November 22, 2005

Year-End Financial Planning

After several years in which small company stocks have outperformed large capitalization stocks, big stocks are beginning to do better, especially among growth stocks.

We are taking profits in small stocks and considering purchase of large-cap growth stocks.

We are at work on financial planning projects, as we often are, for a number of clients. As we bring analyses up to date that we prepared in earlier years for clients, we are reminded that some people’s financial circumstances change markedly over time. It is almost always the case that one benefits from an analysis of one’s financial position--with a plan, one can make informed decisions about savings for retirement, about reasonable levels of spending in relation to one’s investment capital, and the like.

If one has sold real estate or other property that has appreciated in value, what should be done with the sale proceeds? How should one save for children’s (or grandchildren’s) education? How much can one afford to fund one’s charitable or political interests? Our clients present these questions and others; we provide a reasoned basis to arrive at sensible answers.

Core has prepared financial plans for a large number of clients over the years and we are ready to work with you, either in updating work we did in the past for you, or in preparing a new analysis. The best starting point for us to develop the right investment strategy for a person is to understand that person’s needs and goals. We suggest that you consider whether we should look with you again (or for a first time) at your overall financial situation. We would be happy to discuss with you how we can help. Please call (800 451 2240 or 415 332 2000) or send an email to me ( if you wish to discuss this.

A New Fed Chairman

John N. Mayberry

Ben Bernanke’s appointment to lead the Federal Reserve Board will likely be approved by the Senate soon. In January 2003, I wrote a report about a speech that Bernanke, then a recently-appointed Fed governor, gave about deflation and the actions the Fed would take to prevent its occurrence. (You may see this letter on Core’s website at Because of a light-hearted, figurative reference in that speech to the Fed’s ability to print dollars and to drop them from airplanes to prevent deflation, some wags refer to Bernanke as “Helicopter Ben” and wonder whether he will be vigilant against inflation. Time will tell.

We have reduced positions in foreign bonds, and added to foreign stocks. Most foreign stock markets are cheaper than the US markets.

In the last eighteen months, the Fed has raised the Federal Funds rate by 0.25% at each of its meetings. Fed funds now stand at 4%, having been raised from 1% since June 2004. The Fed’s announcements make it nearly certain that at least two more quarter-point increases lie ahead. Given the change in leadership and Bernanke’s stated intent to show continuity with Greenspan’s era, more increases may follow. It seems likely to me that the Fed will raise rates for another six months or more, barring a serious financial crisis or a marked slowing of economic growth.

The Financial Markets. Since my letter at the beginning of October, the markets have changed tone. Oil and gas prices have settled back from the somewhat hysterical levels reached after the hurricanes; the fear of further increases has subsided. Some of the stronger investment sectors in the summer turned weaker, including utilities, energy stocks, and commodities. The dollar has risen against other currencies. After a sharp sell off as October began, the broad stock market has rallied well in the last several weeks; further gains seem likely.

Please contact us if you wish to discuss your overall financial picture. Please call at 800 451 2240 or 415 332 2000. You may email me at

Energy stocks and oil and gasoline prices have fallen back to levels that prevailed before Katrina. Unusually warm weather in the northeast this autumn has helped keep prices below recent highs. Unfortunately, the underlying constraints on supply of oil and petroleum products give these markets a very narrow margin between demand and supply. Modest interruptions in supply and/or increases in demand will send prices higher once again. We have generally maintained our fairly large investments in the energy sector and commodities.

We have reduced our foreign bond positions markedly in recent weeks, as the dollar has continued to be strong against the euro and the yen. Currency markets have attended more closely to higher interest rates in America than to America’s ever-rising debt with the rest of the world. We have generally invested the proceeds of our foreign bond sales in foreign stock markets, where prospects are favorable. We are beginning to make investments in an exchange-traded fund that holds biotech stocks. The more productive pharmaceutical research seems to be happening in these stocks, rather than the huge companies. They will probably grow rapidly in future years.