It's Always Something

The late Gilda Radner's alter-ego, Roseanne Roseannadanna, often summed up the frustrations of the moment with the observation "It's always something." That is probably the conclusion being drawn by many investors as 2007 rumbles to a close.

As many domestic stock indices teeter toward the second 10 percent correction of the year, market and media pundits are pointing to a litany of cascading concerns. After an extended period of creative lending in the era of historically low interest rates, the markets are facing sober reality.

Some real estate loans, whose structures were shaky at best, were made to people who would normally not have qualified for them. The securities industry sliced and diced these so called sub-prime loans, securitized them and sold them to investors seeking above market rates of return and mitigated risk. When real estate valuations contracted in many markets after significant run-ups, it became apparent when leveraged equity begins to ebb, challenges are not far behind.

There are a lot of inter-connected, inter-dependent moving parts, but the basic problem is that as adjustable below market "teaser" rates began to ratchet upward in an environment of lower real estate values, the downward spiral of real estate values in many markets intensified. Many people found themselves unable to afford the new reset rates.

Foreclosures started to rise, putting further pressure on real estate prices as the overhead supply increased.

As the chicken-egg scenario has unfolded, some homeowners have found it very difficult to refinance into more stable, conventional mortgages as their home equity shrunk. As some loans were vacated, the value of the securitized loans started to decline. Even such quasi-government corporations like Fannie Mae and Freddie Mac, charged with providing a secondary market for domestic mortgages, have come under increased scrutiny and pressure as concerns about the real estate market have increased.

Wall Street is uncomfortable with uncertainty. Currently, the real value of the securitized loans is difficult to quantify. Witness the now routine announcements of billion dollar write downs by venerable brokerage houses and money center banks as they try to adjust their books to the new reality.

Against this backdrop, the price of oil is about to hit $100 a barrel. This is a legitimate concern in an economy heavily dependent on petroleum to manufacture and deliver products and services.

This scenario could be construed by some as worrisome. Before you become overly concerned, consider this: We allocated your assets based upon a set of carefully crafted questions designed to elicit your attitude toward money and what you want it to do for you.

We diversified your holdings among stocks, bonds and cash to create the highest probability of achieving your goals within your specific time horizons and risk tolerance. Over time, equity based investments have the potential to produce cost of living protection. This comes along with price volatility. We don't pretend to know when valuations are going to vacillate, so we don't attempt to "time" markets.

We have found that as long as your income needs are properly addressed, you are less tempted to sell your equity investments when asset prices waver. This strategy served our clients well during the protracted bear market of 2000-2002; and will be the same system we will use to approach the challenges of the current environment.

Yes, it is true that "It's always something." The world is not static and neither are the financial markets. At Financial Service Group, we continue to view the state of the economy and the markets in the context of your unique situation and position your assets accordingly to provide for your current and future needs.

As always, please share your concerns and questions with us. We feel privileged to work with you and always enjoy hearing from you.