United Bank & Trust Blog

Gary Haapala

I remember the day when the 11:00 p.m. evening news and the daily newspaper (printed version) were my primary sources of current news and information. An hour in the morning and an hour in the evening and I could get a real good feel for the information to keep me up to date and relevant. It was also a time when it was clear what was “news” and what was “entertainment”. Those days are gone. Social networking, reality TV, PDAs, 24-hour cable “news” stations, satellite radio talk shows, and of course the internet keep us connected by the second. The line between news and entertainment has become overwhelming and hard to decipher. How do you keep informed and do you know if it is credible? This is an important question to consider when evaluating your investment portfolio.

As we have blogged throughout this year, we expect the financial markets to be volatile for the balance of the year and the foreseeable future. The financial markets are influenced by a variety of things such as; accounting data, facts, rumors, expectations, predictions, forecast, new products and services, government regulation, etc… The explosion of information and the instant availability has contributed to the volatility of the market.

Even with abundance of information – and mis-information available today, it is even more important than ever to find a trusted resource to keep you informed. It is also necessary to maintain a keen awareness of the fundamental aspects of the market. While the list continues to grow with the globalization of the economic world, I suggest you focus on inflation, the labor markets (unemployment) and consumer behavior (consumer confidence and spending). Following are links to two pieces, from LPL Financial – one of United’s trusted resources – to give some insight on these areas.

• July 12 Weekly Market Commentary: Earning Seasons Preview
• July 12 Weekly Economic Commentary: Mid-July Fireworks

The amount and speed of information is overwhelming, we can help you navigate towards your financial goal. Our financial advisors are professionals, with years of experience and are highly credentialed with focused expertise. We will be conducting a webinar on August 18, 2010 and will provide an update on the economic and financial markets. Please join us by registering for the event at www.ubat.com.

David Blough

Since late April, stock markets around the world have declined by 10-15% from their 2010 highs. The Dow Jones Industrial Average reached 11,200 just four weeks ago and today is back to 10,000. European and even Asia stock markets have seen even larger percentage declines. What’s it about and what does it mean?

The catalyst for this significant correction in stock prices after a nearly 14 month recovery from the 2008 bear market is Europe. Just six months ago the Euro was riding high, costing $1.50 to purchase, today it has depreciated to the $1.20 -$1.25 range. Greece and its bloated national debt and ongoing high government deficits compared to the size of it GDP has been the focal point. While Greece is a small player in the European Economic Union (ECU), the markets are worried that other larger European countries (Spain in particular) have large deficits as well. Since European banks hold significant amounts of the government bonds of Greece, Spain, Portugal and Ireland, the fear is that a default by one or more would seriously weaken banks in Europe and could lead to another credit freeze.

Europe has responded, putting together with the IMF a war-chest of 650 billion Euros (over $900 billion) to provide loans as needed to the Greek government and other European countries, should they need financing. Greece and the other weak sisters of Southern Europe have made pledges to quickly address the unsustainable spending gaps between tax revenues and spending levels. As governments move toward austerity, it will likely reduce the levels of economic growth across Europe. While the U.S. economy is expected to grow by 3% or more in 2010 and 2011 according to consensus forecasts, Europe may only be able to grow by 1 – 2% over the next couple of years. Meanwhile Asian economies are growing by 6% or more led by China and India.

We believe the European financial turmoil can be contained in Europe and that eventually fears should begin to dissipate. The U.S stock market has corrected by more than 10% and looks somewhat undervalued at 10,000. We think high quality U.S. stocks are attractive at this time. Asian and emerging country stocks likewise look attractive after a more than 15% pullback and strong underlying economies. We continue to under-weight Europe and over-weight Asia and emerging countries like Brazil, in our international investing strategy.

If you are concerned about how this recent volatility is affectiving your portfolio, please give us a call.

Gary Haapala

As a child I loved roller coaster rides. The anticipation would begin on the way to the amusement park. We were impatiently waiting in the back seat of the car because the line to pay for parking always seemed like it was miles long. My brothers and I would try not to run through the parking lot at the same time trying to getting our parents to move faster so we could get to the gate and be free. Then, we would break into a full sprint to the roller coaster line. The anticipation was almost as much fun as the ride. Not really. We knew what was coming; speed, thrills, and maybe some danger (there were always stories about a roller coaster flying off the tracks). And 90 seconds later, it was over. Then we would move as fast as we could to get back in line to do it again. We could not get enough.

As an adult – not so much – I can barely stand the sight of watching my children ride the roller coaster from the safety of a bench under a tree with my feet firmly on the ground. I now enjoy a whole new experience at the park (yes, I removed amusement). Now, it is all about being with – and enjoying – my family. Things like; being entertained by shows, fellowshipping over a meal, playing games to win a teddy bear, and a refreshing tube ride in the water park’s meandering river. This is a much more predictable outcome resulting in a completely enjoyable and lasting experience.

Does the volatility in the stock market and your investment portfolio feel like a roller coaster ride? On March 9, 2009 the Dow Jones Industrial Average closed at 6,547 from a frightening ride down during 2008. As of April 21, 2010, it closed at 11,125 a 70% increase, or exhilarating ride up since then. It doesn’t have to feel like a roller coaster ride; you might have once enjoyed the ride by being an aggressive growth investor but maybe it is time to enjoy the experience by getting a deeper understanding for your tolerance for risk.

One way to achieve this is by building a moderate growth investment portfolio. This could be a portfolio that invests in stock and bond mutual funds that are diversified across multiple asset classes and investment styles. By utilizing mutual funds you have the ability to further diversify your risk. Investment outcomes are not predictable, but understanding your risk tolerance and using diversification as a tool will make the ride an enjoyable experience. If you would like help, contact us and one of our financial advisors will strive to help you achieve your goals.

Gary Haapala

It is that time of year, are you ready for a gut check? If you are like most, the hope of sustaining the New Year resolutions has come and gone. Take me for example, I have had some mild success eating healthy and exercising regularly during January and part of February, so it is time to reward myself and head back to the snack food and cheeseburgers. Unfortunately, 45 days of discipline will not cover the rest of the year. Let’s not let our short term success cloud our ability to achieve the goal we set in the first place. The same thing holds true for our investments.

The short term success of the stock market has been impressive, the S&P 500 up over 50%+ from year ago levels. So the trap has been set. Are you prepared to remain disciplined, focused on your long term goal? As I have suggested in the past, this will be a year of volatility for the market. Here is why.

1. Americans are grappling with weak job growth and little to no income growth for the past several years.
2. While at the same time trying to repair their personal net worth.
3. This is keeping a lid on consumer confidence.
4. In turn, spurring people to spend less and save more.
5. This directly impacts our economic engine because we are a consumer driven economy, which takes us back to number 1.

The good news is we continue to see economic indicators heading in the right direction — but volatility will continue. Now is the time to remain disciplined regarding your investment program. Remember your New Year resolution? Don’t forget what 2008/2009 was like. The key is to stick to a proven investment program.

Our investment professionals will be conducting the 2nd of our 4 part educational series regarding market conditions and investment strategies on May 19, 2010, through a webcast event. Register today at www.ubat.com.

Gary Haapala

We start every year with a renewed hope and optimism and a list of New Year resolutions.  Here is part of my list.

1. Eat more vegetables
2. Exercise 5 times a week
3. Volunteer once a month

This list probably looks pretty familiar. Take a look around, more people are bringing their lunch filled with healthy food, and the gym and your church are packed full of people. Then BAM something happens. A bump in the road, like a Super Bowl party and healthy eating goes out the window. I am tired today and it is cold this morning, so I am just going to skip today’s workout. No worries, it’s just once, right? Unfortunately, it tends to be a slippery slope especially if I am trying to follow a new fad. Proven programs and discipline is the key.

This holds true for your financial resolution too. The financial fad today is “market timing.” Get in the stock market when it is low and get out just before it is going down. If you follow this program you will avoid ever having to see your investment portfolio lose value – or so they say. Then BAM something unexpected happens. Like the week ending January 22^nd, the market drops over 5% in four days. I wonder how many “market timers” accurately predicated, and acted, before that happened. I submit not very many, probably none.

I suggest you stick to a proven financial program. One based on understanding your goal, time horizon, tolerance for risk, and diversification. I hear you, this program and discipline is boring and the fad is new and exciting. Just take a moment and take a look at your New Year resolutions. Where are you getting the consistent quality results?

Gary Haapala

Times have changed, and our ability to adapt to our circumstances has been proven — again. As consumers, we have reduced our thirst for consumption, and this is evident in two key areas. First, personal debt levels have been reduced – not all by choice – but we have taken our medicine and have begun the financial rebuilding process. Secondly, savings rates have increased dramatically. According the Bureau of Economic Analysis (www.bea.gov) the savings rate peaked at 6 percent in May, and remained above 3 percent for the past six months, compared to near zero to negative savings rates of the past few years.

The past two years has clarified our understanding of risk. We now have a clearer view of the possibility of job loss, market volatility (the stock markets go up AND down), and the value of our home can decrease so we shouldn’t use it as a checkbook. This created an environment of fear and general lack of confidence in the financial system. So what should we do now with our savings?

Here is a four-step process to help answer the question. You should implement this strategy in order.

Step 1: Build a necessity fund. You should consider this to be your emergency fund. Stuff happens. You need to have resources ready and available to handle the unexpected. Open an FDIC insured savings account and build it up to a balance that equals six to nine months to cover absolute necessities (rent, utilities, food, transportation, etc.). The key here is safety, so you will not get the greatest return on your money, but you know it will be there when you need it. Only use it in an emergency, and then replenish it.

Step 2: Build a sleep-at-night fund. The next step is to build an account to cover your living expenses. I suggest you consider certificates of deposits or a money market account. This account should have a balance that equals another six to nine months to cover your lifestyle expenses, in addition to your necessity fund. The key here is to remain conservative so you can sleep at night knowing that your necessities and living expenses are covered for the next 12 to 18 months. Use this fund to fill gaps in temporary changes in lifestyle, and then replenish it.

Step 3: Build a feel-good fund. Most people need an accountability partner to build a long-term investment portfolio, 401(k), IRA, or trust account. This partner can be a spouse, parent, friend, or financial advisor. The key is to work with someone who can remove the emotion out of the decision-making process, and can ensure that a disciplined process is followed. This person should be able to objectively help you to identify your goals, understand your tolerance for risk, agree on an asset allocation approach, and ensure a diversified selection of investments for your portfolio. Use this fund to execute against your long-term goal.  For example, your goal might be to retire by age 60, and this fund would be your income source for retirement.

Step 4: Build an extracurricular fund. All too often this is where we begin, the play money fund. I don’t think I need to explain this fund, we all already understand it. Remember money is a tool. We need to use the appropriate tool to accomplish our goal.

Times will change — again —and we will be tempted to forget the past and become thirsty consumers. It can be much different if you take care of steps one through three first.

Dave Blough

Gloom, doom and despair – it seems like that’s all we’ve heard about the economy since the middle of 2008. So what will we hear next?

The housing mess will probably stay with us for a while, but it looks like foreclosures are beginning to stabilize and home prices should bottom out in early 2010. The economy is still weak, but there is a sense now that the worst is behind us. And while unemployment is still high, there is hope that the job market will begin to turn around.

While consumer spending will continue to suffer along with the job market, there are some bright spots. Credit card balances are currently being paid down instead of expanded, and people are beginning to save again. Inventories of manufactured goods are being reduced so future sales should increase factory orders, leading to a leveling off of domestic product declines. The economy is expected to grow a respectable 2% in 2010, and the stock market, which typically looks 6 – 12 months ahead, sees this as setting the stage for stock advances in the months ahead.

As an investment officer, I’m optimistic. And I hope at least a little of what I’ve said will make you more so. For more information about investing for your future, go to https://www.ubat.com/investmentsolutions/investmentsolutions.aspx.