Understanding Conflicting Economic News
By: Clark A. Kendall

The holiday season is typically a good period for investors. However, this past holiday season left many hoping for better news in 2008.

The mortgage market continued to take a toll on financial markets in the fourth quarter. The most significant damage from risky bets on sub-prime mortgages was seen as major investment banks reported quarterly earnings. Merrill Lynch set the tone early in the fourth quarter by reporting losses of $7.9 billion in October. The investment giant showed just how difficult it is to estimate the deteriorating conditions in the mortgage market by posting a loss that was $2.4 billion more than its initial loss forecast of $5.5 billion (which was made earlier that same month). In December, Morgan Stanley said it underestimated its quarterly hit from sub-prime losses by about $5.7 billion.

Understanding Risk Statistics
By: Paola Saenz

GARP Portfolio

Over the past quarter, the fundamental characteristics of our GARP portfolio have been stronger than expected. Consider revenues and earnings:

• Revenues: On average, revenues (or sales) of the companies in the GARP portfolio rose 18.1% over the same quarter a year ago. This compares favorably to the 6.3% revenue growth reported by the 500 companies included in the S&P 500.
• Earnings: The underlying earnings have also been robust on an absolute and relative basis. Over the past quarter, earnings for the companies in the GARP portfolio rose 21% versus the year-ago period. This compares favorably to the earnings growth of the 500 companies which experienced 6% earnings growth during the same period.

Momentum Portfolio

The Momentum Strategy is the most recent investment strategy added to the Kendall Capital Management offering. “Momentum” measures how quickly a stock exchange traded fund (ETF) or mutual fund’s price changes. Technicians first look at the difference between a security’s price on two different days—for example, 10 days apart—and then chart a rolling average of that 10 days’ price differential over multiple days, weeks, months, or years. The resulting line can indicate whether price trends are accelerating or slowing down. The indicator also shows the segments of the financial markets that are performing well or poorly.

Income & Growth Portfolio

The Income and Growth portfolio’s current yield from interest and dividends at the end of the fourth quarter was 4.8%—53% higher than the current 2-year Treasury rate of 3.12% and 17% higher than the 10 year Treasury rate of 4.1%.

The Income and Growth portfolio offers investor the advantage of not just higher current income but increasing current income that is expected to continue for the foreseeable future. Approximately 66% of the assets in the income and growth portfolio are invested in common stocks that are projected to increase dividend payments by 5% per year over the next three to five years, according to the average estimates by Wall Street analysts. The top ten stock holdings of the income and growth portfolio are listed to the right. (See full article for chart)

Living Longer...But at What Cost?

The Numbers Tell the Story

Statistics point to the emergence of a larger demographic of older Americans. According to the U.S. Census Bureau, there are currently 35 million Americans age 65 and older, and this number is projected to double by 2030. Also, the number of people living into their 80s and 90s is expected to increase.