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Market & Economic Brief

November 19, 2008

WORLD MARKETS
After attempting a rally earlier in the month, U.S. stocks broke recent support levels and established fresh lows. Commodities and World REITs have also found new lows. Many international stock markets are still maintaining previous support levels. Intermediate term U.S. treasuries continue to rally in a flight to quality. The near term bias has again turned negative for stocks.

WORLD ECONOMY
The weekly leading and monthly coincident indexes we follow continue to weaken, suggesting more trouble ahead for the U.S. economy. Many European countries continue to report deteriorating economic conditions as well. China reported a dip in October retail sales but consumer spending has held up better than many other parts of their economy.

INFLATION DATA
Producer costs fell a record 2.8% in October, led by a huge decline in energy prices. Future inflation indicators we track also continue to decline.

U.S. RESIDENTIAL HOUSING
The Nat’l Association of Home Builders fell to its lowest level since 1985 in November. Home prices declined in 4 out of 5 cities during Q3. The FDIC has proposed using $24 bil. of the TARP funds to help stem foreclosures. The leading home price index we track rose slightly for August (the latest data available). Additional increases may signal a bottom in housing prices.

Effective Portfolio Design

Discipline
A fundamental shift is underway in the investment management and financial planning professions with the goal of enhancing classical portfolio theory. This change has led to a more rigorous analysis of projected investment returns, a wider selection of financial instruments, and enhanced investment techniques by portfolio managers.

Investments available today offer an opportunity to customize the asset mix, manage cost and control risk which may improve performance for investors.
New investments have been complemented with an array of readily available tools to track and analyze financial information
Behavior finance has gain credibility and has brought a challenge to the theory that all markets are efficient

Modern portfolio theory, developed in the 1950’s and still used widely today, uses assumptions that present difficulties in current markets. Normal distributions do not accurately match historical return patterns and rare event occurrences (extreme negative and positive returns) are underestimated. Over long time frames (decades) these limitations have less impact, but within shorter time frames these limitations can be examined and potentially addressed in the construction and/or management of an investment portfolio.

Portfolio Composition
At Dightman Capital Group, we utilize broadly diversified portfolios but offer investors an ability to go beyond a traditional mix of U.S. stocks and bonds in the construction of their portfolio. We also believe in the utility of indexing and many of the investments we recommend are indexed based.

We offer portfolios from conservative to aggressive and shift allocations between asset classes for changing conditions.

Controlling Cost
Investment expenses are assessed in a variety of places: management cost, investment expenses, brokerage commissions, and service fees just to name a few. Keeping cost low in each of these areas means you have more money to grow.

We also pay attention to investment cost in the form of taxes. Taxes can be generated in a taxable investment account at a couple of levels. By using tax-efficient investments, we try to minimized the "shared" tax burden associated with some investments. We also use different tax strategies in an attempt to minimize the tax events generated directly in the portfolio.