CLient Letter

As you are aware, it has been a painful first half of 2008 for the US and world stock markets. During these rough market periods, you must remember that the economy is a self-correcting mechanism. It moves from a high called a peak downward via a contraction to a low side trough. From here it experiences an expansion carrying it back to a new peak. Historically each successive peak tends to be higher than previous peaks. This is how the market has averaged about a 10% growth over the past 100 years or so. The length of time between when the contraction ends and the expansion begins (the trough) varies but usually lasts between 6 to 18 months. The upward expansion phase can last for years given investors a false sense of well being as if the good times will last forever.

Sometimes if the contraction is deep enough a recession will occur. Recessions are marked by increased unemployment, businesses closing down and a reduced demand for goods and services. Recessionary periods dot the American economic landscape. During 1837 - 1843 it was the collapse of a large insurance company combined with falling grain prices and land speculation. In 1873 it was the collapse of a major bank. Twenty years later another recession followed the failure of a railroad company. The Great Depression and Black Tuesday occurred in October 1929. In more recent times, it was the oil crisis of the mid 1970's, the saving and loan bailout in 1981 and who could forget the dot-com meltdown in the early 2000s. And today we have the housing market and credit issues. The takeaways are that these economy cycles exist, they will happen at random intervals and economists can’t agree on what causes them.

I monitor the market closely and weekly analyze every single security owned by every one of my clients. This includes Fidelity, Van Kampen and several other mutual fund families along with selected stocks, ETFs and the appropriate indexes. I plot and cross reference each fund’s performance vs. other funds in its category and how it is performing vs. the appropriate index. Monthly, I review each client’s portfolio to see if adjustments to the portfolio are justified. In an earlier letter, I said that Small Cap and Mid Cap type funds are historically the first to respond to any market upturn. I am starting to see signs of life in both the Van Kampen Sm Cap Value fund and Fidelity Sm Cap fund. This is also reflected in the ETFs that track the Russell 2000 indexes. No one knows the future direction of the market. Even my market analysis is simply looking at and comparing the trends. These down periods average anywhere from 6 – 18 months. So hopefully, the market may start to improve soon.

It’s sometimes hard to remember when all we hear is how bad the economy doing, is that our investment window is 10 – 20 years in the future. We invest today for a return at some future point in our lives. Taking a long term view means you are not concerned with day to day, month to month or year to year variations. In fact, the current market slump is a good thing for long term investors. The single share price (NAV) of many funds is about where it was 18 – 24 months ago thus allowing you buy new shares at a relatively cheap price. The more shares you have the greater the future value of your investments.

Three things to keep in mind. 1) Ignore the talking heads. Successful long-term investors look beyond the headlines. Radio and TV tends to focus on daily events and convey the ‘sky is falling’ message. 2) Much of the current market’s large daily market swings is caused by profit taking. Market traders can create elasticity in the stocks because they can make money on market movement be it up or down. 3) Diversification is the key to surviving and thriving in the financial markets.

The best strategy right now is to continue to make bi-weekly or monthly deposits into your accounts. This lets you take advantage of dollar cost averaging which means a dollar invested today will buy more than a dollar did a year ago. No one, not your friends, not the talking heads, not your family or other self proclaimed “experts” can predict the market’s future. But you can rest assured, that the US or world economy will not collapse, that at some point in the future the current slump will end and when it does, the market will likely move to a new high before starting the next cycle. Another thing you can bank on is the market will experience two or three or more “the world is ending” scenarios within the next 15 – 20 years. That’s the economy cycle. The current slump is the second one this decade.

You will notice I am using a different letterhead. Although I offer the insurance and mortgage products of Capital Choice and my securities business is offered through CCF Investments, Inc., I am legally independent of both firms. The name of my firm is USA Living, Inc. and I offer my services to Capital Choice and CCF Investments via USA Living, Inc. The change in letterhead and business cards is so I can market my Web site at www.usa-living.com. This is not a change as far as you are concerned and requires no action on your part. CCF Investments is still your broker/dealer of record and I am still the Registered Advisor Representative watching over your portfolio.

If you have friends or relatives who need the services of a professional financial representative please have them contact me. Know that I will provide them with the same high level of service and support I provide to you.

Please feel free to contact me via email at david.snellen@ccfinvestments.com or by telephone at 954-302-3628 to discuss any question you have concerning investments, retirement or estate planning.