The Markets

At its most basic level, a trade takes place when a buyer is willing to buy at a certain price and a seller is willing to sell at that price. Both parties could be smart, experienced, and looking at the same data, yet somehow one party thinks it’s a good price to buy and the other thinks it’s a good price to sell.

Last week, several news items represented good examples of how investors could look at the same data and draw different conclusions. Consider these:

1.Gross domestic product rose at a 2.8 percent pace in the October through December period.

Bullish investors say that’s up from 1.8 percent the previous quarter and the fastest pace in a year and a half.

Bearish investors say it’s less than the 3.0 percent growth expected by economists and most of the growth was due to inventory accumulation.

Source: MarketWatch

2.The International Monetary Fund (IMF) cut its forecast for global economic growth in 2012 and 2013.

Bullish investors say fears are overblown as private-sector economic activity in the 17-nation euro zone showed small, but unexpected, growth in January and durable-goods orders were up a strong 3.0 percent in December in the U.S. – the third straight increase.

Bearish investors say just heed the IMF’s warning, “Global growth prospects dimmed and risks sharply escalated during the fourth quarter of 2011, as the euro-area crisis entered a perilous new phase.”

Source: MarketWatch

3.Spanish and Italian bond yields dropped dramatically lately.

Bullish investors say the drop in yields and the strong demand in January’s bond auctions suggest the euro zone crisis is easing.

Bearish investors say the Portuguese bond market is now imploding, the Greek restructuring could fall apart, and the European Central Bank’s December offer of unlimited three-year loans to banks has simply delayed the inevitable day of reckoning.

Source: The Wall Street Journal

It’s differences of opinion like this that make markets. Thanks to the free market, there always seems to be a buyer for every seller – at a price.

Like Joni Mitchell who sang, “I’ve looked at life from both sides now,” we look at the markets from both the bullish and bearish sides and, ultimately, make decisions which we think will best position you to meet your long-term goals and objectives.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

WHAT WORRIES AMERICANS THE MOST about the national economy? Here’s the top 10 answers and the percentage who said it, according to an early January Gallup survey.

1. 26% Jobs/unemployment                                                              
2. 16% National debt/Federal budget deficit                                               
3. 10% Continuing economic decline/economic instability              
4. 6% Outsourcing of jobs overseas/creating jobs inU.S.                
5. 5% Obama not doing a good job/no plan/lack of leadership        
6. 4% Political bickering/Congress                                                    
7. 3% Healthcare/Medicaid                                                                                   
8. 3% Corporate corruption/corporations run the government          
9. 3% Housing crisis                                                                          
10. 2% The future of our children                                                       
11.      Eight other responses also checked in at 2 percent

The future of our childrenEight other responses also checked in at 2 percent

The top two items are not really a surprise, but what’s revealing is how low some “important” issues ranked. Taxes, recession, social security, gas prices, education affordability, and the divide between rich and poor (think Occupy Wall Street) all pulled just 2 percent. The stock market and interest rates barely made the list at 1 percent each and ranking 21^st and 25^th, respectively, out of 26 on the full list.

Interestingly, if we can resolve the two biggest items on the list – the jobs and debt situations – it would most likely also resolve the third item on the list – continuing economic decline.

Do you think the politicians are listening?

(Note: responses total more than 100 percent due to multiple answers.)

Weekly Focus – Just for fun: How to Turn a Watch into a Compass

Let’s assume that you are lost in the wilderness, but you have a watch that still works. You can easily find the cardinal points by pointing the hour hand at the sun. Then form an imaginary line directly through the center of the “wedge” that is created between the hour hand and 12 o’clock. This is your south–north line. The height of the sun in the sky and the time of day will then show you which end of the line is north and which is south, remembering that the sun sets in the west and rises in the east. Try this at home first!

–Bear Grylls, survivalist, TV host, adapted from his 2008 book, “Man vs. Wild”

Best regards,

Jeff Sorensen

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors. CA Insurance License No. 0778771

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

The Markets

We’re only three weeks into the New Year and already some very interesting trends have developed in the markets. Consider these four:

1. The worst performing stocks in 2011 have been the best performing in 2012. Bespoke Investment Group did an analysis and discovered that the 50 worst performing stocks in the S&P 500 in 2011 were up a whopping 11.2 percent YTD 2012 as of last Wednesday. By contrast, the 50 best performing stocks in 2011 were up only 2.1 percent so far in 2012. What a difference a “turn of the calendar” makes!

2. U.S. Treasury securities are off to their worst start in nine years. With improvements in the employment situation, housing sales hitting an 11-month high and a reprieve in the European debt problem, investors have less need for conservative treasuries and a bigger appetite for riskier stocks, according to Bloomberg and CNBC. At the moment, investors seem to be saying, “risk on.”

3. U.S. stocks rose for the third consecutive week and are near a six-month high. Despite a decidedly mixed start to the 4^th quarter earnings season, stocks have roared out of the gate this year and are now up 20 percent from the October 2011 low, according to Reuters. Of course, too much euphoria could lead to disappointment later.

4. The CBOE Volatility Index (VIX) declined nearly 22 percent in the first three weeks of this year. The big decline in the VIX suggests investors are less fearful about near-term market volatility, according to CNBC. In fact, the VIX is down to a seven-month low, according to Reuters. While the markets may be calm now, we’re not complacent.

Trends come and go in the market, but one thing that stays constant is our diligence in helping you reach your goals.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

WHY IS IT THAT CONSERVATIVES TEND TO WATCH FOX NEWS and those with more liberal leanings tend to watch MSNBC? Psychologists would tell us it’s because of what they call “confirmation bias.” Confirmation bias is the tendency of humans to seek information that confirms an already held belief or opinion and to avoid or discount information that might contradict an existing belief or opinion.

This concept also applies to investing and it’s very important to avoid it as much as possible.

For example, let’s say we’re really bullish on the U.S. stock market. If we let confirmation bias cloud our judgment, then during our research, we would tend to read the reports that support our bullish view of the market and let that reinforce our decision to be bullish. By contrast, we would tend to avoid reading the reports that are bearish, or, if we do read them, we would come up with reasons why they were wrong.

When we’re under the spell of confirmation bias, it’s easy to miss turning points because we’re stuck on our current belief or opinion and won’t change even when we see contradicting evidence. That, of course, would be bad for your long-term wealth.

How strong is the confirmation bias pull?

A 2009 meta study published by the American Psychological Association reviewed 91 studies in the area of confirmation bias and concluded that people were nearly two times as likely to seek information which supported their existing view than to seek information which contradicted their current view. That’s a strong pull!

How do we overcome this pull?

Here are two keys that could help:

1. Acknowledge that confirmation bias exists. Knowing that it exists helps us try to avoid falling into its trap.

2. Actively seek contradictory opinions. This is another way of asking what could go wrong with an investment and then doing our best to ensure we understand the “other side of the coin.”

So, in addition to making a “rational” case for an investment, we have to make sure we avoid letting psychological biases get in the way.

Weekly Focus – Think About It

“If you take emotion – would be, could be, should be – out of it, and look at what is, and quantify it, I think you have a big advantage over most human beings.”

–John W. Henry, trading advisor, principal owner of Boston Red Sox

Best regards,

Jeff Sorensen

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

 The Markets

The U.S. became a member last August and, now, so has most of the eurozone. Unfortunately, it’s not a club you want to join.

Late last week, Standard and Poor’s (S&P) announced it was downgrading the credit rating of nine of the eurozone’s 16 members including behemoths France and Spain. In addition, 14 of the 16 members have “negative outlooks” which means S&P believes, “that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013.” The only two countries with stable credit outlooks are Germany(no surprise) and Slovakia, a former Communist country that became an independent state in 1993 after the dissolution of Czechoslovakia.

What does this mean for the future of Europe and the economy?

The New York Times called it, “A move that may have more symbolic than fundamental financial impact, but served as a reminder that Europe’s economic woes were far from over.” Underscoring that, the U.S. downgrade, has – so far – not caused much of a problem. The 10-year U.S. Treasury bond yielded a slim 1.85 percent last Friday, an indication that investors still view the U.S. as a safe haven. The bottom line is everybody knows Europe has problems and the downgrade, while not helpful, simply puts an exclamation point on the obvious.

Back in the U.S., investors seemed more interested last week in tracking our economic momentum which included an eight-month high in consumer sentiment and an improved assessment of the economy from the Fed’s Beige Book. Econoday summed it up nicely when they wrote, “Traders and investors have been moving toward the position that European problems deserve less weight than they have been given in recent months.” That may be true in the short term, but if Europe craters because of their sovereign debt problems, it’s unlikely the U.S.will escape unscathed.

Unlike Las Vegas, what happens in Europe may not stay in Europe.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

THE ANNUAL CONSUMER ELECTRONICS SHOW (CES) just wrapped up in Las Vegas and, as usual, it featured a dazzling array of must-have new gizmos and gadgets that will likely show up in your hand or in your family room sometime down the road. With 2,700 exhibitors and 150,000 total attendees, it’s the showcase event for everything electronic.

We thought it’d be fun to take a look at some of today’s commonplace gadgets that were introduced at CES and have you guess the year of their debut. So, here goes…

What year did these devices debut at CES?

• Digital video discs (DVDs)
• Satellite radio
• Videocassette recorder (VCR)
• CD player
• Blu-ray disc
• High-definition television
• Camcorder

It’s not all fun and games at a show like CES. As you can see from the list above, these devices have spawned major industries that generated tremendous economic activity. Innovation is vital for economic growth, and a show like CES helps spotlight the latest electronic advances and, perhaps, the next driver of the economy.

One of the big highlights at the just concluded show was the unveiling of LG’s 55-inch OLED TV packed with 3D bells and smart TV whistles. So, what in the world is an OLED TV? It’s a TV that uses a new display technology called OLED (Organic Light Emitting Diodes). OLED televisions are brighter, more efficient, thinner, and feature better refresh rates and contrast than either LCD or Plasma TVs. And boy is it thin. The LG 55-inch OLED TV is only 0.2 inches deep at its thinnest point and weighs a measly 16.5 pounds. If you’re an early adopter, you’ll want one of these beauties in your home theater later this year.

Okay, here are the answers to the “device debut” question, according to CNBC.

Digital video discs (1996), Satellite radio (2000), Videocassette recorder (1970), CD player (1981), Blu-ray disc (2003), High-definition television (1998), and Camcorder (1981).

How many did you correctly answer?

Weekly Focus – Think About It

“It’s easy to come up with new ideas; the hard part is letting go of what worked for you two years ago, but will soon be out of date.” –Roger von Oech, author, inventor, consultant

Best regards,

Jeff Sorensen 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, Member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not associated with Triad Advisors. CA Insurance License No. 0778771

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents theLondonafternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

While Dr. Martin Luther King, Jr. was fighting tirelessly for civil rights, other events were taking place that have changed life in America significantly. For example, in 1966:

• Lunar Orbiter 1 changed perspectives by taking a picture of Earth from outer space
• The terms ‘miniskirt’ and ‘Third World’ were added to American dictionaries
• The endangered species list was created
• The Supreme Court established Miranda rights for criminal suspects
• America put 400,000 troops in Vietnam

Dr. King said that “human progress never rolls in on the wheels of inevitability. It comes through the tireless efforts and the persistent work of dedicated individuals.” No matter what issues are most important to you – political, economic, or social – it’s important to let your voice be heard.

We are dedicated to helping you build financial security over the long term. If market volatility has shaken your confidence, please give us a call. Reviewing your long-term goals and the strategies that have been put in place to help you achieve them can help restore financial confidence.

The above material was prepared by Peak Advisor Alliance.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

Since President Roosevelt signed the Social Security Act into law in 1935, millions of Americans have depended upon it as a major source of retirement income. Today, retirees are living longer lives and withdrawing more from the system, yet fewer people are contributing to it. That means retirees must find ways to maximize their Social Security income.

Author Andy Landis’ book, “Social Security – The Inside Story”, describes strategies for doing that.

The first strategy, “The Reset,” offers a way to draw Social Security without a permanent reduction. Here’s how:

At age 66, George will be entitled to a 100 percent benefit, which is $1,000 per month. However, he starts drawing Social Security at age 62, getting $750 monthly payments.

Then at age 63, after receiving $9,000, George withdraws his application. He takes $9,000 from his retirement savings and repays it to the Social Security Administration, without interest. Then he re-files for Social Security and gets the payment due a 63-year old, or $800, for the rest of his life.

George calculates that his $9,000 “investment” in Social Security results in a raise of $50 a month, or $600 per year. He sees this as a government-guaranteed 6.7 percent return on investment, with a pay-back period of only 15 years. He also discovers that he gets a tax credit for the year since he received “negative” Social Security. In addition, he has secured a higher payment for his wife, if he dies before her.

This can be a powerful strategy for those who want the early payments from Social Security, but also want the higher payments of a later filing – a way to have your cake and eat it, too. The only catch: under a new rule you can exercise the “Reset” only once in your life, and it has to be in the first 12 months of your Social Security eligibility.

Another strategy offered by Landis is called “File and Suspend.” According to Landis, the general idea is that, “We are going to get some money now, but we have to go for the bigger bucks later.” It works like this:

At age 66, you file for your benefits, but suspend the payments. Since you filed, the spouse draws up to 50 percent; meanwhile behind the scenes, your own checks are getting larger, because of delayed retirement credits. If you follow this plan, you will receive lower payments from age 66 to 70, but you will have some money coming in from your spouse.

Then when you reach age 70, “un-suspend” your payments and your checks will have grown substantially. As long as you have some income for the age 66-70 lower income period, this strategy could be very beneficial to you.

As always, fully understanding the different strategies and all their implications before acting is important. The right choices will significantly help in your overall retirement planning.

Securities offered through Triad Advisors, Member FINRA/SIPC. Advisory Services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors. CA Insurance License No. 0778771

There is no assurance that the techniques and strategies discussed are suitable for all individuals or will yield positive outcomes. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be appropriate for you, consult your financial, tax, and/or legal advisors prior to taking action.)

The Markets

Which stock characteristic most impacted the S&P 500’s performance in 2011?

To answer that question, Bespoke Investment Group performed a decile analysis and concluded that having a high dividend yield was the most important factor affecting stock prices in 2011.

In their analysis, they discovered that the three deciles with the highest dividend yield were the only ones to experience a positive return for the year. In fact, while the S&P 500 index was unchanged for the year, the top three highest-yielding deciles rose 10.4 percent, 6.4 percent, and 8.7 percent, respectively. The remaining seven deciles all experienced a loss for the year.

Now, it won’t always turn out that the highest dividend yielding stocks are the best performers. Some years, investors will be more adventurous and bid up the riskier stocks that tend to pay low or no dividends.

Will the tide turn in 2012 and see the outperformance of the low or no dividend stocks? A lot will depend on how the economy shakes out.

Based on last week’s unemployment report, it looks like we ended 2011 with some economic momentum. The U.S. economy added 200,000 jobs in December and the unemployment rate dropped to 8.5 percent, the lowest in almost three years, according to BusinessWeek.

This week marks the beginning of another quarterly earnings season so the next 30 days or so should give us a good indication of the strength of the underlying economy.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

WERE THE “NIFTY-FIFTY” REALLY THAT NIFTY? Back in the early 1970s, pundits fawned over some of the era’s fastest growing, industry-leading companies who seemed to defy the sluggish overall economy. Dubbed the Nifty-Fifty, these glamour stocks were well-known “one-decision” stocks that institutional investors clamored to own. So, how well did these stocks do over the last 40 years? Were they truly “one-decision” stocks?

While there was no official list of the Nifty-Fifty, two competing lists of 50 stocks are commonly cited, according to a research report titled, “The Nifty-Fifty Re-Revisited,” by Jeff Fesenmaier and Gary Smith of Pomona College. For today’s purpose, we’ll look at the 24 stocks that made both lists and were dubbed the “Terrific 24” by Fesenmaier and Smith.

Some of the household names on the Terrific 24 list include: McDonald’s, Walt Disney, Avon, Johnson and Johnson, and Coca-Cola. These companies are still doing well. However, some other household names on the Terrific 24 list performed poorly. Consider the following:

Xerox: It’s still around, but is a shadow of its former self and trades for about $8 per share.

MGIC Investment Corp: It went through various corporate restructurings throughout the years, but is still around as a private mortgage insurer. However, it got battered in the mortgage insurance meltdown of recent years and trades for about $4 per share.

Polaroid: The inventor of instant film couldn’t make the transition to a new world and filed for bankruptcy in 2001.

Eastman Kodak: Perhaps the saddest story of the bunch, Kodak has struggled for years to make the transition to a digital world and is now rumored to have filed for bankruptcy as early as this month, according to Reuters. Its stock sold for less than 50 cents per share last week. Ironically, Kodak invented the digital camera in 1975, but was never able to capitalize on it.

With 40 years of history, here are three key lessons we can learn from the Nifty-Fifty story:

1. Some “glamour” stocks do remain glamorous for many years, e.g, McDonald’s, Walt Disney, and Coca-Cola (although each had its “rough periods” over the past 40 years).
2. Promoting “one-decision” stocks is more of a headline-grabbing marketing strategy than a sound investment strategy.
3. Even the “best” stocks can fall to zero so it’s important to have a sell discipline.

As the British statesman and philosopher Edmund Burke said, “Those who don’t know history are destined to repeat it.”

Weekly Focus – Think About It

“The supreme purpose of history is a better world.” –Herbert Hoover, U.S. President

Best regards,

Jeff Sorensen

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

The Year in Review

“Much Ado About Nothing” is one of Shakespeare’s famous comedies and, surprisingly, the title succinctly summarizes the U.S. stock market in 2011.

There was “much ado” during 2011 as we experienced one of the most volatile years on record. For example, regarding the S&P 500 index stocks, Bloomberg said, “Individual stocks were more volatile than in 2009 and 2010, with 55 losing more than 30 percent this year compared with a total of 13 in the prior two.”

On top of that, “Stocks swung at a daily rate of twice the 50-year average after the S&P 500 reached a three-year high in April.” After hitting that high in April, the S&P 500 then plunged 19 percent over the next five months. Continuing the whiplash, the market staged a remarkable comeback and that’s where the “about nothing” comes in to play.

By the time the final trades were placed on December 30, the S&P 500 ended the year exactly where it started – and we mean exactly! It started the year at 1,257.6 and it ended the year at 1,257.6. Yet, during that time, it moved up or down a total of 3,240 points when you sum the absolute daily changes on a closing basis, according to The Chart Store via Ritholtz.com. So, after all the volatility, after all the worrying, the market ended the year right where it began. Whew!

Despite the year ending in a push, here are 10 newsworthy items that hit the headlines:

1. Europe reached crisis mode. Several European countries experienced severe budget problems including Greece and Italy while the dithering of European politicians kept markets on edge. The three main causes of the crisis were 1) excessive government spending leading to 2) excessive government debt coupled with 3) slow economic growth. Source: Anthony Sanders, Professor of Real Estate Finance at George Mason University, December 15, 2011

2. Interest rates continued to fall. The 10-year Treasury ended the year yielding below 2 percent and the 30-year yielded below 3 percent. On a total return basis, the 30-year Treasury jumped 35 percent in 2011, which is higher than every stock in the Dow Jones Industrial Average! Sources: The Wall Street Journal; Barron’s

3. The Middle East rose in protest. Mass protests swept the Middle East, governments were overthrown, and the political landscape was dramatically reshaped. The reverberations will last for years. Source: The Economist

4. Apple and Steve Jobs were everywhere. Apple was 90 days away from bankruptcy in the late 1990s, but through the magic of Steve Jobs, the company briefly became the world’s most valuable company in 2011 – surpassing Exxon! The iPhone was the #1 most searched term on Yahoo! for the year. And, yes, Steve Jobs passed away from cancer at the much too young age of 56. Sources: Bloomberg; Yahoo! News

5. Japan was rocked with a massive earthquake and tsunami. The devastating power of Mother Nature claimed more than 15,000 lives, shocked financial markets, and disrupted business around the world. The pain and scars of this tragedy will remain for many years. Source: Bloomberg

6. The U.S. credit rating got “dinged.” In August, Standard & Poor’s downgraded the AAA credit rating of the United States due to political bickering and unsustainable budget deficits. The stock market promptly fell yet, surprisingly, interest rates ended the year at extremely low levels. Source: Bloomberg

7. Gold kept its luster. Despite weakness at the end of the year, gold prices finished the year in positive territory for the 11^th consecutive year. In times of uncertainty, investors have shown a preference for the yellow metal. Source: The Economic Times

8. Foreign stock markets took it on the chin. Unchanged in the U.S. looks good compared to China, which fell 22 percent; Hong Kong, down 20 percent; Brazil, down 18 percent; Germany, down 14.7 percent; and Britain, down 5.6 percent. There’s no place like home! Sources: Associated Press via Yahoo! News; Bloomberg

9. Burgers and banks were bookends. The best performing stock in the Dow Jones Industrial Average in 2011 was McDonald’s, which rose 31 percent. At the other extreme, Bank of America was the worst performer dropping 58 percent. Looks like a lot of people ordered an extra fry with that Big Mac. Source: Associated Press via Yahoo! News

10. “Planking” became a worldwide phenomenon. Traced back to a 20-something Australian, planking involves lying face down on the ground with your arms at your side. The “trick” is to do it in unusual places or atop peculiar objects. The unrelated “fitness” version of planking also made headlines in 2011 when a 71-year-old Wisconsinite named Betty Lou Sweeney set a new Guinness World Record by holding an abdominal plank for an incredible 36 minutes and 58 seconds. What’s even more incredible is in 2009 she was “severely overweight and nearly died from complications from an infection that went septic and shut down her kidneys.” Two years later and 100 pounds lighter, she set the world record. Yes, there’s hope for all of us! Source: Yahoo! News

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

Weekly Focus – Think About It

“The bad news is time flies. The good news is you’re the pilot.”

–Michael Altshuler, speaker, entrepreneur

Happy New Year!

Best regards,

Jeff Sorensen

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

* This newsletter was prepared by Peak Advisor Alliance. Peak Advisor Alliance is not affiliated with the named broker/dealer.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

According to Epicurious.com, superstition often guides meal choices during New Year’s celebrations. Some foods are believed to bring good luck, while others are avoided for fear of negative consequences. Tradition suggests that you eat these foods:

• Grapes – In Spain, Portugal, and their former colonies, people eat twelve grapes at midnight. Each grape represents one month of the year. If the grape is sweet, the month it corresponds to may be especially rewarding. If it is sour, the month may be challenging.
• Cooked greens and legumes – Cabbage, collards, beans, and lentils symbolize money and may bring financial good fortune. In Denmark, people feast on kale with sugar and cinnamon. In Brazil, they start the New Year with lentils and rice. In the Southern United States, we eat black-eyed peas or cowpeas.
• Pork – Apparently, pigs are a symbol of progress in many countries. Suckling pig is a traditional New Year’s meal in Cuba, Austria, and Hungary. They enjoy pig’s feet in Sweden, and roast pork in Germany.
• Cake – Revelers in Italy, Poland, Netherlands, Holland, and other countries enjoy round and ring-shaped cakes during New Year’s festivities. In some places, they bake a special trinket inside the cake which brings the finder good luck during the New Year.

It is widely believed that lobster and winged fowl are poor choices for New Year’s meals. Lobster moves backwards, and that could lead to setbacks during the New Year. Similarly, consuming winged creatures could cause your luck to fly away in the coming year. No matter what your New Year’s meal includes, we wish you the happiest of New Year’s and much good fortune!

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory Services offered through SorensenWealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

Financial professionals often follow two rules of thumb when providing clients with financial advice. First, they suggest clients save as much as possible in qualified retirement plan accounts, such as 401(k) plans and Individual Retirement Accounts (IRAs). Contributions to these plans generally are made with pre-tax dollars, and they have the opportunity to grow tax-deferred. Second, they advise that retirees delay taking distributions from qualified accounts for as long as possible because no taxes are owed on qualified accounts until distributions are taken.

As with many rules of thumb, these principles are not accurate or reliable in every situation. Consequently, it is important to work with an advisor to evaluate your specific circumstances and determine the best course of action. Here are some of the issues that should be considered:

• Should I save for retirement in taxable or tax-deferred accounts? From a financial planning perspective, it is beneficial to have a blend of qualified and non-qualified assets. This provides more opportunity to balance and potentially minimize income tax liability over time.
• Do you receive company matching contributions? If your company’s 401(k) plan offers plan matching contributions, it is providing an automatic return on your investment. A company match of 50 cents on the dollar represents a 50 percent return on investment from day one, assuming you are 100 percent vested in the plan. When a matching contribution is available, it may be a good idea to contribute enough to the plan to receive the maximum match every year.
• Should more qualified plan savings be set aside by an older spouse or a younger spouse? The answer to this questions depends on the couple’s goals and expectations. In general, an older spouse will be able to access qualified plan savings sooner than a younger spouse; however, a younger spouse will have more years to invest taxdeferred, which may mean that he or she accumulates more savings. If the younger spouse saves and accumulates more, his or her Required Minimum Distributions (RMDs) may be greater at age 70½. Since RMDs are taxed at ordinary tax rates, the long-term tax consequences should be considered.
• Should I draw assets from a taxable or tax-deferred account first? Many people assume it is best to let qualified plan accounts grow tax-deferred for as long as possible; however, when you take a distribution from a qualified account, it will be taxed at your ordinary income tax rate. It may be advantageous to use a combination of non-qualified and qualified account assets to moderate taxable income over time. In addition, higher qualified plan distributions may affect the taxability of your Social Security benefits.

There are many considerations when structuring retirement savings and retirement income plans. When combined, Federal and State income tax rates often total 30 to 45 percent. It is essential to plan carefully and understand the tax implications of your decisions.

If you would like to review your retirement plans, give us a call at 805-379-9870. 

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.

Many of us spent our childhood years playing sports and games. An important part of our development was learning the rules. Once we understood the rules, we could develop creative strategies for winning. When the rules changed, our strategies needed to adapt. Estate planning is no different. Late in 2010, President Obama signed into law changes to estate and gift tax rules. If you haven’t already, it’s important to review the new rules and make adjustments to existing estate planning and gifting strategies. Here are a few of the changes that may affect your plans:

• Estate Taxes Reinstated

In 2010, for a single year, there was no estate tax. During 2011 and 2012, the top estate tax rate will be 35%, and the estate tax exemption amount will be $5 million, as shown in the table below. In 2013, these temporary changes will end, and we may see a return to higher estate tax rates and lower exemption amounts.

Generation-Skipping Transfer Tax Repealed

Generation-Skipping Transfers (GST) allow one person to reassign ownership of assets to another person who is two or more generations younger. For example, a grandparent might transfer ownership of property, by gift or at death, to a grandchild. Historically, GSTs have been taxed at the highest estate tax rate. However, for 2010, the GST tax was temporarily repealed. As a result, gifts made to grandchildren during 2010 were assessed gift tax and not GST tax.

The GST tax returned in 2011 with the top rate at 35%. Executors of estates for those who died during 2010 chose between the estate tax rules for 2010 and those for 2011 by filing an estate tax return within nine months of the new law’s enactment.

• Gift Tax Exemption Increased

The new law temporarily increases the lifetime gift tax exemption from $1 million to $5 million. For example, with proper planning, a married couple can gift up to $10 million to future generations completely free of gift, GST, or estate taxes through 2012. This creates an opportunity for tax-free transfers of wealth that has not existed before.

• Estate Tax Exemptions Become Portable

In the past, estate tax exemptions that were not used were lost. The new law makes the $5 million exemption portable through 2012. In other words, an executor can preserve any portion of unused estate tax exemptions for the surviving spouse by filing an estate tax return. As the law is currently written, portability will disappear in 2013.

The new and temporary estate tax laws provide an opportunity to develop new plays for the 2011 and 2012 estate planning playbooks. If you would like to explore these opportunities, please call us at (805) 379-9870. We will be happy to work with you and your estate planning attorney.

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Sorensen Wealth Management (SWM). SWM is a Registered Investment Advisor and is not affiliated with Triad Advisors.