The Big Bounce UP... From What Looked Like the Bottomless Pit!

US stock indexes are some 25% higher than on January 1, and more than 60% above their March lows. Some technology sectors are up nearly 60% year-to-date, having more than doubled from their March lows.

Similarly, industrial metals are advancing strongly, and precious metals are hitting all-time highs. Even good quality corporate bonds have gained some 20% year-to-date while high yield indexes are up more than 50%.

Obviously, these markets are reflecting burgeoning confidence in economic recovery. TARP, the stimulus package, buyer incentives for homes and autos, and the Federal Reserve’s persistence in keeping interest rates low are having an impact!

...the yellow flag is out!

In fact, they’re having a dual impact. First, they appear to be helping pull us out of recession. Home sales have turned around, industrial capacity utilization is improving, and the unemployment rate has ticked down for the first time in several months.

These are the hoped-for results, and are certainly part of what is being reflected in the investment markets. But, it’s the unintended consequences that may be having the greatest impact, pushing not just stocks, but also bonds, precious metals and other assets to what can only be called inflated levels. And, not just in our domestic markets. Investors worldwide are doing exactly what should be expected from such governmental largesse, whether or not it is what those governments intended.

How the game is played.

And, what, exactly, is it that investors are doing? It’s merely the latest version of the “carry trade.”
1. They borrow (dollars in this instance) at the near-zero interest rates set by the Federal Reserve,
2. They use those borrowed dollars to invest in assets that appear undervalued, or at least capable of being bid up in price, and
3. They ultimately sell the assets, hopefully at sizeable gains, and repay the loans with “cheaper” dollars that are almost certain to have resulted from the ballooning Federal deficits.


Where does this leave investors like us here at CoreStates? We choose not to play this game. We never subject our clients to the risks of this form of “borrowing short and investing long,” having seen far too often (most recently in housing) how asset prices can suddenly drop when interest rates begin to rise and the throngs of debt-burdened “carry-traders” all stampede for the exits. But, we do have to deal with the volatile markets these traders help create with their high-risk games.

Our strategies in today’s environment of increasingly inflated prices are intended to participate in a good portion of any continuing run-up in asset prices, but to gradually lighten exposures as prices inflate. This investment approach is almost certain to mean that, unlike the extremely favorable performance we have been able to deliver through the market recovery to date, our clients may not fully participate in the latter stages of such an extreme market advance, but nor will they be fully exposed to the risks of a market collapse.

The way we look at it, the possibility of realizing modestly lagging returns if asset prices continue to inflate is simply the price that must be paid to assure better preservation of values when the bubble eventually bursts. And, this is the best way we know to fulfill our commitment to clients – to protect their lifestyles and preserve their legacies for as long as their investment assets are under our care.
We wish everyone a wonderful Holiday Season, and a safe and secure New Year!


The information provided above reflects the viewpoint of Corestates Capital Advisors, LLC and is subject to change. This article was prepared for general informational purposes only, without respect to the investment objectives, financial profile, or risk tolerance of any specific person or entity who may receive it.

Catch CoreStates on CNBC in December!

Be sure to catch Bill Spiropoulos, President and CEO of CoreStates Capital Advisors, on CNBC on the following dates in December:

Thursday, December 3rd at 5:00 AM on World Wide Exchange
Wednesday, December 9th at Noon on Power Lunch
Tuesday, December 22nd at Noon on Power Lunch
Wednesday, December 30th at Noon on Power Lunch

15 Signs that it’s Time to Call CoreStates

Each question is worth 1 point (OR worth 2 points if you answer, "Heck yes!"):

1. You’ve been waking up at night worrying about whether you’re worrying about the right things.
2. You got scared out of the stock market earlier this year (near the bottom), and are now scared to go back in (near the top?).
3. You’re convinced the dollar is going to tank, but have no idea what to do about it.
4. Your children are actually turning into responsible young adults, and you hope there’s some money left for them when you die.
5. So far, all your “precious metals” investments have been in the form of golf clubs and jewelry, but you’re thinking this probably isn’t how the pros do it.
6. Your father keeps saying he hopes his last dollar will go to pay for his burial, but you’re thinking it might have to be your last dollar.
7. Your daughter recently announced that she’s just not enjoying Law School, so she is dropping out and applying to Med School.
8. After so many years of investing for the long term, you suddenly realize... it’s now here!
9. You are noticing more and more how the things you’ve accumulated restrict your day-to-day freedom and peace of mind, and how liquid investments do just the opposite.
10. After years of focusing on investment returns, you’re beginning to think you should have been paying more attention to investment risk.
11. Charity may begin at home, but you’re concerned your legacy may end at home and your charitable aspirations go unfulfilled.
12. You’re wondering if your 401(k) will be okay, or will it be KO’d by the next market decline . . . right when you plan to retire.
13. It recently dawned on you that the medical profession has done a much better job of extending life expectancies than your investment professionals have done in extending the life of your nest egg.
14. Your long-held vision of retirement seems to be taking on a decidedly rose-colored hue.
15. You can’t stand another minute of Jim Cramer or Larry Kudlow (or your current advisor, for that matter), and need to find someone you can trust to help you do what is right for you.

SCORING

0 to 5 – Good for you! But, give us a call sometime so that you know us when you need us.

6 to 9 – Not bad, but you could benefit from our help. Call soon.

10 to 12 – This is serious! Make an appointment today.

13 to 15 – What have you been waiting for!? Call an ambulance and get straight over here!

CoreStates Capital Advisors, LLC
267-759-5000
http://www.corestates.us/

Beyond California: States in Fiscal Peril

The Pew Center on the States recently released a report entitled “Beyond California: States in Fiscal Peril”. The report examined the impact of the recession on the finances of the states, highlighting nine other states facing similar stresses to California. This report received
widespread press coverage, including both the Inquirer and the Wall St Journal. Below are brief comments regarding several states where we have client concentrations.

The full report can be found at http://www.pewcenteronthestates.org/

Pennsylvania: We have previously distributed positive comments regarding PA’s relative position among the states. It is gratifying to see the Pew Center list PA among the 10 states “least like California”. PA’s revenue decline of only 5.5% is well below the national average of 11.7%. The budget deficit of 18% of the general fund is close to the national average of 17.7%. The increase in unemployment has been 3%, compared to the average of 4.4%. PA was particularly cited for having established and funded its rainy day funds. Several states had set up such funds but never really deposited any money into them.

Maryland: MD’s revenue decline of only 1.2% was among the smallest drop of any state. Despite that, its budget gap is 18.7%, above both PA and the average. Similarly to PA, its real estate market had neither run up nor collapsed as much as the national averages. General financial management and employment levels are also above average. MD scored just outside the 10 best states.

Delaware: DE also had a modest drop in revenues of only 3%, well better than average. Its budget gap at 17.6% was close to the national average. The 3.6% increase in unemployment was better than the national average but worse than its regional peers. The financial management was scored very high. DE’s overall score was slightly behind MD.

New Jersey: NJ scored as one of the 10 worst states, most like California. Pressured by several factors, its revenue declined 15.8%, well above the average. The budget gap at 29.9% was among the worst. The 3.7% increase in unemployment was not as bad as the average. However, only 2 states scored worse than NJ regarding financial management and practices. We continue to believe that NJ residents should diversify some of their municipal holdings outside the state in order to lessen risk.

Virginia: VA scored very highly regarding its financial practices. Unemployment has only risen 3.2%, well better than average. The budget gap of only 10.9% also reflects well. A revenue decline of 19% is probably the only reason VA scores just outside the 10 best states and even with MD’s score.

Florida: FL’s ranking among the 10 states most affected by the recession should not be a surprise as its real estate difficulties have been well documented. The foreclosure rate of 2.72% is effectively twice the national average of 1.37%. The revenue drop of 11.5% is better than might have been expected. The unemployment increase of 4.4% is at the national average. The state has mixed scores on political and financial management issues. FL does not have a state income tax, so client portfolios are national portfolios, already diversified outside the state.

Ohio: Perhaps surprisingly, OH fares better than many of its Midwestern neighbors. Unemployment has increased at the national average of 4.4%. Despite that, revenues fell a less than average 9%. The budget gap is a better than average 12.3%. OH also scores well regarding financial practices. Its overall score is equal to DE.

CoreStates 2009 3Q Review & Outlook

At CoreStates, a foundational belief is in the unpredictability of the future. Few would argue with this simple truth. Yet, few in the financial services industry honor this fact in the design of their services to clients. Most, in fact, tout their ability to predict the future as a key reason to entrust your assets to their supervision and management (and fees).

At the current time – three-quarters of the way through 2009 – we would ask these companies and their clients, “So, how is this working out for you?”
Many, we suspect, would lament the fact that they became net sellers of stocks during the first quarter decline to the March lows, then stood by as stocks gained 15% to 30% through the second quarter and repeated that performance in the third quarter.

Now, as the fourth quarter begins and they still struggle to predict the next quarter’s market moves, they look around and see:

1. The increasingly euphoric outlook of stock investors, who have driven domestic and international markets to valuation levels well above their historical averages,
2. The serious fears of the gold bugs as most “safe haven” precious metals are hitting record high prices, and
3. The self-contradictory actions of bond investors as interest rate levels and inflation expectations reflect serious economic concerns, while shrinking interest rate spreads on lower quality bonds indicate increasing confidence in economic recovery.
   

As these conflicting market actions indicate, the current investment outlook is highly uncertain. This is very unusual – not that the future is highly uncertain, but that investors as a group (though still not individually) are recognizing this fact and reflecting it in their investment activities.

And, it is why we do what we do:

• We don’t attempt to predict economic or market moves month-to-month or even year-to-year. But, we do seek to identify the key long-term forces that will be driving economies and markets worldwide via our 20/20 Global Vision.

• And, we provide our investors with a diversity of investments – our 8-Cylinder Portfolios – that assures to the greatest extent possible exposure to whatever areas of the market “are working” at any time, including both long and short exposures so they aren’t dependent on market gains for gains in their portfolios.

Looking ahead, we believe the great uncertainty reflected in current investment markets is appropriate. The outlook has rarely if ever been this clouded by changing international economic forces and domestic governmental redefinition of the economic landscape. But, we remain confident in the CoreStates approach and fully expect to continue providing our clients with services and results that move them toward their long-term financial objectives and life goals.

Stocks For the Long Term? Why Bother?

Stocks got pummeled in 2008 and early 2009. Although most markets have since shown good recovery, the message lingers – stock returns are much more volatile in the short-term and much less dependable over the long-term than most investors were led to believe.

In fact, as 2009 began, the average annual return from stocks over the entire preceding decade was negative (S&P 500 average annual return -1.36%) – a loss! For the same 10-year period, “no risk” US Treasury Bills provided a 3.16% average annual return. And, long-term Treasurys led them both with a 6.59% return (all figures courtesy of Ibbotson).

Now, as 2009 comes to a close and stocks have rebounded some 60% from their March lows, astute investors are wondering if investing in equities is worth the agony. Why don’t we just cash out what’s left of our stock portfolios and settle for the 3% to 6% returns provided by bills and bonds?

Our answer – we would if they (bills and bonds) could. But, regrettably, the confluence of factors that allowed bonds to provide this level of returns over the last decade, actually the last few decades, is highly unlikely to occur in the coming decade. The environment is more likely to be just the opposite.

It’s different this time . . . really.

The return earned on a bond portfolio consists primarily of the interest payments received on the bonds – the portfolio “yield.” The level of yield is determined by the types and quality of bonds owned in the portfolio, and by market interest rate levels prevailing when the bonds are bought – initially and ongoing as interest payments and proceeds of maturities are reinvested. A much smaller but still important component of a bond portfolio’s return is any change in price of the bonds owned – the “appreciation or depreciation.”

To understand why bonds aren’t likely to provide the level of returns of the last few decades, consider the current state of each of the factors noted above.

1. Beginning market yields – The level of interest rates at the time a bond portfolio is initially assembled is the primary factor in determining a portfolio’s ultimate return, at least through the first several years. And, as this table shows, we’re starting from much lower levels than 10, 20 or 30 years ago.

Interest Rate Levels – United States Federal Reserve

2. Direction of change in market yields – The above table also shows that market rates have been steadily declining. This means yields on existing managed portfolios would have steadily declined as interest payments and proceeds of bond maturities were reinvested at ever-lower rates over this period. Over the last several years, this made bond portfolio returns decline relative to their beginning yield levels. And, with interest rates now virtually at half-century lows, most bond portfolios’ yields should continue to decline until market interest rates begin to rise.

3. Current or ending market yields – Market values of bonds vary to reflect changes in the general level of interest rates. If market rates are generally lower than when a bond portfolio was initially purchased, the bonds’ prices will have gone up, and vice versa. (This might sound backwards, but think of it this way – declines in available yields make bonds bought earlier at higher yields more valuable, and vice versa.) So, looking back over the last few decades, bond investors have benefitted greatly from price appreciation as interest rates steadily declined. Going forward, with rates already near zero, such declines are simply not possible (unless our bankers decide to pay borrowers to take their money, which, we suppose, may not be all that unreasonable to expect now that the government is running the banks!).

4. Types of bonds in the portfolio – The final factor influencing bond portfolio returns is the composition of the bonds in the portfolios. Managers can increase yields by investing in lower quality, longer maturity, and more price volatile bonds. In recent months, however, the additional returns to be gained by such increases in risk have shrunk dramatically. And, should such spreads widen again, the bonds could suffer significant price depreciation, more than offsetting the riskier bonds’ initial modestly higher yields.

So, what of stocks?

Even if bonds can’t be expected to do as well as in the past, can stocks be expected to do better? We think so, based on a similar evaluation of their yield and appreciation prospects. The S&P 500 currently provides a dividend yield (which for most investors is taxed more favorably than interest income) in excess of 2%. Many individual stocks of sound companies provide twice this level of yield or more.

As for appreciation prospects, stocks represent ownership in their underlying economy, and history has shown that as that economy grows, the economic value of stocks generally grows at a similar or greater rate. The 3.5% US GDP growth reported for the third quarter of 2009 may falter in the coming quarters, but should average at least 3% over the next few years. The resulting 5+% theoretical return is twice the current yield of the highest quality bonds.

In regard to valuations, the S&P 500 at 1100 is trading at approximately 15 times current annual earnings of the underlying companies. Said differently, stockholders currently earn back about 1/15th of the cost of the index annually. So, the “earnings yield” of the index is currently 1/15 or 6.7%. And, that’s before any growth in earnings in the years ahead.

To us at CoreStates, these measures qualify stocks as a worthy investment – with this core return expectation in excess of 5%, current earnings return of 6.7%, and good prospects for additional return from increasing earnings and expansion of valuations as the world economy stabilizes and growth resumes its historical patterns. Bonds also have a role in many portfolios, but a reduced role relative to that of the last few decades given their much-reduced future return prospects.

But, the key to investment success for 21st century investors will be to diversify well beyond these two traditional asset classes, carefully select managers capable of taking both long and short positions, and actively manage allocations among the several asset classes based on relative evaluations of the type summarized here for stocks and bonds. Our 8-Cylinder portfolio engine, SCORE manager evaluation process, and 20/20 Global Vision asset allocation perspectives are designed to provide our clients with exactly these capabilities.

They are the foundation of our overarching commitment to clients – to protect their lifestyles and preserve their legacies throughout their investing lifetimes.

Our favorite allocation as of November 17th, 2009:

Stocks 45% Bonds 25% Cash 5% Real Estate 5% Currency 8% Energy 2% Gold & PM 2% Managed Futures 8%

An 8 Cylinder Approach to Investing

WATCH OUR V8 DVD As You Read Along!

In today’s global, event-driven economy, everything that happens, everywhere it happens, can and will affect us directly, immediately and unpredictably. Markets in the United States are increasingly reacting to domestic and global events. To survive in this volatile new market, investors require more information, more education, and more qualified expertise than ever before. Unfortunately, many investors continue to be influenced by self-appointed financial gurus. Popular culture has positioned financial expertise as a self-served commodity for the masses. Investing in financial products has become the consumer equivalent of choosing a movie based on a good review.

For traditional investors, another negative influence has been group think or the herd mentality. This can lead to vastly overpriced stocks and huge bubbles that always burst eventually leaving many people with far less wealth. This is not strictly the result of malice or criminal intent or even stupidity. More often, it’s just human nature at work; good people of average ability playing with fire and getting burned. More astute investors relied on traditional investment principles. These principles taught that the stock market can be a solid investment over the long term. We were taught that time in the market, not timing the market, was critical. We were also taught that diversification can reduce portfolio risks. These principles remain true. But after living through several major declines and the havoc they can cause in our lives, we all learned the hard way that over the long term protecting and growing assets is more complicated than these principles.

These investment principles were improved by a group of economists back in the 1970’s. They developed a revolutionary concept, an investment engine designed to mitigate the inherent ups and downs of the stock market. They called their theoretical engine modern portfolio theory and it revolutionized the way investors would view the importance of the different domestic market classes of their day. Stocks, bonds, cash, and real estate were thought to be four completely separate markets. It was thought that each investment in one of these classes had very little to do with the other three. What modern portfolio theory conveyed was an understanding of how allocating assets across all of these domestic markets rather than diversifying within any one category could enhance the stability and performance of a portfolio. Through research these Nobel prize winning economists prove there was a natural balancing that typically occurred between the fluctuations of separate markets. They noted that when one class of investment was up, another was usually down much like the piston movement of a four-cylinder engine. The frequent probability of these opposite effects occurring at the same time is called a negative correlation and skilled financial advisors would quickly learn to use negative correlation to serve their investors in a positive way. The idea is that gains will mitigate losses helping to maintain the stability of the overall portfolio.

Powered by four markets instead of just one, the four cylinder engine gave investors enough power to manage the risk of individual domestic markets over the long haul. Over the past 30 years many professionals have agreed this four cylinder engine has served investor’s needs for managing risk while enhancing return potential in a portfolio. These asset classes should always play a dominant role in portfolio management; however, given the events in our recent past, we must now acknowledge the significance of global markets and economies and the influence they have on our traditional investment strategies.

In times like these, where news from far away places can affect markets around the world, how does one maintain relative returns while managing ever-increasing risks? Today’s forward-thinking advisors believe they have an answer, a new kind of investment strategy designed for a new kind of investor. They contend that the time has come for the traditional four cylinder engine to be rebuilt. They call this innovative investment strategy global asset allocation. The theory behind global asset allocation doesn’t abandon the four cylinder domestic model. It expands on its strengths by adding four more cylinders to our engine, each chosen specifically for its global presence as an asset class; raw materials and commodities, the energy complex, precious metals, and foreign currencies. These are the same asset classes where some of the world’s wealthiest investors and institutions have made and typically protected their fortunes. Raw materials and commodity prices, like stocks, move in alignment with supply and demand. For most investors, there are ample opportunities to take advantage of price trends in raw materials and commodities. And interestingly, these trends typically have no correlation to the trends in traditional markets. It is well-known that many of these raw materials and commodities have higher volatility than blue chip stocks and are much riskier. But the trading managers who manage these positions seek to take advantage of both negative and positive trends. Overall, they believe this asset class is an excellent alternative investment where trading managers have the potential to profit on trends independent of the equity market. In the energy complex, some savvy oil and gas managers take advantage of daily price changes and longer-term trends betting on price fluctuations in the energy market. Other experienced managers are able to strategically position themselves long or short because they monitor the capacity of supply reserves and increases in global consumption, yet other managers take advantage of opportunities presented in owning companies that benefit from the use of energy commodities. These companies may include the travel, tourism, transportation and plastics industries. Investment advisors may recommend precious metals to provide capital appreciation potential, liquidity, and a hedge against conventional paper assets. Because precious metals have a negative correlation to paper assets, the intention of diversification into gold, silver and platinum is to reduce the total risk within the overall portfolio and preserve wealth. Because the characteristics of gold, silver, and platinum differ substantially and because each metal reacts differently to economic and world events, some managers build positions in all three.

Currencies are unique because they form the largest capital market in the world yet most U.S. investors have little knowledge of the trading of currencies or how they are viewed globally as a separate asset class. There are several hundred managers who specifically trade currencies as an asset class based on technical trends and fundamental data. As an example, in its simplest form, a portfolio manager may believe the U.S. dollar will gain against the yen because of interest rate differentials and price trends. That manager will purchase the dollar versus the yen in the cash market. Currencies are typically traded by every large multinational institution; banks, central banks, and government. Combined with the original domestic asset classes, these four additional cylinders make use of alternative investment classes to create a stronger, more responsive engine, an eight cylinder dynamo that finally brings to personal investing the one thing it has sorely lacked, global equilibrium. Investments are balanced across eight areas instead of four with the intention of further reducing risk and increasing stability. The natural balancing effect of negative correlation is actually magnified giving investors increased potential for a positive return by actively managing risk. Global assets allocation is more than a common sense theory. It has already been put into action over long- and short-term financial periods. Consider what might have happened to an investor from the end of 1996 through the end of 2002 if that investor had diversified his portfolio using global asset allocation theory. Through this period, the most widely held investments for most Americans were in the S&P 500, the Nasdaq, U.S. government bonds and cash. A moderately aggressive investor who is willing to take on the normal risks associated with an allocation in those indexes would have seen $1 million dollars grow to over $2.4 million by March 1999, and sadly, just as quickly, given most of that profit back. By December 2002, the value of that portfolio had fallen by over $1 million dollars. The worldwide events that affected and influenced the equity, fixed income and money markets during that market cycle had far-reaching impact, but during that same period of global volatility, investments in currencies and multiple alternative strategies performed very differently. Had the investor in our example incorporated a global asset allocation strategy during the same period of time by including a 25 percent allocation of alternatives to his existing asset mix, the outcome of two critical indicators would have changed very favorably.



While at first glance this change does not seem to be dramatic, a closer look at the outcome actually shows a 27 percent increase in the rate of return on his investment and most importantly, a 25 percent reduction in the risk he has taken to achieve this enhanced return. Many professionals believe that alternative assets, by their very nature, tend to be less sufficiently priced than traditional marketable securities offering the potential to exploit market inefficiencies through active management. When applied with the appropriate expertise, the intention of global asset allocation is to not only protect wealth but also advance growth even under the worst short-term market conditions as our example has shown.

Fortunately, there are portfolio engineers who understand and embrace the significance of global asset allocation. They are dedicated, even driven, to manage risk, preserve wealth, and help their clients face the future with confidence again. Quick to read trends, look forward, and rebalance investments as needed, this new breed of professional is using the power and diversity of the eight cylinder global asset allocation engine in their quest to succeed in today’s volatile global marketplace.

Today’s economic landscape forces us to challenge traditional thinking and acknowledge one cold hard fact; changing the way we invest is no longer an option, it is a necessity. As Americans, we will continue our dream for a better future. With confidence we will take command of our financial course. We will prepare ourselves to overcome inevitable challenges and we will answer the hard questions that the world will continue to throw our way.

Am I prepared for the impact of world events on today’s markets? Will I have the strength to weather the next decline? Will I have enough time to recover my losses? Am I confident my dreams will come true? But most important, will I take action to protect my dreams?

For more information, contact: CoreStates Capital Adivsors

CoreStates Economic Survey

Last quarter, we sent out an email inviting all CoreStates clients to participate in an Economic Survey. We asked you to go to our website and give us your opinion on several important segments of our economy. We asked if you thought these key economic indicators would increase, decrease or remain unchanged over the next six months. Here are the results from a terrific cross-section of our client base. Thank you everyone who participated.



66% of the respondents felt that the stock market would improve over the next six months, while 80% thought oil prices would increase. 64% of respondents think the unemployment rate will increase with 42% seeing lower home values. 58% are predicting higher inflation most likely led by the cost of medical insurance (78%), increased government spending (86%) and the declining value of the dollar. 56% of those surveyed think the income taxes will increase over the next six months. 51% think that the consumer confidence will improve and 39% believe the automobile sales will increase.

We hope that you will compare your responses to those individuals who participated in the survey. Keep in mind this is not a scientific survey. We just wanted to provide a forum for people to tell us what they thought. Please look for more investor surveys in future newsletters. We greatly appreciate your involvement in making CoreStates a special place.

The Top Ten Reasons to use CoreStates

CoreStates Capital Advisors provides financial advice to individual and institutional investors - just like hundreds of other firms. But, what distinguishes CoreStates is how we have redesigned the financial advisory service for the 21st Century investor.

1. Mutual commitment
CoreStates Capital Advisors, as a Registered Investment Advisor, bears fiduciary responsibility to act only in our clients' best interests. Your success is our primary goal. Registered Representatives represent their employers, typically purveyors of financial products, and are required only to assure that those products are "suitable" before promoting them to clients.

2. Unsurpassed understanding of you
At CoreStates, we won't even try to serve you until we truly know you, and until you know yourself. So, we provide the industry's most comprehensive investor profile, which we call our Investor DNA. You complete a questionnaire online and immediately receive a five-page analysis of your investment traits and preferences.

3. Thorough analysis of your needs and goals
With your current assets and the additional income you anticipate, will you be able to live the life you desire? The CoreStates Cash Flow Analysis will provide unique insights into your financial future, helping you make sound financial decisions and providing us with the information we need to serve you effectively.

4. We document your expectations
A personalized Investment Policy Statement is offered to each client. This document describes the mutually agreed upon processes and guidelines for the management of your account. It specifies your investment objectives, time horizons, risk parameters, investment style and communication preferences. It defines how we will serve you in the pursuit of your desired investment objectives.

5. A foundation of sound strategic perspectives
CoreStates' investment strategies are based upon a comprehensive ongoing review of the global investment environment that we call our 20/20 Global Vision. No one knows what the future holds. Yet, no one should invest without first carefully considering and evaluating the most important factors likely to drive the investment markets of the future. These proprietary perspectives are reflected in the management of all CoreStates client accounts.

6. Complete objectivity
It is extremely difficult for an investor to confront the peaks and valleys of a turbulent market and keep their emotions under control. With over 135 years of total experience, CoreStates' decision-makers have lived through and learned from virtually every market fluctuation. We have the unemotional objectivity needed to make the right decisions.

7. Full power portfolios
The New World of asset allocation goes well beyond the traditional stocks/bonds/cash/real estate portfolios by including four new asset classes and strategies. This Eight-Cylinder Portfolio model provides twice the return-generating opportunities while also incorporating truly low-correlation diversifiers to more effectively moderate portfolio variability.

8. Unbiased investment selection
We do not represent a mutual fund company, a specific money manager, an investment banking company or any other product purveyor. We have the world of investment options at our fingertips. Our freedom to choose the best available investment solution provides almost unlimited possibilities.

9. Total transparency
Paraphrasing former President Regan, trust is safely granted only with verification. We employ unaffiliated custodians to safeguard your assets, independent auditors to monitor our activities, and third party performance analysts to validate our results. Every aspect of your relationship with CoreStates is accessible, transparent, and verifiable. CoreStates offers a robust website that includes access to your account information 24/7. You will know what we are doing, and how, and why. Always.

10. Confidentiality
We restrict access to nonpublic personal information about you to our employees with a legitimate business need for the information. Our employees may access information and provide it to third parties only when completing a transaction at your request or providing our other services to you.

CoreStates 2009 Q2 Review & Outlook

The April through June period saw stocks continue their bounce from early-March lows. By quarter’s end, the advance had begun to falter, but not before adding another 12% of gains for the Dow Industrials, cutting their year-to-date decline to about -2%. International developed economies saw their markets advance some 15% (MSCI EAFE) and reach a year-to-date positive return of about 3%.

Encouraging as these numbers are, even they don’t fully represent the resurgence of investor enthusiasm as the quarter’s economic measures began to indicate a moderation in the rate of national and worldwide economic decline. This growing perception led to sharp rebounds in the more speculative areas of the markets, with small capitalization US stocks (Russell 2000) advancing nearly 21% and reaching positive territory for the year. The NASDAQ gained 20%, bringing its year-to-date gain to over 16%. Emerging nations’ stock markets were even stronger, averaging gains of 25% for the quarter and year-to-date. The dollar also reflected the moderation of concerns for the US economy, adding another 10% to the returns of the average US investor in foreign markets.

Improving economic prospects were also noted by bond investors, as were the heightened prospects for inflation resulting from the burgeoning Federal deficits. This served to elevate yields on the 10-year Treasury from 3% at the beginning of the quarter to about 3.5%. Other areas of the bond market generally benefitted from diminishing credit quality concerns, offsetting the modest rise in interest rates on Treasury securities and holding yields generally steady.

Commodities prices also reflected growing investor confidence in recovery and fears of inflation, as broad commodities indexes advanced in the area of 15% for the quarter. Crude oil led the way, gaining more than 40% in a May-June surge from $52 to $72 per barrel. Precious metals also moved higher with gold, for instance, gaining nearly 7%.

So, is the perfect economic storm finally weakening and clear sailing ahead? We at CoreStates believe the worst of the financial crisis is over, but we see three areas of likely investor misperceptions. We believe investors are early with their enthusiasm for economic recovery, are probably equally early regarding their fears of imminent, rapidly increasing inflation, but are also too sanguine regarding the longer term implications of the sea change taking place in the core of our economic system.

In our view, a slower-than-expected recovery is likely to produce at least a few months of disappointing economic measures near term, which should also defer the inevitable inflationary effects of current fiscal and monetary policies. These countervailing factors should keep most markets quite volatile, but largely within their recent trading ranges. The greater concern for prudent investors is the eventual impact of the massive increase in the role of the Federal government in our economy, and the reduced incentives to the private sector from ever-higher taxes on our most productive enterprises and individuals and ever-broader social programs for the less productive. And, this is before the impact of a national health plan, vast changes in social security, or the remaking of our public educational system.

Our governmental structure was designed with several checks and balances, a key one of which is the requirement for a 60% majority in the Senate to be assured of passing key legislation. The expectation of our founding fathers was that, to reach this level, legislation would have to be tempered by a wide cross-section of political viewpoints. Today’s Democrat super-majority, led by a President many consider the most anti-business in our history, creates a level of uncertainty for investors that is unprecedented. Although we maintain our long-held belief that it is unwise to bet against the resilience of the US economy, we also believe it is imperative in the current environment to spread those bets widely, maintain a sizeable cushion of liquidity, and be prepared to react decisively as our new economic reality takes shape.

Financial Pain Relief

The following may surprise you. But it's true.

A recent national survey found that the two primary concerns for individuals over the age of 45 are their health and their wealth. But, that's not the surprise.

The same survey discovered that although we do give a lot of thought and attention to our health, the same cannot be said of our other primary area of concern. Most people spend more time planning a vacation than planning for their lifetime financial security.

And, that's not the only difference. If we have a persistent health problem, we often seek a second medical opinion. But, even when facing serious financial security challenges, few of us bother to get a second opinion regarding our financial goals and how we hope to reach those goals.

So, ask yourself, "If I am willing to get a second opinion for a serious health issue, doesn't it make sense to get a second opinion for my serious wealth challenges?"

Of course it does. A second opinion will either validate your existing strategies or provide other possible remedies to consider. Either way you can't lose. It's a win-win situation.

I would welcome the opportunity to tell you how easy and painless our "second opinion process" can be. And best of all, it will cost you nothing . . . other than a little time spent thinking about one of the most important aspects of your life.

I look forward to helping you understand how easy and painless our "second opinion process" can be. Best of all, it won't cost you anything but a little time.

-Bill Spiropoulos
President & CEO
CoreStates Capital Advisors

Top 10 Investing Mistakes

Once you've made it... Mistakes can still take it!

We all know the formula for investment success is to invest early, invest often and invest broadly. These are the core principles of achieving wealth through saving and investing. Do this diligently over an entire working career and you are virtually assured of a lifetime of financial security. But, for those who have already done this, or who for any other reason find themselves responsible for a substantial sum of money, the rules are a little different. The focus must change from accumulating assets to protecting wealth and preserving purchasing power. And, the mentality of the investor must change. Investing “right” still matters, but the greater concern must be not investing “wrong.” At this stage, mistakes can be lethal to your financial security, largely because the time needed for recovery from any setbacks is limited.

So, what are the most common miscues investors make in this wealth preservation stage?

1. Maintaining insufficient liquidity
This is the big one. You must never have to sell an investment to raise needed spending money. All spending should come from stable value investments and accounts – like short-term fixed income securities and checking, savings, or money market accounts. You want to sell investments (stocks, bonds, real estate, commodities, etc.) to fund the stable accounts only when the investments are trading at favorable prices. Second best (and more practical for most of us) is to liquidate investments only on a regular, periodic basis – the opposite of dollar cost averaging in. Neither approach can be achieved if your checking account is empty and bills are due.

2. Ignoring inflation
The end of the accumulation phase of an investment program is not the end of the investment program. Tempting as it may be to seek the “safety” of stable investments with all of your investment dollars, this safety comes only at the expense of significant risk to your purchasing power. If your future spending needs extend five or more years into the future, it is simply not prudent to expect to fund those future needs with current dollars. This is especially true with today’s rampant Federal spending, which almost assures significant inflation in the years ahead.

3. Forgetting your legacy
Investors with the good fortune to have assets well in excess of their personal or immediate family needs may be able to ignore inflation. They have virtually no risk of running out of money. But, based on our many years of experience working with such people, even those who start out with a strong preservation focus often begin to see their role not as owner, but as temporary custodian of their assets. They come to realize that they have the ability to favorably influence the lives of others, now and well beyond the end of their own lives. This sometimes encourages immediate gifting and donations. Or, it may introduce a much longer investment time horizon within their own portfolio, which warrants a much different investment approach with that portion of their net worth that exceeds their personal lifetime financial needs.

4. Carelessly selecting an advisor
The Bernard Madoff scandal provides a vivid warning to all investors not to pick their advisor based on image, reputation, or social standing. Some homework is required. Visit the CoreStates website at www.corestates.us and see our “Qualifications of a Financial Advisor” and “Commitment to Fiduciary Responsibility” (both located under the “Learning” tab) for our list of the key criteria that every investor can and should look for before entrusting assets to any financial advisor.

5. Settling for hazy investment objectives
Risk tolerance, time horizon, return objectives – these are important concepts. But, they are only concepts. It is important for you and your advisor to have a clear, mutual understanding of your current and anticipated financial resources, expected additions to your investment account, expected needs to be funded from your investment account, and how much flexibility you have in how and when these needs are met. And then, keep your advisor updated. Only by discussing your particular situation in these very tangible terms can you maximize your chances of long-term financial security.

6. Pursuing investment fads and fashions
Besides their financial aspects, investments can serve a valuable recreational purpose. Investing can be fun and exciting, and can convey intellectual and emotional prestige. To capitalize on this, financial product marketers provide a constant flow of new investment ideas. Most are merely the old standards repackaged, but many are much more insidious, and some, as we just learned, are downright toxic. All investments differ in only two meaningful respects – the expected amount and timing of cash returns to be provided, and the certainty (or potential variability) of those future cash returns. If you don’t understand how these two variables compare to more straightforward investments like CDs, bonds, and stocks, don’t buy them. And, if you do understand the differences, make sure they add value. In most cases, they won’t.

7. Obsessing over the parts while ignoring the whole
An investment’s price really matters at only two times – when you buy it and when you sell it. If that investment is part of a well-constructed portfolio, your manager will have the discretion to buy it and sell it whenever the price is deemed to be favorable. And, a well diversified portfolio will at all times have some investments at favorable prices and some . . . not so much. That’s how portfolio diversification works. So, if you see some investments that currently “aren’t working,” they may signify only that the portfolio is effectively diversified, and is behaving exactly as it should.

8. Confusing a Net Worth Statement with Cash Flow Analysis
While the net worth statement is a great way of assessing your financial well being, it captures only a single frame of your financial picture at one point in time.
Unlike your net worth statement, the cash flow analysis tracks your income/expense ratios over an extended period of time. That is like comparing the features of a picture camera and video camera.
For an individual investor, no diagnostic approach is more important than the Cash Flow Analysis. Not only will you become acutely aware of how expenses, taxes and inflation affect your lifestyle, you and your advisor will also have the proper basis for making investment decisions.
And because you are recording all your transactions, coming in or going out, this makes your cash flow analysis dynamic, allowing you to review your financial decisions from time to time.
There are many approaches to control expenses and spending habits. But the critical starting point is to generate and maintain your own Cash Flow Analysis.

9. Losing faith in your investment program
Investors must play a continuous game of emotional “chicken” with the market. Don’t let it scare you to the sidelines, or hype you into a high-risk investment position. A sound investment program will respond to the market cycles in a prudent way at the manager/investment selection level. Major revamping of the overall portfolio in response to market swings is almost always detrimental to your long-term wealth. It may help to remind your self that, by definition, the market is at its low when investor fear is greatest, and at its high when enthusiasm peaks. Acting on your emotions will almost guarantee buying high and selling low.

10. Forgetting that wealth is the means, not the end
In a capitalist economy and a culture focused on continually improving living standards, money becomes a measure of success. But, that’s not all it is. It is also a means to less tangible ends. It can support favored causes, facilitate desired change, and promote higher principles. It can allow you to accept the challenge of the great religious leader, Mahatma Gandhi: “You must be the change you want to see in the world.” Let it help you to be the person you want to be, in the country where you want to live, and in the world you want to leave to succeeding generations.

An Attorney's Advice... At NO Charge

Read this and make a copy for your files in case you need to refer to it someday. Maybe we should all take some of his advice! A corporate Attorney sent the following out to the employees in his company.

1. Do not sign the back of your credit cards. Instead, put "PHOTO ID REQUIRED..."

2. When you are writing checks to pay on your credit card Accounts, DO NOT put the complete account number on the "For" line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

3. Put your work phone # on your checks instead of your home Phone. If you have a PO Box use that instead of your home address. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks. You can add it if it is necessary, but if you have it printed, anyone can get it.

4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to Call and cancel. Keep the photocopy in a safe place. I also carry a Photocopy of my passport when I travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a Name, address, Social Security number, credit cards.

If you have had the unfortunate luck of having your information stolen, you know that you need to cancel your credit cards immediately. But the key is having the toll free numbers and your card Numbers handy so you know whom to call. Keep those where you can find them.

6. File a police report immediately in the jurisdiction where your credit cards, etc., were stolen. This proves to credit Providers you were diligent, and this is a first step toward an Investigation (if there ever is one).

But here's what is perhaps most important of all: (I never even thought to do this.)

7. Call the 3 national credit reporting organizations Immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over The Internet in my name. The alert means any company that checks your Credit knows your information was stolen, and they have to contact you by Phone to authorize new credit.

1.) Equifax: 800-525-6285
2.) Experian (formerly TRW): 888-397-3742
3.) Trans Union : 800-6807289
4.) Social Security Administration (fraud line):800-269

20/20 Global Vision is Right on Target

One of the critical differentiating factors at Corestates Capital Advisors is our strategic view of investing. Our mission is to sustain acceptable portfolio growth with limited risk. To accomplish this we believe portfolios can no longer be guided by predominantly domestic strategies because they tend to be overly-influenced by US Monetary Policy and US Foreign-Policy. Our 20/20 Global Vision encompasses the 20 critical global issues that will influence portfolio performance over the next 20 years. Listed below are the current 20 issues that we think will have enormous influence.

With recent developments regarding the Swine Flu Virus #19 best describes the value we bring with the 20/20 Outlook.

Economic Issues

1. Accelerating globalization
The process of globalization will accelerate as expanding communications, development of transportation infrastructure, and more favorable trade policies encourage individuals worldwide to pursue a better economic life. The world will move closer to being one economic community.

2. Leveling of living standards
Differences in standards of living among most of the world’s economies will shrink as developing areas see rapid increases in the wealth of their citizens. At the same time, the populace of developed nations will suffer the impact of increasing global competition.

3. Moderation of economic cycles
Normal economic cycles will moderate as the major central banks become more adept at tempering inflation and managing their economies. But, this tampering with otherwise free markets could also contribute to infrequent but severe economic super-cycles.
4. Growth of the “BRICs”
Developing countries — led by Brazil, Russia, India, and China — will play larger and broader roles in the world economy and geopolitics. And, will occasionally suffer serious growing pains.

5. End of disinflation
After declining for most of the last 25 years, the global rate of inflation will begin to rise, but continuing productivity increases and global competition will moderate price increases for many goods and services.

6. Increasing petro-power
Oil and gas reserves will become an even more formidable source of power – with economic, political, and cultural impacts. Those with control of these reserves will be flexing their strengths in more and different ways, to the general detriment of the more developed economies.

Political Issues

7. Spread of capitalism
Capitalism and free markets will continue to spread. Economies that for generations relied on central planning will loosen economic constraints, allowing their citizens to profit from their ideas, initiative, and industry.

8. Creeping socialism
As capitalism displaces socialism and communism in developing economies, socialistic programs will become more pervasive in traditionally capitalistic economies as they adopt policies and programs that reward their less productive citizens at the expense of the most productive.

9. Some nationalization
The route to national prosperity through expanded personal freedoms and free markets will be readily apparent, but not all nations will choose to participate. Some natural resource-exporting countries will even move in the opposite direction, implementing broad nationalizations of resources and industries within their borders, to the detriment of world trade, as well as to their own economies.

10. National fiscal (un)fitness
Some of the world’s major representative democracies will suffer continued financial decline from the inherent lack of incentives for politicians to limit spending or raise taxes. This will raise their borrowing costs, furthering their fiscal decline.

Demographic/Social Issues

11. Diverging demographics
With the pace of natural deaths exceeding that of births, populations of the developed economies will stabilize and become older on average while populations of developing economies increase and grow younger. This will further strain the national balance sheets of developed countries, aid those in developing regions, and foster increased immigration in both directions.

12. Widening wage gaps
For low-skill jobs, wage differentials among countries will decrease, but productivity-related wage gaps will grow. This will create increasing friction between perceived “haves” and “have-nots,” which history has shown can be damaging to even well-established civilizations.

13. Rise of virtual communities
Heredity and geography no longer define an individual’s community or even family. The Internet, cell phones and other technologies give people worldwide the capability and anonymity to redefine themselves and their worlds. As the behavior-moderating effects of the family and community dissipate, the resulting individual freedoms will allow both the best and the worst of each of us to be displayed.

14. Intercultural friction
Peoples of different ethnic backgrounds, religions, and economic values will increasingly find the need to interact, often resulting in some form of cultural conflict. The ideal of melting-pot-merging of cultures will continue to be elusive.

Natural/Scientific Issues

15. Alternative energy sources
Heavy dependence on oil will continue as long as oil is readily available. When new energy sources are developed, however, the changes are likely to be significant and abrupt, to the betterment of high energy consumption nations and to the detriment of today’s energy producers

16. Mobility of production
Information technologies will continue to become faster, cheaper and more accessible. This will accelerate the movement of both industrial and knowledge-based business to the lowest-cost global providers, regardless of their locations.

17. Demand for natural resources
Just as demand for energy will outpace supply, so will demand for other natural resources like metals, timber and even water and food. This will create additional scientific challenges and global tensions, including finding ways to shelter poorer nations from the resulting price inflation.

18. Climate change
The growing worldwide demand for energy will collide with increasing pressure to address the risks of climate change. The need for energy will prevail in developing nations, accelerating their growth, while efforts to limit harmful emissions dominate in industrialized nations, restraining their economic growth and global competitiveness.

19. Global interdependence
Greater interconnectivity of the world’s peoples and economies will mean greater interdependence. This can amplify the impact of acts of terrorism such as dirty bombs or electronic jamming, and of natural disasters like viral pandemics, asteroids, or tidal waves.

20. Accelerating space exploration
As the earth becomes more vulnerable and less capable of supporting its burgeoning population, the push to accelerate space exploration will intensify, ultimately leading to discoveries that have the potential to radically change life on earth and beyond.

Sign up For our Free Newsletter!

Click Here to Sign up for our Free Newsletter

Why Currencies Make Sense!

"It is interesting to note that while it is theoretically possible for stocks, bonds and commodities to all fall in price at the same time, it is not theoretically possible for all currencies to fall at the same time, because the value of currencies are expressed in terms of other currencies. If one goes down, another must go up."
-Richard Shaw

If you had the opportunity to visit our website www.corestates.us, you may have seen a short video explaining the concept of negative correlation. Simply stated, several asset classes have opposite reactions to the same set of market conditions. Much like an eight cylinder engine that works most efficiently when one piston provides specific power in correlation to the other pistons. When one piston is up the others are in various stages of the engine cycle.

At CoreStates we allocate our eight cylinders across various asset classes that have tendencies to move just like the pistons. The four traditional asset classes that we use are comprised of stocks, bonds, cash and real estate. The nontraditional asset classes that make up the eight cylinder engine include energy, precious metals, commodities and currencies. The reasons that currencies make a lot of sense in a diversified portfolio are as follows:

1. The currency market is the largest in the world
The massive volume of currency transactions,
nearly $2 trillion daily, allows extremely low transaction costs and provides a level of liquidity unmatched by any other asset class.

2. It is a market that never closes
Even the most liquid market is totally illiquid . . . when closed. And remember, the stock and bond markets closed for several days following the 9/11 terrorist attacks. The currency market did not. Investors in this market were able to transact while others could only wonder what their investments might be worth.

3. Most stock and bond investors are already exposed to currencies
Any company or government that does business overseas brings currency risk to its lenders and investors. Changes in the value of local currencies relative to the home currency (the dollar in our case) can turn a profitable business or investment transaction into a loss.

4. Major market participants aren't all in it for profit
Whether it is a Central Bank attempting to influence the value of its currency or a corporation hedging its international business transactions, their goal is stability, not maximum profits. In few other markets are major participants not seeking and fostering large price moves in either direction.

5. Returns from currency trading rarely coincide with other investment returns
Adding currency strategies to a diversified investment portfolio stabilizes overall portfolio values and helps assure that favorable returns are always available from at least one asset class.

6. The currency market is crash resilient
Each individual currency trades relative to another currency (for instance, the number of yen per dollar, or dollars per euro). So, every gain in one currency is matched by a loss in another. Individual trading strategies, if applied properly, will see varying degrees of success or failure, but the overall currency market will remain resilient because of these offsetting currency value changes.

7. Currencies are no more exotic than languages
Doing business in a foreign country usually requires the translation from one language to another, and the conversion from one currency to another. Both are simple, straightforward and necessary aspects of our global marketplace.

These unique aspects of the currency market make professionally managed currency-trading portfolios a valuable and readily accessible investment alternative for institutional and individual investors alike. CoreStates Capital Advisors has extensive experience with these strategies and makes available to its clients some of the nation's best currency managers - just one more way in which CoreStates seeks to fulfill its commitment to protect your lifestyle and preserve your legacy.

Like What you See? Click here to sign up for our FREE Newsletter!

Take Off Your Blindfolds! It's NOT Pin the tail on the Donkey!

Never before in the post-war era have U. S. investors had to deal with a crippled financial system, such monumental depth and breadth of change, and a pervasive uncertainty about the future. And, never in any modern era have we had to do so while also experiencing the waning of our nation’s global economic power, international prestige, and internal potential for future growth.

Even more importantly, never before have U. S. investors had to deal with the kind of investment markets produced by this new economic environment – investment markets that lack the underpinnings of a consistently growing and increasingly productive economic base. In this previously unknown environment, most investors will be essentially investing blind.


The reasons behind the gradual dissipation of the foundational substance of our nation and economy are many, varied, and controversial. So, I will leave the explanations and evaluations of the causes (e. g., the opinions) to the political pundits and economic editorialists.

The more important issue is this: What can investors do to protect their lifestyles and preserve their economic legacies in this extremely hostile financial environment?

At CoreStates Capital Advisors, we have been pondering this question since well before the severe market erosion began. Our approaches will continue to develop and evolve, of course, but the following are some of the key concepts, strategies and tactics we have been implementing for our clients in our pursuit of investment success in this new environment.

21st Century Diversification
The four-cylinder portfolios (stocks, bonds real estate and cash) of the 1980s gave way to the eight cylinders (adding energy, precious metals, commodities and currencies) of the 1990s, but success in the 21st century will require all of this, plus the ability to be long or short in each category, and with manager discretion within each of the categories to move among style boxes, or even to abandon the style box concept for a more opportunistic approach.

Emphasis on Liquidity
An investment’s returns become “real” only when the investment is sold. Until then, they are only on paper. But, when sold, the return is locked in. So, it is critically important never to be forced to sell an investment, especially a highly priced volatile investment, at an inopportune time. The only way to achieve this is by maintaining enough liquidity in price-stable form or in truly uncorrelated assets to meet any scheduled or unscheduled cash needs.

Dynamic Allocations
The days of fixed allocations . . . never really existed. Going forward, dynamic allocations will become even more important as most markets see their historically upward bias diminish or even reverse, making all markets into trading markets and generously rewarding those investors able to capitalize on their inherently higher volatility.

End of Indexing
The days of buy-and-hold investing are also over. Active security selection will be more important than ever as increasing global competition as well as the mounting geopolitical challenges make the generation of corporate earnings increasingly difficult. In a flat-to-declining overall economy, “par” corporate performance will be insufficient to provide attractive returns to shareholders or even to maintain long-term credit quality. We must invest accordingly.

Focus on quality and valuation
The easy investment approach for the coming years will be to focus on quality . . . and settle for near-zero nominal returns in a potentially high-inflation environment. True growth of purchasing power will be achieved only by correctly evaluating investment quality and being willing to trade among quality levels based on their current relative valuations.

Polar Portfolio Positioning
Implement all of the above points and you are likely to find yourself with a “polar” portfolio – one consisting primarily of some very high quality, liquid assets and some very cheap, but rather speculative, exposures. Middling opportunities are likely to provide piddling returns as most investors seek to improve on low risk, low return investments by edging up the risk spectrum, thereby bidding up prices and diminishing their returns.

Importance of Judgment
Investing driven by historically based, “black box” models becomes less and less effective as the future becomes less and less like the past. The sea change in our worldwide investment landscape is rendering not only past models ineffective, but weakens the very concept of historically based investment models. The next generation of quantitative market analysis will require a higher level of investor behavior-based sophistication, as well as a very influential overlay of superior investment judgment.

Commitment to Patience
A more volatile, changeable market demands a more resolute, patient investor. Returns are certain to be erratic. Extreme market moves will be more common. Directionless markets will become the norm. Periods of steady, positive returns will be extremely rare.

We at CoreStates have no legacy investment styles that we must maintain. Our product is building client portfolios in whatever way we believe will be most effective in the years ahead. This gives us the freedom to truly serve our clients’ needs as those needs, and the market’s nature, change over time.

To us, this is the only way to do business.

What Does $1 TRILLION Dollars Look Like?

All this talk about "stimulus packages" and "bailouts"...
A billion dollars...
A hundred billion dollars...
Eight hundred billion dollars...
One TRILLION dollars...

What does that look like? I mean, these various numbers are tossed around like so many doggie treats, so I thought I'd take Google Sketchup out for a test drive and try to get a sense of what exactly a trillion dollars looks like.

We'll start with a $100 dollar bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slighty fewer have owned them. Guaranteed to make friends wherever they go.





A packet of one hundred $100 bills is less than 1/2" thick and contains $10,000. Fits in your pocket easily and is more than enough for week or two of shamefully decadent fun.





Believe it or not, this next little pile is $1 million dollars (100 packets of $10,000). You could stuff that into a grocery bag and walk around with it.











While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet...





And $1 BILLION dollars... now we're really getting somewhere...




Next we'll look at ONE TRILLION dollars. This is that number we've been hearing so much about. What is a trillion dollars? Well, it's a million million. It's a thousand billion. It's a one followed by 12 zeros.

You ready for this?
Ladies and gentlemen... I give you $1 trillion dollars...

Notice those pallets are double stacked.
...and remember those are $100 bills.

So the next time you hear someone toss around the phrase "trillion dollars"... that's what they're talking about.



Images Courtesy of PageTutor.com

Are you Underinsured?

Check your automobile insurance coverage! Look at the declarations page. Make sure you have enough coverage to protect yourself and loved ones.

All of us who drive know that Pennsylvania Law requires that we carry automobile insurance. However, Pennsylvania Law requires that we carry only minimal coverage: $15,000 for liability and $5,000 in medical coverage. But that is not nearly enough to protect yourself or your loved ones. Please allow me to tell you some horror stories that will help emphasize my point. The names have been changed to protect their anonymity.

John Houseman was driving his fiancé home after having seen a movie. It was a little after midnight. He was traveling through a steady green light at the intersection of Grant Avenue and Academy Road when suddenly he was struck in the driver’s side by a Ford F-150 driven by a drunk driver. The force of the collision propelled John from the car into the intersection. He suffered massive internal injuries and a brain injury leaving him in a coma for several months. Now, several years after the accident, John remains totally disabled from being able to perform any work. The driver carried automobile coverage of only $50,000.00. John carried no underinsured motorist coverage. The bar that served the drunk driver alcohol prior to the accident was uninsured. At trial, John was awarded $3,600,000 in damages. However, this was a pyrrhic victory as only $50,000.00 was able to be recovered, the drunk drivers automobile insurance coverage. My Attorney, Anthony Barratta, represented John for free and continued to represent him at no charge attempting to collect against whatever assets they could locate against the bar. However, things might have been easier for John had he carried Underinsured Motorist Coverage.

Another young man, Igor Cominsky, a college student at the University of Pennsylvania, was riding his motorcycle through the intersection of Bustleton Avenue and Hellerman Street. He had a steady green signal. A motor vehicle driven by another young man, turned left in front of the motorcycle. This driver was on his way to Church and did not see the motorcyclist. Igor had no time to slow down and slammed into the passenger side of the Church-going SUV, striking his chest hard across the frame of the left-turning vehicle. The young man died instantly. The driver of the other vehicle carried insurance coverage of only $25,000.00. Igor had no Underinsured Motorcyclist Coverage. When Igor died, he owed $50,000.00 in college loans for which is family is now responsible.

The message is clear: Please buy Underinsured Motorist protection. Many motorists buy only minimal coverage because their only concern is driving legally. The only way to protect yourself from injury caused by an underinsured driver is to purchase Underinsured Motorist Coverage. If you have more than one vehicle, you should also stack your coverages. This will permit you to multiply the amount of your Underinsured Motorist Coverage by the number of vehicles insured.

Should you have any questions about any aspect of your automobile insurance policy and how to protect yourself in the event of an accident, please call your attorney, or insurance company. No matter how safely you drive, you cannot control the actions of some other driver. Please protect yourself and your family by being prepared.

The White House vs. Business

I'm always trying to find interesting information that will allow you to make intelligent decisions. Last weekend I spent several hours reading various publications and thought I would share some interesting information coming from Business Week magazine.

As you read the comments, you can see how various aspects of the economic recovery plan are being challenged by businesses.

What the White House wants: Emissions

To cut emissions that cause global warming, the Administration proposes a "tap and trade" system. This would require companies to pay $646 billion over eight years to buy the tradable rights to emit such pollutants. Much of the money would be returned to consumers.

What business thinks:

Many companies do not oppose a price tag on carbon emissions, since it provides more certainty and boosts investments in efficiency and renewable energy. But they worry that selling all of the permits from the start can impose a huge burden on the companies involved.

What the White House wants: Healthcare

The President has provided $634 billion in the proposed budget to help pay for health care reforms over the next 10 years. Half that some will come from tax hikes and half from cuts in Medicare payments to insurers, drug companies and hospitals.

What business thinks:

On the surface, business broadly backs health care reform. But the cracks are starting to show: insurers fear competition from government-backed rivals, hospitals worry costs will be squeezed, and drugmakers face far lower prices.

What the White House wants: Foreign Tax

Multinationals currently can defer US taxes on profits earned abroad until they bring the funds back home. The Administration says that encourages companies to ship jobs overseas. It plans to raise $210 billion by limiting the tax deferral and other overseas breaks.

What business thinks:

Companies fear they will be at a competitive disadvantage if they have to pay US rates on foreign operations while their rivals pay lower local rates. Any loss of revenues overseas, they add, will result in US jobs lost, not gained.

What the White House wants: Income Tax

The President would boost the top rates for families making more than $250,000 from 33% to 36%; those earning over $370,000 would go to 39.6%. Capital gains and dividends rate would rise from 15% to 20%. Deductions for mortgage interest and charitable giving drops to 28%.

What business thinks:

Fears that tax hikes will discourage the well-off from investing are shared by a host of businesses, from homebuilders and mortgage brokers desperate for a housing rebound to mutual fund companies and other investment managers struggling to keep investors in the market.

What the White House wants: Drilling

Converting the economy to cleaner energy has emerged as one of the Administration's top goals. If it has its way, that means an end to a host of tax breaks for oil and gas producers, including tax credits aimed at spurring domestic offshore drilling.

What business thinks:

The oil industry plans to mount a fierce fight to keep its tax perks, arguing that the President's plan puts jobs and energy security at risk. Plus, making drilling more expensive in the US could encourage oil giants to shift even more investment in exploration abroad.

What the White House wants: Agriculture

The President wants to end what he considers wasteful agricultural subsidies. He is counting on saving $9.8 billion over 10 years by capping payments at $250,000 annually to farmers whose gross sales do not exceed $500,000 a year.

What business thinks:

The agricultural lobby, which spent $131 million in lobbying in 2008, is among the fiercest defenders of turf in Washington. It will argue that farmers can't stay in business, especially in a tough economy, without support for cotton,
rice, and other crops.

It seems to me that the battle lines are being drawn. I believe the recovery of this economy is going to require give-and-take on both sides. As we learn more about the details I will share some more thoughts with you.

Bill Spiropoulos
President & CEO
CoreStates Capital Advisors