This is a recent article from Morningstar.  I think it gives us all some good advice on how to keep a good focus through these turbulent times.

1. The market is inherently volatile, and there is no telling when the volatility is going to stop (or where the bottom is). Only invest money that you will not need for a couple of years.

2. We are in a recession--one that is going to be more severe and protracted than average. However, that does not mean the end of the world. Our country has lived through many recessions before, and we will live through this one, too.

3. The intrinsic value of a stock is the value of the discounted cash flow the underlying business will generate in coming years. The cash flows of our companies are not anywhere close to as volatile as stocks have been recently.

4. While our companies are dealing with the recession and we are likely to see a material contraction in earnings in the coming quarters, this does not mean that the companies are in permanent decline. The market likes to extrapolate recent short-term trends, but those extrapolations lead to wrong conclusions in periods like this.

5. All the evidence I have points to the fact that very many stocks are ridiculously cheap, assuming we are not headed toward Great Depression Part Two. (An assumption I'm willing to make, given the massive and global government stimulus being applied.) As I've said before, valuation ratios in the modern stock market have never been this low without high inflation, and inflation is the last of our concerns at this moment.
by Paul Larson | 11-25-08

Paul Larson is an equities strategist with Morningstar.

The Financial Crisis, From A-Z
Tunku Varadarajan 11.10.08, 12:00 AM ET

The editors at Forbes.com--not, on the whole, a pedantic bunch--made a decision a little while back to swap the phrase "Wall Street Crisis" for another, spookier one: "Global Financial Crisis." While this taxonomical adjustment is important--reflecting, as it does, the borderless nature of the financial contagion--the underlying cast of causes and characters remains unchanged. Here, I offer an alphabetic sampling, by no means exhaustive. Apologies to anyone who feels unfairly left out.

A is for America, the big swinging Richard whose dysfunction started it all. Think also of accountability (lack of); AIG (which has cost the U.S. $140 billion, and counting--who knew insurance could be so exciting!); assets (what assets?), and Adam Smith, who's slapping us about the face--with his invisible hand.

B boasts Ben Bernanke, known, lovingly, as "Helicopter Ben," who's clearly no Greenspan, um ... Volcker, um ... Morgan. And isn't it swell that he's an expert on the Great Depression and its causes? Bear Sterns was the big, fat canary in the coal-mine, whose death-trill was the first note of a symphony known as the bailout. B is also for balance sheet and belt-tightening.

C is for Credit Default Swaps, defined for me by a Wall Street watcher as: Risk whatever you want, and we insure it; risk too much, taxpayers insure it. And there are those CDOs (pronounced "seedy owes") that were all the rage at Citigroup, one of many tarnished poster children of capitalism, a philosophy that's taken a hefty write-down. (Congress certainly doesn't believe in it.) And then there's Christopher Cox, whose finger was never going to be big enough for the dike, poor bloke.

D is Depression: Yes, we're in one, and it's going global. The trouble is we've already used "Great" in 1929. So we need a new superlative. D is also for debt; and for deregulation: Some say we had too little of it, others that we had too much. (This analytical Pushme-Pullyu bodes ill for a swift recovery.)

E is for excess (of, for example, executive pay and easy money).

F has a rich hand: Fannie & Freddie (that avuncular couple down the street with their children's bodies in the basement), and Fuld (Richard, Last of the Lehmans). Let's not forget flippers, the Fed, and frozen credit; or FDR and fear: The only thing we have to fear is fear itself ... Yikes, isn't that exactly what's happening? (F is also for Fair Value Accounting, a genie that all the banks once clamored for, but now wish they could stuff back in the bottle.)

G is for Greenspan, godfather of this crisis, whose legacy sleeps with the fishes; and Goldman Sachs, coming to an ATM near you. G is also for greed, simple and unadorned.

H is for home equity, a quaint notion from the 1990s (cf. housing bubble), and haircut (a cold-blooded euphemism for household calamity). H is also for hearings (expect a lot of those).

I is for Iceland, on which Britain exacted its revenge, some 1,300 years after the Viking raids; and inflation, the next crisis ... or will that be deflation? Of course, there's your IRA ... but let's change the subject. I is also for innovation, the life-blood of the American economic miracle. Will it survive the coming age of regulatory overreach?

J is for Jamie Dimon, jolly good fellow, whose JP Morgan held back--and missed the mess.

K is for Kashkari (Neel), the bald young hero brought in by Paulson to fish us out of the deep end; oh ... and it's also for Keynes (John Maynard), who is enjoying a comeback to match anything that the Rolling Stones could ever pull off. (Watch, as Washington's fever swamps are drained of neo-cons and then restocked with neo-Keynsians.)

L is for leverage (a means of maximizing your losses), liar loans, Lehman (pronounced "lemon")--and the losses/liabilities that unite them all. L is also for liquidity puts (don't ask me what that means, Robert Rubin didn't know, either); and layoffs.

M is for where it all started: the mortgage (which, aptly, means death-pledge). Like the dog, it comes in a variety of breeds, "sub-prime" being a cross between a pit bull and a chihuahua. And let's not forget marking-to-market, a hyper-purist tool that contributed to the downward spiral; moral hazard (moral what?); Main Street (the rest of us dopes); and, my favorite, macroprudence (a sadly neglected word--and concept, come to that).

N is the no-short rule. Why didn't someone tell the SEC there's no shortcut?

O is for Obama, the most important political outcome of the Global Financial Crisis. The question is, will Obamanomics only make things worse?

P is for Paulson: Is he Moses, or Don Quixote? At least he isn't John Snow. And for that small mercy we give thanks.

Q is for quants, who forgot that, every so often, past performance is no indicator of anything at all.

R is for Roubini (Nouriel), the professor at NYU's Stern Business School and Forbes.com columnist, who foresaw it all. Not for nothing is he known as Doctor Doom. In person, he's a rather cheerful chap. And why shouldn't he be? There's no tonic more invigorating than one's being right.

S is for securitization, the process by which one passes off cat food as caviar. This is how mortgage debt was repackaged and sold. Be suspicious--very suspicious--of that stuff on the plate before you.

T is for TARP, which is what all of Wall Street is hiding under. This writer finds the acronym (for Troubled Assets Relief Program) reassuring: it's proof that someone in Treasury has a sense of fun, even when dealing with toxic securities.

U is for unemployment. And also for underwater (almost every hedge fund, mutual fund and 401(k)).

V is for a new vocabulary, which we've had to acquire in a blazing hurry, to fathom our way through this failure. Try these for size: CRA, Alt-A, ABCP, SPV. And that's just the ones in English. (What's Icelandic for CDO?)

W is for Wall Street, which will never be the same again--until the next boom, when idiocy will once more stake its claim to excess.

X is for xenophobia. Let's blame the Chinese ... Wait, can we really do that?

Y is for yelling "fire!" in a crowded theater, what Jim Cramer was accused of doing when he went on NBC's Today Show and told people to pull their money from the stock market. (His response: There is a fire!)

Z is for ZWD, the symbol for the Zimbabwe dollar. If you thought the greenback had problems ... try getting a mortgage in Harare.

Tunku Varadarajan, a professor at the Stern Business School at NYU and research fellow at Stanford's Hoover Institution, is Opinions editor at Forbes.com, where he writes a weekly column. (For this week's column he'd like to offer a grateful tip of the hat to the following: Sudhakar Balachandran, Dan Bigman, Jerry Bowyer, Reuven Brenner, Philip Delves Broughton, Thomas Cooley, Charles Dubow, Andy Kessler, Annabel Levy, David Levy, Paul Maidment, Partha Mohanram, Thomas Peacock, Roy Smith, Marti Subrahmanyam, Hugh H. Shull Jr., Hugh H. Shull III and Vijay Vaitheeswaran.)

What a week it has been.  The markets seemed to be elated that Obama was getting elected on Tuesday, but gave back all that enthusiasm and more on Wednesday & Thursday.  Thankfully we got back 250 points today.

Here are some thoughts I have and have heard about various things we might expect going forward.

First of all, Obama's team of economic advisers is a who's who of smart & important folks: Warren Buffet, William Donaldson (former SEC chairman). Roger Ferguson (CEO TIAA-CREF), Anne Mulcahy (CEO Xerox), Richard Parsons (Chairman Time Warner), Robert Reich (former Labor sec), Robert Rubin (chairman Citigroup & former Treasury sec), Eric Schmidt (CEO Google), Roel Campos (former SEC commissioner), David Bonior (former MI congressman), William Daley (former Commerce sec), Jennifer Granholm (MI gov), Penny Pritz (CEO Hyatt), Larry Summers (former Harvard pres & former Treasury sec), Laura Tyson (Professor Univ of CA & former chairman of Pres Clinton's Council of Economic Advisers), Antonio Villaraigosa (former LA mayor), and Paul Volker (former Fed chairman).

I am extremely encouraged by a very diverse group of advisers to work with Obama to try & get us through some very trying times as quickly as possible.

Now the biggest question that most people have is about possible tax increases.  I'd like to share some thoughts & information on this:

Many people say that Congress can't raise taxes in a recession.  In the last 30 years, there have been 5 major tax increases.  3 of them were during a recession & a 4th was during a period of flat growth, so I think we can forget this whole Congress can't raise taxes in a recession.  They have before & they will again.

One of the first taxes that will need to be addressed is the estate tax issue.  In 2010 there will be no estate tax.  Based on an estimate I heard the other day, this would cost the Gov't about 38 billion.  My guess is that Obama and/or Congress (Keep in mind, Obama will be the President, but Congress controls the taxes) will either implement a one-year patch (like they do every year with the AMT) with a 2.5-3MM exemption & a 45% tax rate, or Obama will present a major tax bill covering a variety of tax issues by next summer.

3 of the 4 previous Presidents have proposed their tax bills (pardon the pun) within the first 8 months of office.  The honeymoon doesn't last long, so they have to act quick. If a big tax bill does not get passed next summer, then I would expect an estate tax/AMT one year patch to be passed late next year.

Other tax issues: with the 2001 EGTRRA tax laws expiring soon, taxes will automatically go up in several areas:

Income Tax: The 10% tax bracket disappears & will start at 15%, the 25% becomes 28%, 28% becomes 31%, 33% becomes 36%, & the 35% becomes 39.6%.  Obama said he wants to help the lower class.  He'll need to do something because the lower bracket tax payers will have a 50% increase going from 10% to 15%.

Child Tax Credit: Currently $1000, will drop down to $500 in 2011.

Capital Gains Taxes: Currently 0% or 15%.  Will go to 10% or 20%.  This one is interesting.  I heard that taxes collected from capital gains actually went up even though people were paying a lower rate. This actually makes sense as more people made investments as the tax rates went down.  Sounds a little like Reganomics trickle-down.

Dividends: The party will really be over here.  Currently 0% or 15%.  In 2011 will be taxed as ordinary income (see above...remember the income tax rates go up in 2011.  An average family with both spouses working could have the dividend tax double).

Retirement Plan Contributions Deductibility: There has been talk during all the campaigning of taking away the deduction and replacing it with a tax credit of 25% of your contribution.  Based on expected tax brackets and rates, this will help those making less than $65,000 and not be as beneficial for those making more than $65,000.  Obviously this falls well below Obama's threshold of $250,000 in terms of who pays more or less.  I'll be interested to see if anything happens with this & how Obama will reconcile this with his campaign promise of $250,000 as a threshold for taxes.

Now a real interesting fact I heard the other day is that Obama will inherit a deficit of about 1TT dollars for next year. I saw today that Republicans are committed to working with him and the Democrats on spending cuts, but not higher taxes.  The Fed can only print so much money before it becomes worthless, so many things will have to give because we're broke.

One area that has been mentioned as possible savings would be from the withdraw of US Troops from Iraq.  It may be a while before we see some savings here as Obama has said we need to increase troop levels in Afghanistan and the military has a lot of stuff that has, or is breaking down from years of use and abuse (war is an ugly thing in many areas...all that sand is hard on engines, guns, electronics, etc).  They will need to spend the next several years replacing all the stuff that was used in the war to keep our military ready for whatever the next war will be.

Back to taxes (please pardon if this sounds like I'm rambling...there's so much stuff that willl change & even more that could change.  I want to make sure you have a good idea of all this stuff).  There has been discussion that if a tax package gets passed next summer, that it would be retro-active to Jan 1, 2009.  Now the last time the government passed a retroactive tax bill, they gave us all 3 years to pay that extra tax we weren't expecting.  Here however is a funny thing.  The IRS neglected to reprogram their computers & ended up mailed back the extra taxes people were paying.  Sorry though, they did correct the error & made you send back that money.

Whatever happens, & I'm sure something will happen next year, I hope and pray that Obama will listen to his team of advisers.  It looks like a pretty good brain trust to me.  With Congress's approval rating in the teens, they'll need to do something effective, or face being booted out of office in 2010. I admire Obama's soberness of the challenges we all face & appreciate his optimism that we can make a change for the better.  Kind of reminds me of the positive aura that Regan brought to DC back in 1980.

Best of luck to all of us.  May the Lord bless each and everyone of us to have the courage to continue forward in our search for better times.

It's been a few weeks since my last post.  My apologies.  Between getting my clients their 3rd quarter reports and the market's insane volatility, it's kept me a little busy.

For the past 12 months, the DJIA (Dow Jones Industrial Average) is down 31%, but it's up 20% from the low is set on Oct 10th.  Is the worst behind us?  I hope so, but there is no crystal ball.  The important thing to remember is to keep a long term focus and make decisions based on logic, not fear or reaction.

So what do I need to be thinking about going forward?  Well, for all of you with mutual funds held in taxable accounts (non-retirement accounts), you may be in for a shock on the capital gains payments your funds may make sometime in December.

For those of you who had to endure a 20% drop or more of your mutual funds in 2000, you may also have taken a second hit the next spring when you had to pay the taxes on the capital gains distributions.

How does this happen?  Well, back in 2000, many funds had significant gains from the 90's.  When the market started falling and people started pulling out of their mutual funds, the funds had to sell those appreciated stocks to generate the cash needed to pay for the redemptions.  By law, the funds then pass those capital gains onto the shareholders.  By reviewing the asset flows in and out of mutual funds this year (this information is reported monthly).

So what are we talking about here?  Well, this is going to be a general estimate, so your taxes may be higher or lower, however based on various research that I've read, I think that a 10% capital gains distribution is not out of the question.

So I'm down 30% from market loses & I'm going to loose another 3-5% in taxes???  Well, depending on your tax bracket and your mutual funds, yes.  It could be better, but it could also be worse.

So what do I do?  Having been in the business for over 15 years now, I've meet a lot of advisers and companies that take no thought at all on the tax ramifications of their recommendations.  I try when possible to begin with the end in mind.  At some point and time, you're going to sell an investment.  Often it can be done in a way to minimize the taxes you'll pay, leaving more money in your pocket.

So how do I do this?  Well, that's where working with a good advisor comes into play.  I met with some new clients over the weekend, and as we were having a discussion of various tax issues, I remember the wife making the comment that it's impossible for the average person to understand all this stuff and will probably over pay their taxes.  I agree with her on this.  I remember many years ago reading a Wall Street Journal article where they estimated the average person over-pays their taxes by 14-17% a year.  I also shared with them that in just the past 10 years there have been 4 major revisions to the tax code, and if the 2001 tax changes are allowed to expire (and most likely they will) we'll have another major change in 2 years.  Most people however think that unless they are worth millions of dollars, they don't need and can't afford a financial planner.  Often times, as I work with people, the savings I can find for them will more than cover the fees I charge.

If you feel that your financial adviser is not giving you the help you want in reducing your tax liabilities, give me a call to see if they way I do things may be right for you.