Wine(s) of the Month – July

We at Dino’s Blog are now making our wine of the month a regular feature. Here, we will recommend one of our preferred wines so you can add it to your list of favorites. We try many wines to find the best for our friends and clients.

While it is true that wine is considered to be a form of an alternative investment due to its nature of being an asset that appreciates over time, these wines will always be affordable and perfect for celebrating the end of a long work week or any family gathering. Lastly, it must be noted that drinking wine does have its health benefits. Not only does it relax you and help your attitude, it also improves cardiovascular health, prevents cancer, and many other benefits for your wellbeing. So relax and enjoy a glass of wine and this blog.

Ponte Super Tuscan 2005

We discovered this wine on a recent trip to Ponte Family Estates in Temecula. While they had several excellent wines, this was by far our favorite. An excerpt from the May edition of their monthly magazine explains more:

“One of the most well-loved wines at Ponte, Super Tuscan is a fantastic wine to drink year round, with anything from tomato basil bruschetta to roast chicken.

The origin of Super Tuscan dates back to the 1970’s a group of Tuscan winemakers wanted to make a Chianti-style red wine using unconventional methods. They began producing wines composed of Sangiovese and French varietals like Cabernet Sauvignon, and aged them in French oak to create a highly desirable wine. However, since they did not follow Chianti’s winemaking rules, the wines could not be classified higher than table wine. They eventually called these wines Super Tuscans and by the late 1980’s they had gained notoriety as superior Italian wines.

Ponte’s 2005 Super Tuscan is bold and dense with flavors of blackberry and pomegranate followed by oakey vanilla. Enjoy this red with Veal Chops or Shrimp Pasta.”

Mondavi Carneros Pinot 2005

Wine Weekly, which prides itself on its wine reviews, tasting notes, and education for the non-snob, tells us about Mondavi’s Caneros Pinot 2005:

“Open nose filled with forward, ripe raspberry fruit, touch of spice, and hint of earth. Smooth texture on the palate, with slightly green / unripe red berry fruit showing upfront. A good dose of spice and mild sweet earth arrives in the midpalate to even out the flavor, followed by mild tannins and decent acidity that carries the wine through the finish.

Try it with mildly seasoned chicken and pork chops, fish (salmon, trout, snapper), turkey, and vegetarian dishes (lentils and other legumes). Aside from the low-production beauties from esoteric producers, it will be difficult to find a better Pinot Noir at this price point.”

Market Mid-Point Review

The market is hitting its lows again. Don’t worry, stay invested in the right sectors.

This time, high oil prices have scared investors and put a damper on the market. Leading the downturn is the financial sector, which declined over 28% in the first half of the year. This has been a major reason for the 14.44% decrease in the Dow Jones Industrial Average over the same time period, as one in six Dow members is in the financial/insurance sector. Financials have not been the only ones hurt, as autos, housing, and retail are a few more sectors that have been feeling the pain of this market. The good news for us is that we have not liked those sectors and have not been hit like the stock market indices. Moving forward, we feel that there is the possibility of another bank or two, domestic or foreign, to go under. As a result, we recommend waiting to see that before bottom fishing in the financial sector.

With lower interest rates (read How Do Interest Rates Affect You?), we expect the second half of year to be a better environment overall. This assumes that oil will level and/or start to decline. We still like the internet and tech, but be cautious of risky sectors (i.e., financials, retail, autos), as we might have to wait until the fourth quarter for a better market.

There is a great deal of money to be made in this environment, especially with our short term trading strategies. There will surely be plenty of volatility going forward and we will continue to lighten up when the market is overbought and look for bargains when the market is oversold, like we are currently doing.

We are continuing to improve upon our website at www.tellone.com by adding new links and functionality. We always welcome any suggestions or comments.

Enjoy the moment, your friends, and your family while we wait for a better stock market. Have a happy 4^th of July and a relaxing summer.

How Do Interest Rates Affect You?

In an effort to stimulate the economy, we have witnessed the Federal Reserve aggressively reduce interest rates over the past year. The latest rate cut on April 30 lowered the Federal Funds rate to 2.00%, which made for the seventh cut in seven months. However, when the Fed met last week they decided to keep interest rates at this level because the risks to downside economic growth have diminished. So why exactly has the Fed chosen to reduce rates? Has it worked? And how have these rate cuts affected you?

The Federal Reserve acts as the central bank of the United States and its purpose is to create monetary policy. By influencing money and credit conditions in the economy, it works to achieve the nation’s macroeconomic goals. These goals include stable prices, high employment, and maximum stable growth. One tool that the Fed uses to create monetary policy is the federal funds rate, which is the interest rate that banks charge one another for very short-term loans. Since the fed funds rate dictates interest rates for when banks borrow, it also influences the rates at which they lend. This, in turn, affects other short-term interest rates in the economy, economic activity, and the rate of inflation.

Due to the fact that ever-changing market and political conditions, both domestic and international, also play a major role in the economic and financial decisions of businesses and households, it is difficult to pinpoint the direct results of monetary policy actions. However, the Fed’s influence over short-term rates can create conditions conducive to economic growth.

Traditionally, lower interest rates tend to stimulate the economy. For businesses, lower rates make it easier to borrow in order to invest in equipment, inventories, and buildings. These investments make the economy grow at a faster rate as productivity, measured in output per worker, increases faster. On an individual level, reduced rates make it easier for people to borrow in order to buy cars and homes. Such purchases cause additional demand for furniture, appliances, and other consumer products. At the same time, the decrease in interest costs leaves consumers with more of their income to spend on goods and services.

While it is true that there have been many benefits from these changes, individuals have seen their CD and money market yields decline dramatically since the interest rate cuts began. As of June 30, the national average for a one-year CD is 3.28%, and 3.88% going out five years. Given an inflation level of roughly 4% and accompanying illiquidity restraints, these investments have little appeal for most people. For this reason, I believe that low money market fund yields will force individuals to start getting back into the market. Rather than earning next to nothing in a money market, I suggest investing in companies with high current dividend yields and downside protection. A few names to look at include General Electric (current yield of 4.7%) and AT&T (4.9%).

It has been widely speculated that we may not see any rate changes until December. Says William Poole, who retired in March as president of the St. Louis Federal Reserve Bank after a decade on the Fed’s rate-setting committee, “The Fed will want to be as low-key and invisible as possible and that means the Fed will not want to change the funds rate ahead of the election.” Nonetheless, Mr. Poole then added that the Fed will act before the November 4 presidential election if given a “compelling case.”

Volatility Presents Opportunity

Since my last update in which I stated not to panic, the Dow is up 6.62%, the S&P 500 is up 5.30%, and the Nasdaq is up 4.80%.  The market has tested its lows three times and I feel the bottom is in.  According to Standard & Poor’s, volatility in the S&P 500 recently reached a 70-year high, as about half of all trading days this year have lead to changes of at least 1% (+/-) in the index.  Price fluctuations in commodities have also been a trend as of late, with crude oil prices ranging from below $90 to a record $120 a barrel.  The frequency of these significant market moving days has increased since credit concerns became a critical issue in the summer of 2007 and the quarterly earnings season is likely to add to the volatility.  Says one Standard and Poor’s senior index analyst, “with estimates far apart, there are going to be a significant number of surprises out there, which will translate into additional buying and selling opportunities.”

I believe that many investors are panicking about the volatile nature of this market primarily because it was extremely low proceeding the current period.  From about 2004 to 2007, it was rare to see a 1% day and 2% days were non-existent.

History proves that the S&P 500 has returned, on average, just over 10% annually over the past 70 years.  The first quarter of 2008 was a major correction that brought stocks to attractive levels.  Corrections along the way are expected.  The good news is that our short-term trading is paying off big time with the current market environment.  I know it’s no fun watching your money fluctuate, but I feel that the market going forward will be much better and still give us enough volatility for our short term trading.   

My advice remains the same: Position your portfolio for long-term success by buying on dips.  As I stated in my December blog, dollar cost averaging is the way to add to your portfolio.  This means buying stocks at different times, so as to limit exposure to risk from a single large investment.  Additionally, for portfolios with few holdings I recommend checking out single sector Exchange Traded Funds or ProShares leveraged funds.  These equities allow you to purchase a bundle of companies, which provides for increased diversification and minimizes your risk from owning a losing stock.  Rate cuts often take a while to make an impact, but with the Fed lowering rates to 2.25%, I feel the market should have a very profitable second half.  I have been hearing from my clients that the real estate market could be hitting a bottom and that buying and selling is on the increase.

Now that tax season is over, I hope to have my next blog out within a few weeks.  Happy spring time and I see calmer waters for the markets after a major storm in the first quarter.  In the meantime, check out my wine of the month and let me know what you think. 

 

Don’t Panic

Only fourteen trading days into the new year, the stock market has seen more than its fair share of disappointment. With multiple triple-digit loss days, the Dow is down 9.75% year to date. Similarly, the S&P 500 has lost 10.75% of its value and the Nasdaq composite has plummeted 13.57%.

Weakness in the market has been caused by the threat of key bond and mortgage insurers going under and a general fear of impending recession. These fears have been brought about by a multitude of economic indicators, including a 0.3% increase in unemployment, disappointing home sales, poor 2007 retail sales, a decline in manufacturing activity. Meanwhile, the Labor Department has announced that consumer prices rose by 4.1% in 2007, a seventeen year peak.

Although the current storm is worse than anybody thought a month ago, I believe that the stock market is making its lows and is in the bottoming process. Overselling has been the recent theme due to redemptions by mutual funds and hedge funds, causing good stocks to come down with the bad. While the past three weeks have been harsh, the market has been hitting stocks without prejudice, thus presenting us with an unbelievable opportunity to buy stocks at bargain prices. The market is having what I like to call a Nordstrom sale. Stocks are cheap. The price-to-earnings ratio, a common measure of valuation, of the S&P 500 index currently sits at 13, below its historical average of 15. There’s another measure showing stocks to be cheap. The forward earnings yield on the S&P 500 is over 7%, twice the 3.6% yield on the 10-year Treasury note. This kind of disparity never lasts long.

I feel that persistent problems in the housing and credit markets will continue to cause volatility in the equity markets. However, those with long-term investment outlooks should use this period of market weakness to upgrade their portfolios and build positions in high-quality companies with outstanding corporate balance sheets, strong free cash flow, and excellent prospects for growth in the global economy.

We have recently seen foreign money taking advantage of these bargains by buying portions of semiconductor stocks and distressed banks. Even banks from Japan, who have first-hand experience in financial disaster, feel that the potential reward outweighs the risk. Of course, those who insist on buying into beaten-down sectors must be patient and have a long-term investing horizon if they are to make money.

In our last update we said to start buying back into the market on dips. That was when the Dow was at 12,700. The dips have been painful and deep, but it has been a great buying opportunity. With the market oversold, financial sub-prime debacle exposure known, and positive company earnings being reported, we see February being a good month for stocks. Furthermore, we witnessed the Fed lower interest rates today by a dramatic 75 basis points and we expect another rate cut to follow in the upcoming weeks. These factors will create a solid base for the market and act as a catalyst for a good uptrend for the rest of the year. In the meantime, we have been taking advantage of the volatility and stepping up our intraday trading to enhance our client’s yields.

The bottom line: Don’t panic. This stock market collapse will soon be a part of the past. Do not let fear overwhelm you because these opportunities do not come about often and you are going to want to be part of the recovery as much as possible.

What Separates Tellone Financial Services From The Rest?

While I was home the other night enjoying the holidays, having dinner and a glass of Banfi Brunello di Montalcino with my family, I was reflecting on everything for which I am grateful to God. In my personal life, I am blessed with two great kids, ages nineteen and sixteen, and my perfect, beautiful wife. Additionally, I am very grateful that I am still able to run for over an hour four times a week. On a professional level, I am thankful for the ability to utilize my investment knowledge and make a positive impact on the lives of others. This year has been no exception. It seems that lately, the company has been getting a new account almost daily. So I started thinking… what exactly has made us successful and what separates Tellone Financial Services from other financial and investment advisors?

First and foremost, Tellone Financial Services provides Wealth Management. This means that we actively maximize overall net-worth by integrating tax, estate, and investment strategies into a comprehensive wealth-building program. The bottom line is that we want all of our clients to retire wealthy. So we work hard to make your money grow, so you can do what you do best.

Our strategy for investing involves the use of several outstanding resources for thorough research and innovative ideas. This allows us to continuously evaluate mutual funds and securities in order to pick the absolute best for our clients. It is this dynamic investment management that allows us to respond quickly to the ever-changing nature of the market. In addition, the benefits of our intraday trading strategy can be seen on a daily basis. This method of safe and short-term investing locks in profits for individuals regardless of the state of the economy, which has been increasingly valuable during the past months of extreme market volatility. We have found that we are one of the few firms that provide this added value.

Another reason why I believe that the company has been doing so well is due to our alliance with Charles Schwab investment firm. This partnership allows us to provide our services with low commissions and extremely competitive management fees.

Most importantly though, I feel that what differentiates us the most is our commitment to exceptional personal service. This is ongoing because of our history of long-term employment relations and virtually nonexistent turnover. We are a fine tuned company with nine full-time employees and we pride ourselves on the ability to offer a familiar voice every time you call and the reliability that comes with that. We feel our clients are our friends; at Tellone Financial Services you are not just a number as other investment firms have been known to treat clients. We are here to help with all your financial concerns.

I would now like to update you on what we have been up to in the past month. Our last “What’s Hot” update (located under News and Resources) mentioned that we would dollar average back into the market and this strategy is paying off. So where do we go from here? I continue to like the techs. Last week, Oracle (ORCL) and Research In Motion (RIMM) had great earnings. This eased the fear that the housing slowdown would affect the growth in the tech stocks. I like Apple (AAPL) and Microsoft (MSFT) going into year end and the fourth quarter earnings season. I feel that the sub-prime exposure will settle down, with visibility in February setting up a good year for stocks.

Additionally, I have been focusing on evaluating both individual and fund investment portfolios. The end of the year provides an excellent opportunity to do this because the selling of holdings that will generate losses works to minimize capital-gains income for those that have net profits from the sale of stocks or other capital assets. For our investment clients, we have been actively taking long-term capital losses on fixed income securities that were hit with the credit crunch. For those managing their own portfolios, remember that you can take losses that exceed the gains by up to $3000. Keep in mind though, if you sell a stock at a loss and buy it again within 30 days, it is a “wash sell” and does not count for the loss.

With the year coming to an end, do not forget to do your necessary tax planning. I guarantee that time spent reviewing your tax situation now will pay dividends in the near future. For a more detailed article on the subject, please check out http://www.tellone.com/tellone_financial_articles.html and read the “2007 Year-End Tax Planning” article. This article provides a brief rundown of tax strategies and new opportunities for 2007. Please feel free to contact us if you have any questions, or if we can be of service to you.

In closing, each and every one of us at Tellone Financial Services wishes you a safe and happy holiday season. We are looking forward to enhancing your wealth in the New Year.

Inaugural edition of Dino’s Blog!

Welcome to the inaugural edition of Dino’s Blog! At Tellone Financial Services, we are happy to announce this blog as a new forum of communication to keep you updated on recent market trends, economic forecasts, stock tips, and most importantly, how all of this impacts you. Above all else, we hope to use this as a means to increase dialogue between the Tellone Financial family and yours.

First, I would like thank all of our clients for allowing us to help you achieve your financial goals. Thirty two years ago I knew that maximizing our clients return on investment and minimizing the taxes they pay excited my interest. To me it is not work, it is fun. That is why we enjoy continuing to be the best in providing you these services. My staff and I continue to find it personally rewarding to know that our work allows for people to retire securely, walk away from college without the burden of debt, or provide for future generations of loved ones. We want to continue to be your financial partner so you can do what you do best while knowing we are working hard so you don’t have to worry about your finances.

So what does the economic horizon look like? We are now updating our article on “What’s Hot” as the market hits its lows.

The Federal Reserve recently announced quarter-point interest rate cuts for both the federal funds rate and the discount rate, bringing them to 4.5% and 5%, respectively. These moves will allow both individuals and businesses to borrow more cheaply. More importantly, it shows that the Fed is committed to ensuring economic activity and doing its part to stave off recession. This decision comes at a time when oil prices are pushing new heights and the dollar is reaching all-time lows, which means a recession is still a definite possibility. In fact, most economists are forecasting a 50/50 chance of recession within the next 12 months. Nevertheless, consumer spending and exports showed surprising strength as the United States economy grew at a surprising rate of 3.9% in the third quarter, the fastest rate since the beginning of 2006.

We remain hopeful that the Fed’s rate cuts will be enough to deal with the weakening economy; however, the real estate downturn, the sub-prime mess, inflationary pressures in food and raw materials, a falling US dollar, and $94 plus crude oil are some of the reasons to be concerned.

Due to our exceptional early October investment returns, we had been taking profits from the highs and were cautious in our investment attitude until the markets became more fairly valued, thus saving our clients a great deal of money. Now, as we stated in our late November “What’s Hot” update, we are acquiring positions during market dips in sectors we feel will fair well, such as energy, materials, and technology.

We also expect to see persistent high levels of market volatility, which plays well into our intraday trading strategy where we trade the market ranges to generate profits. The last couple of months we used newly formed ETFs that take advantage of strongly performing indices to hedge our portfolios.

During this time of low interest rates and declining money market and CD yields, it is becoming evermore important to look for winners in the stock market. We are committed to maintaining excellent returns through superior investments. As always, we will continue to keep you updated on your performance through quarterly letters and reports, monthly fund reports, and of course, more blogs.

Our goal is to continue to increase your wealth. If you like to get email updates regularly, please email Derek Pantele at dpantele@tellone.com with the email address you want us to use and we will send you any updates immediately. Also, if you have a question or a specific area you would like to hear about, please email your request.