Laura H. Stover Financial Group LLC

Just recently, the Obama administration rejected the application to build the Keystone XL pipeline, which would stretch 1,700 miles from Canada to the U.S. Gulf Coast. It’s been and looks to continue to be a hot issue, not just for the sake of oil production, but for American jobs as well.

While jobs remain the most significant economic albatross in this country, they probably shouldn’t be the foremost reason for building a cross-country pipeline. But it seems all interested parties have a different agenda. Environmentalists say tar-sands oil production creates more pollution than traditional oil production. Politicians are using the issue as an election-year lightning rod to advance a heated debate over jobs and the environment. The administration says they didn’t have enough time to get all the facts.

[CLICK HERE to read and/or listen to “Rejected Pipeline Becomes Hot-Button Election Issue;” www.npr.org, January 19, 2012.]

But the issue promises to continue, because the production of oil and energy is a mainstay challenge in this country – and all over the world, for that matter. Energy – particularly sustainable energy – is one of the most global issues of the day. After all, there are finite resources on our planet that must be shared by all of its inhabitants.

In recognition of the growing importance of energy resources, the United Nations has dubbed 2012 the “International Year of Sustainable Energy for All.” UN Secretary-General Ban Ki-moon observed at the recent World Future Energy Summit that, “energy is central to everything, from powering economies to combating climate change to underpinning global security.” Stated goals include doubling the rate of improvement in energy efficiency and doubling the share of renewable energy in the global energy mix by 2030.

Interestingly, Nicaragua is committed to reducing its dependence on foreign oil from 80% to 6% within a decade, and wants to become an international leader in renewable technologies by 2016.

[CLICK HERE to read “UN urges achieving sustainable energy for all as International Year kicks off” at un.org; January 16, 2012.]

[CLICK HERE to read “Nicaragua’s Renewable Energy Revolution Underway;” DigitalJournal.com, January 20, 2012.]

Investment Opportunities

When an issue this large focuses global attention, it generally means there’s an opportunity to make money. Not just for self-serving corporations and governments, but for investors as well. Fidelity recently published viewpoints on opportunities within the energy sector, noting that energy stocks tend to perform best at mid and late stages of an economic cycle. It cites three themes for energy prospects in the coming future: (1) the emergence of more productive new drilling techniques; (2) the growth of the liquid natural gas market; and (3) a renaissance in deepwater exploration.

The positive impact of energy innovation is far-reaching, encompassing a cross section of industries, sectors and countries. This smorgasbord of investment opportunities includes energy producers, manufacturers, transportation companies, engineering, construction, technology, Canada, Argentina, and Eastern Europe, among others.

[CLICK HERE to read “Big energy ideas for 2012;” Fidelity.com, December 12, 2011.]

In consideration of increasing global demand for energy commodities and services, let’s take a look at your portfolio to see if a pent-up energy allocation at this stage of the market cycle would align with your risk tolerance and investment goals for the future. Feel free to contact us to discuss further.

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*This information is not intended to provide actual investment advice. It is important that your unique situation, goals and objectives be evaluated before such advice can be offered. Please seek a professional specializing in these areas regarding the applicability of this information to your situation.

“Ben S. Bernanke laid the groundwork for a third round of large-scale asset purchases should unemployment remain higher than the Federal Reserve would like while inflation falls below a newly-established target.”

[…]“Policy makers set a long-term goal of 2 percent inflation, and forecast that price increases would fall short of that target this year and next. The personal consumption expenditures price climbed 2.5 percent for the 12 months ending in November.”

Read The Full Story Here <link http://www.bloomberg.com/news/2012-01-26/bernanke-makes-case-for-further-asset-purchases-as-fed-sets-inflation-goal.html

It’s important to note that the long term goal of inflation is now calculated using Personal Consumption Expenditures or PCE which is designed to measure the average increase in price for all domestic personal consumption. Prior to 2000 this calculation was made using the Consumer Price Index or CPI.

One of the main differences between these models is that the PCE takes into account a consumer’s change in preference based on price, whereas the CPI measures the change in price for a set basket of goods. For example: A consumer normally buys apples at the market for $2.50 per pound. If this price were to go up to $3.50 per pound a consumer may instead buy oranges for $2.25 per pound. The PCE would measure this change as a 10% reduction in the overall cost of consumption- apples to oranges. For the apples to apples comparison we would want to use the CPI which would measure this change as a 40% increase in the price of consumption.

Since 2002 the CPI reports just over a 25% increase in the price of consumption. (US Department of Labor http://1.usa.gov/276heh)  That means according to the Consumer Price Index, your dollar from 2002 only buys 75 cents worth of goods in 2012. With a government goal of 2% annual inflation, the question becomes:

Is your retirement income structured to keep up?

“Nearly a year after the SEC delivered a report to Congress recommending a universal fiduciary duty for retail investment advice, the agency has yet to propose a rule – and the road to that point soon may lengthen further. ”

Broker. Schoeff Jr, Mark. http://www.investmentnews.com/article/20120113/FREE/120119957

What does this mean to you?

Let’s say that you need a large cap mutual fund as part of your portfolio.  “Brokers, who are often glorified salespeople,” (Forbes.com) can use any large cap fund, and you can bet they’ll be searching for the one with the highest commission or one from a mutual fund company that paid the firm millions of dollars to be put on their “preferred” list.  The Wall Street firm will be focusing on which large cap fund is best for them.

A fiduciary, on the other hand, would compare all large cap funds out there to find the one that would represent a “best fit” for you.  They are focused on the fund that is best for you.

So what do you want?  Do you want your advisor looking for investments that are best for them?  Or best for you?  Wall Street, by their actions, has clearly voted where they stand.  The question is – will you continue to put up with it?

The recession that “officially” lasted from December of 2007 through June of 2009 has been dubbed the Great Recession¹. Many believe it was labeled appropriately this way due to its eerie similarities to one of the worst economic times our country has ever dealt with, the Great Depression. After all, the unbelievably high unemployment rates that continue to be a drag on our “recovering” economy surpass any other episode the United States has dealt with since the Great Depression². It might also be the collapse of housing prices and the large scale number of foreclosures, two factors that exceed all other records since the Great Depression.

However blatant those factors are, I believe another factor is driving the lagging recovery: the general public’s confidence. According to TradingEconomics.com’s national statistical data for the U.S. in January 2001 and 2012, the consumer confidence index has fallen from approximately 145 points (it’s high in January 2001) to around 65 points (the measure we sit at in January 2012)³. That fall represents an approximate 55% drop over the last 11 years.

Considering that three of the main factors that drive the U.S. economy are consumer spending, unemployment and the housing market⁴, you can see why things haven’t really turned around for our country yet. The so-called recovery that we are experiencing is now more than 2 years old. So, I beg to ask the question: What proof have you seen that points to a true recovery? I read a recent article on Forbes.com that provided a nice analogy of the current situation we face. It went something like this:

People tend to think our country has an illness similar to the flu. We will be sick for a few days, and then we will recover and get better. However, we have something more like diabetes and severe obesity. This type of problem isn’t easily fixed, nor quickly fixed. We are going to have to manage our health for a decade or more before we might show signs of being healthy again.⁵

Many economists describe this recovery period as a “decade or more of long-term, low average growth.”⁶ Two years into this recovery, consumer confidence is still low. The housing market suffers from a lack of confidence from all parties (buyers, sellers, and lenders). The unemployment rate may be the largest indicator of a lack of progress.

Some of the smartest minds in the country believe that we are in for a lengthy recovery unlike anything we have seen before ⁷. In the new economy, many believe a 4-5% average return could be the new normal for stocks.⁸

Often times, investors who focus on rate of return and timing the market get burned, not only in a recessionary time, but also when times are good. Instead of focusing on investments that might make the most money, you should be focusing on products that will keep the money you need to live off of in retirement protected. This portion of your nest egg should guarantee an income that you can rely on year in and year out.

“Great Recession, The.” Isidore, Chris. CNNMoney. March 25, 2009. WEBhttp://money.cnn.com/2009/03/25/news/economy/depression_comparisons/ ^1,2

“United States – National Statistical Data.” Trading Economics. 2012-01-09 02:30:49 WEBhttp://www.tradingeconomics.com/united-states/indicators ³

“Understanding Economic Statistics.” SIFMA. Accessed 1/9/2012. WEBhttp://www.investinginbonds.com/learnmore.asp?catid=3&id=361 ⁴

“Retirement Guru Blog.” W.A.Smith Financial Group. WEB http://www.wasmithfinancial.com/blog.php ^{5 6}

“How is This Economic Recovery Unlike the Rest?” Freakonomics. July 6, 2011. WEBhttp://www.freakonomics.com/2011/07/06/how-is-this-economic-recovery-unlike-the-rest/ ⁷

“’New Normal’ Argues for Investor Caution.” Shell, Adam. USA Today. August 16, 2010. ⁸

“So acute are the risks that few economists are now willing to bet heavily against another global recession in 2012. By common consent, the world economic outlook is much darker today than it appeared in the early autumn. 

The eurozone crisis has worsened with contagion spreading through Italy and Spain and now lapping at the door of France. Recoveries remain feeble in other advanced economies. And emerging markets are beginning to feel the pressure.” -*From Chris Giles of the Financial Times. 13 Dec, 2011. “Most Economists Expect Another Global Recession”. 

This isn’t the first time an issue in the global economy has influenced our markets here at home. A constantly shifting global dynamic affects the performance of our markets, and draws into question the ability of every American to achieve stability and consistency when planning for their future. What does the stock market really earn over time? You’ve probably heard the old adage that the market averages a 10% return over time, but does it? Does it really? I decided to do some research to “show me” what the stock market really earns over time.

In order to do this, I downloaded the entire history of the Dow Jones Industrial Average from www.djindexes.com. It goes back to 1896. And because I like things to be neat, I simply looked at how the market did from January 1, 1900 to December 31, 2010 – a full 110 years of history. 

Then, for fun, I calculated the equivalent CD rate. What rate would a 110-year CD have to pay in order for it to provide the exact same return as the stock market did? The answer to this would tell us what the stock market really earns. (Actually, it would tell us what the Dow Jones Industrial Average really earns, but if you do your research, you’ll very quickly discover that the DJIA is a very close proxy for the market as a whole.) Because I believe a picture is worth 1,000 words, here is the chart I created:

 So what do we learn? It turns out that the stock market (via DJIA proxy) earns less than 5% per year over time. That isn’t quite the same as the 10% figure that Wall Street tells you, is it? And yes, I know I’m not including dividends, but I’m also not including investment fees either. My point is simply this – the stock market doesn’t perform anywhere close to what you are being told by Wall Street and a lot of the financial media. My job is to assist you in being informed.