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'Pandelirium' on Wall Street

September 15, 2008

By Tim Chapman

I know, I know, 'pandelirium' isn't a real word. But it is the word my grandfather would use to describe situations that seemed totally out of control. If he were still alive, he would definitely say there's 'pandelirium' on Wall Street today.

Yesterday, while most Americans were watching football and taking naps, Wall Street was buzzing: Lehman Brothers filing bankruptcy; Bank of America buying Merrill Lynch in an arrangement orchestrated by the Fed and the Treasury; and AIG, the largest insurance company in the world, asking the Fed for $50 billion to tide them over until they could sell some assets to avoid a drop in their credit rating. Somewhere in the background I can hear Willie Nelson singing, "Help Me Make It Through the Night".

Maybe only the market junkies really keep up with this stuff, but the turmoil in the financial markets and the trouble brewing in the venerable financial institutions is of historic proportions. Think about this: Six months ago there were five major investment banks in the United States - Goldman Sachs, J.P. Morgan, Merrill Lynch, Bear Sterns, and Lehman Brothers. At the close of business today there will be two.

But the real question I'm sure you are asking is, "How does this affect me?"

The good news for PMFM clients is that we have been very defensive most of the year and continue to be. Whether you are in a 401k managed account, a PMFM mutual fund, or a PMFM Separate Managed Account - it doesn't matter - all of our portfolios are as defensive as they can be given the objective.

For example, in our active account management, the most aggressive objectives only have 50% of the portfolio exposed to stocks, which would be considered a very conservative allocation for a growth oriented investor. Of course, having half the portfolio in stocks does create some downside when the market is weak, but it is very muted compared to the huge losses being suffered by most aggressive managers. In fact, through last Friday's close, the losses in our aggressive objectives were all still in single digits. By comparison, the S&P 500 index was down 13.44% year to date, and many indices were much worse than that.

On the other end of the risk spectrum, our conservative portfolios only have 5% or so exposed to stocks and our losses in those accounts have been about 1% year to date. Other objectives fall somewhere in between.

The bottom line: Wall Street is in turmoil and emotions are high. Thankfully, the discipline and objectivity of our model driven approach has allowed us to avoid suffering the losses that most buy-and-hold investors have endured.

Do you know the best part? These bad times won't last forever! The stock market will get good again. And when it does, the buy-and-hold investors will be trying to claw their way back to break even, while we will have an opportunity for positive growth.

"Capture Most of the Good Times, Miss Most of the Bad Times."

I know I sound like a broken record, saying that line over and over again, but I believe in that approach. We've managed money this way during some wonderful years like the late 90's and some awful years like . . . . well, today. Our long-term track record proves our approach works.

We appreciate having you as a client. Please let us know if there's anything at all we can do for you.

Past performance is no guarantee of future results. Investments are subject to risk, and any of PMFM's investment strategies may lose money.

Each of the PMFM Strategies involves active asset allocation, with an emphasis on risk management. The Managed Strategy is PMFM's more conservative strategy, and has the ability to invest 100% in money market instruments during difficult market conditions. The Core Advantage Strategy is PMFM's more aggressive approach in that it will always maintain a "core" position, or approximately 50% equity exposure to all market conditions. The remaining 50%, or "satellite", exposure is allocatied to equities or money market instruments based upon market conditions and risk levels of the market.

All performance reported above is gross of fees and does not take into account individual account management fees