The Perils of "Safe" Investments (August 2003)

Discussion of risk factors affecting bonds, with an emphasis on the notion that bonds are not always as safe as they seem. After more than three years of harsh stock market conditions and solid bond returns, many investors may have shifted their portfolios away from stocks and into bonds. These investors may have made the classic investing mistake of chasing performance – basing their current decisions on the recent performance of the market. Investors who over allocated to bonds in that process may want to shift back to a more normal allocation, but for most investors the recent rise in rates makes bonds more attractive, not less.

We Have a New Tax Law – Now What? (June 2003)

Through the enactment of the Jobs and Growth Tax Relief Reconciliation Act of 2003, investors will see incremental dividend tax and capital gains reductions. The major changes in the law are immediate reduction in overall income tax rates, a reclassification of dividends so that they are taxed at capital gain rates, and a reduction in the long-term capital gains tax rates. Dr. Tiemann explores the various ways the new tax law is beneficial to investors.

War, Uncertainty, and the Markets (April 2003)

Observations and a general comment on the evaluation of the constant news coming from the Iraq war. In a market depressed by war fears and the associated uncertainty, the markets ups and downs are likely to reflect the progress of the conflict. In this note, Dr. Tiemann analyzes the history of the impact of wars on the markets and how the uncertainty leading up to a war may depress market valuations, and how the resolution of the uncertainty may ease the dampening effect on market valuations.

Do Deficits Matter? (March 2003)

Discussion of the effect of the federal budget deficits on economic performance and the market. With the United States facing a sudden increase in federal budget deficits, Dr. Tiemann reviews the history of both the short and long term effects on the economy. For investors, the effects to watch for include a possible end to the long bull market in bonds, the chance of revival of inflation, and perhaps strengthening in the economy, which may or may not flow through to the stock market. The key to longer-term effects will depend on whether Congress is able to maintain fiscal discipline.

The Dividend Tax Puzzle (February 2003)

President Bush’s initiative to reduce the taxation of dividends on common stocks creates an interesting set of issues for taxable investors. Examines the possible effects on corporate and investors behavior. Investors should watch for three possible effects: a one-time relative increase in the value of high-dividend stocks, a rise in the yields on municipal bonds, and the possible start of a phenomenon in which a small group of high-dividend, blue chip stocks become excessively popular.

How Bad Was It? (January 2003)

An assessment of why in 2002 investors with heavy allocations to equities did poorly. When investors perceive uncertainty and are suffering losses in risky assets they look to bonds for safety. Bonds did well in 2002 due to the persistence of low inflation, Fed policy that kept short-term interest rates low, and subdued economic activity. Discusses the importance of asset allocation to position a portfolio for growth while keeping risk at a manageable level.

An Historic Oddity – The Dow Passes the Nikkei (December 2002)

On November 14, 2002 the Dow Jones Industrial Average closed at 8,542.73, higher that Japan’s Nikkei 225 Index. (8,503.39 that day) At one time the gap between the indices was more than 36,000 points. When the Dow and the Nikkei crossed in November, they closed a gap that seemed impossible in the 1980’s. In the investment world shocking events occur and sound investment practice recognizes that planning only for what seems likely today is a recipe for disappointment. Instead, recognize that the greatest opportunities, and greatest risks often lie in the places they seem least likely today.

Does Asset Allocation Work? (November 2002)

Provides a general analysis of the risk reduction potential of a sound asset allocation policy. With the recent slide in the stock market, many investors have been exhorting their followers to protect what remains of their investments by recommending diversification and asset allocation. Looks at the cumulative returns from 9/30/97 to 9/30/02, of three different asset mixes: 60/40 equity/debt, 50/50, and 40/60. The results show that a well-allocated, well-diversified portfolio can deliver.

The Power of Asset Allocation (June 2002)

Explains how asset allocation works and why it is a critical feature of any investment program.