.

Finally, as noted above, don't just blindly sell a security should one of these events occur. Rather, wait and see how the stock reacts to the announcement. As mentioned, quite often, the reaction of other investors to these issues should ultimately determine your course of action. Should the stock rise, watch closely, but wait to sell. Should the stock fall, perhaps you should also exit. Either way, be disciplined in your approach to investing. Emotional decisions usually prove wrong.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio.

November 11, 2007... Given the nature of our business, in our opinion the most obvious and effective way to give to a charitable organization is through a gift of appreciated stock. This is a win-win situation for both the taxpayer and the charity. The taxpayer can deduct the market value of the stock on the date of the gift and the charity gets the donation. Furthermore, by donating the appreciated stock rather than selling the stock and donating the cash proceeds, the taxpayer also avoids any capital gains tax. Please note that this only will work with appreciated securities within taxable accounts. Should you hold a stock that has depreciated in value, it is generally wise to sell the stock and donate the cash proceeds. Utilizing this method, the taxpayer can write off the capital loss up to current IRS limitations.

Readers will note that the above paragraph does not pertain only to appreciated stock, but rather to all appreciated assets, including bonds, mutual funds and real estate.

The Pension Protection Act of 2006 enables taxpayers age 70 ½ to exclude from adjusted gross income qualified charitable contributions up to $100,000 per year from either a traditional or Roth IRA. It is important to note that this provision within the Pension Protection Act is applicable only to charitable contributions made during calendar year 2006 and 2007 and is currently scheduled to expire on December 31, 2007. Prior to the passing of this legislation, a taxpayer would have to first withdraw the money from his IRA and then make the contribution. Many times this withdrawal resulted in the taxation of the Social Security Benefits of the taxpayer, reductions in property tax assistance and reductions in other government sponsored programs. This new law allows the taxpayer to circumvent this step thereby eliminating the prior pitfalls noted in the preceding sentence. Additional benefits to rolling over the IRA distribution directly to a qualifying charity is that this donation qualifies toward the owner's minimum required distribution, but does not count toward the IRA owner's maximum 50% cash contribution limit as a percentage of their adjusted gross income. (Please note that it is the responsibility of the donor to insure that the charitable organization meets the qualifications of the legislation.)

One final way to get into the charitable giving mood this holiday season is through gifts of life insurance policies. To accomplish this transfer, the current owner must name the qualified charitable as either the new owner or the irrevocable beneficiary. If the owner does one of these then he/she is able to obtain a tax deduction on the present value of the insurance contract or his/her accumulated premium payments, whichever is higher.

As always, please be sure to check with your tax advisor prior to making any sizable charitable contributions.