Good afternoon to all.

This communication is intended to add value to your life by helping you separate the real news from the white noise, understand the critical economic events that you read about every day and outlining  alternative investments which might be advantageous to you in these times.  We send this weekly e-mail to both clients as well as individuals we hope become future clients.  Thus, to my valued clients, since we use many alternative investments in your portfolio currently, some of the e-mails might discuss assets that you already understand.  It never hurts to review your knowledge of those investments.

Please feel free to forward these e-mails to any friends you have who you believe will benefit from learning more about finances and investments.

It appears the stock market gave us a good old head fake.  It appeared a bottom had been set at the 900 mark for the S&P 500 on Friday, October 10.  The action on Wednesday, October 15 indicated a short-term bottom had been set when on a very bad day we closed above the low set on October 15.  Following is a chart of that bottom:

 

If this bottom does not hold, there is a good chance we test the 800 mark for the S&P 500.  To state the obvious, we really need the current low of approximately 880 to hold. 

Even though the market is falling back into its negative behavior, leadership appears to be developing in several sectors while two main areas are showing weakness beyond the overall market declines.  Identifying leadership and weakness not only in the market as a whole but also in sectors/industries is extremely important.  You will see me making some additional moves in the stocks we own over the next several days.

As I said last week, we cannot let panic paralyze us.  If you are very conservative and just do not trust stocks, you still need inflation protection on your portfolio long-term.  The two main inflation hedges historically have been stocks and real estate.  Obviously past performance does not guarantee future performance.  With that being said, we know CDs and bonds held to maturity are not good strategies to combat inflation long-term.  So what do we do?

Following are two CDs that allow market participation to the upside but principal protection provided by FDIC insurance.

The first is a six year CD tied to Berkshire Hathaway stock, which is the company lead by Warren Buffett.  Depositors in this CD will receive 100% participation in the annual averaged return of equity shares of Berkshire Hathaway Inc. (Ticker: BRK/A), subject to the call option. The CD is callable annually beginning year 3 to year 5.  The CD is callable in years 3, 4, and 5, at a rate of principal multiplied by 130%, 140%, and 150%, respectively.  For example, if one invests $10,000 in the CD, it is callable at $14,000 in year 4.  If it is not called and held to maturity, you will receive the greater of your original investment or your principal multiplied by the percentage return of Berkshire Hathaway stock, with no cap.

Another CD, also FDIC insured, works the in the same manner as above but it is tied to 10 different stocks rather than one and is only 5 years to maturity.  The FDIC insured CD is tied to Sony (SNE), Wal-mart (WMT), PetroBras (PBR), Valero (VLO), Monsanto (MON), Amgen (AMGN), Research in Motion (RIMM), FedEx (FDX), JP Morgan (JPM), and IBM (IBM).  It pays a coupon (interest) up to a 15% cap based on the average performance of the above mentioned stocks.  Again, if held to maturity you will receive your principal back.

These are just a couple non traditional investments out there for those paralyzed by fear.  With CDs paying so low, these may be an attractive alternative to many of you.    You get the inflation hedge provided by stocks, but the downside protection provided by FDIC insurance.  This is most suitable to investors willing to give up some upside for downside protection.  These are not liquid (not unlike other CDs) and should be invested in with the expectation of holding them until maturity.  Please contact me to receive a prospectus, which provides additional information including the risks, of these products.