Happy belated holidays, folks, and best wishes for a prosperous and drama-controlled New Year! My rotator cuff surgery is healing quite nicely, and I am back at the keyboard. This current Chairman’s Communiqué is the first installment in a new report I’m writing called Surviving the New Depression – An Investor’s Guide to Prosperity, which will be included in your January statements. Cheers!
The Road Ahead
The economic collapse of the late 2000s has made for one of the most challenging – and promising – investment landscapes in modern history. It will surely present once-in-a-lifetime catastrophes – and opportunities. No matter how well your finances have traveled to this point in history, the opinions you form to illuminate the decisions you must make going forward will make all the difference. Some will decide mostly right and prosper, even build vast wealth. Others’ decisions – the vast majority – will be less fortunate, and will drive them to – even beyond – the brink of poverty.
For those in the latter rank, this could not occur at a worse time in U.S. history:  our country’s population, aging, and living far longer than all but science fiction writers had predicted, was already poised to drain our collective resources to the breaking point via Medicare and Social Security; this new collapse will change things for most retirees in fundamental and heartbreaking ways. The long-anticipated (but little-spoken of) pre-collapse answer to this problem was higher taxes. The deathwatch-fragility of the current environment makes this solution problematic, for at least several years, and probably many more. If taxes are raised too soon (as many of us expect), and are prematurely focused on “fat cat” investors and businesses – the engines of prosperity – (also predicted) the quagmire will deepen.
However this goes, carefully charting the safe paths to wealth has never, in most of our lifetimes, been a more painstaking proposition. The lessons of the past offer only partial guidance, and if rote-fully applied, offer near-certain doom. Hopefully the information and intuitive surmise we provide here will help you more deftly leap from rock to slimy rock, and to safely pass over this rising torrent of perilous uncertainty.
Welcome to the Mad Max road to financial security in the early 21^st Century.
Our Economic-Indicators Forecast

Let’s begin with my humble predictions for the economic matrix. Of course, all are most uncertain, and the farther out, the more unsure.
  

Having said all that, we at Camarda forge ahead confident in our ability to face whatever Fate may throw at us, and secure in the knowledge that fear is our enemy, while hope, hard work and persistence will get us through the roughest times. May peace be with you all.
 

    Important Information – Past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment strategy or product made reference to directly or indirectly in the communique will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio.  Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or position.  Moreover, you should not assume that any discussion or information contained in this communique serves as the receipt of, or as a substitute for, personalized investment advice from Camarda Financial Advisors, Inc. (“Camarda”).
     Clients are reminded to contact Camarda if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to our investment management services.  A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request.  To the extent that a reader has any questions regarding the applicability of any specific issues discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing.

Salient Summary
Bad news for the economy – recently on jobs – is actually good news for stocks at this point in the cycle.  You may not be getting the benefit of all the tax deductions you are entitled to.  Happy holidays, peace and joy to all!
Jobs gone, stocks gain, what’s up? 
The drumbeat of economic doom continues, most recently with confirmation of the worst employment outlook in decades. And make no mistake, friends, it will get far worse before it gets better.  Does that mean time to get out of stocks before the getting gets worse? Quite the contrary.  As we have mentioned ad nausea in these writings, the stock market tends to be a leading indicator of the economy:  down before the economy gets  bad (the markets started tanking nearly 14 months ago; a recession was just declared last week) and up while the economy is still in ICU, or even still in the ambulance. David Croney was kind enough to point out a recent piece from Smart Money (link below), from which I got these graphs plotting jobless claims against the stock market.  You can see clearly the trend:  the market tends to tank while the jobs picture still looks rosy, but begin to soar even while unemployment keeps getting worse.  The lesson?  While the economy will cause pain for too long to come (and, sadly, much opportunity – and not just in stocks; look for more on this next year), stocks, at least, should be bringing cheer soon.  Ho Ho Ho! (Still expecting another scary plunge before a solid year-end rally, by the way.) 
 

http://www.smartmoney.com/investing/economy/history-shows-stocks-recover-ahead-of-jobs/
A Thousand Fading Points of Light
Nearly 20 years ago, the first President Bush (one of my favorites) promulgated the (not new) proposition that each of us has a duty – beyond what the government should or could do – to help our fellow souls.  There is an important holiday message in this, offered below.  But there has arisen an unforgivable dark side to the “thousand points of light,” conjured by the demonic clown of the Internal Revenue Code.  The short of it are the so-called “stealth tax” provisions, whereby diabolical tax alchemy snatches the benefit of important deductions, in ways that even sophisticated taxpayers may never notice.  Common hits (and you should scrutinize all, every year, and ask your tax advisor – we do taxes now, by the way – for strategies to control this) are:  personal exemptions, itemized deductions like health care, property tax, and, the reason for this particular rant, charitable contributions.  Similar chicanery chisels Social Security benefits. But my big beef here is that those with a few nickels – who can best afford to give to those in need – have no tax incentive to do so, since the deduction disappears into the clown’s pockets. This is oppressive, and quite contrary to the widely held belief of what is and should be regarding charitable contributions: that you at least got a tax break if you gave to the poor. Not so.  You can give the money away, if you want, but you first have to pay the tax on it.  For those in the highest brackets – with the greatest ability to give but also the best tax advice, and most likely to know this – this means having to earn some $1.70 in order to give away $1.00 (IRS gets the $.70). Of those inclined to give, for some this is too much to ask. Especially in this dark time, this is most troubling.
A Great Depression Joke
Regarding the current economic “perfect storm,” my firstborn from my first marriage, Jennifer, offered this wry and adult observation…”…this is worse than a divorce.  I’ve lost half my net worth, and I still have my wife!”  Thanks, Jenn; don’t tell mama!

Peace and Goodwill
I offer a Christmas theme excerpted from the January 1989 inaugural address of George H. W. Bush, whom I personally count among the greatest of our Presidents. 
“Heavenly Father, we bow our heads and thank You for Your love. Accept our thanks for the peace that yields this day and the shared faith that makes its continuance likely. Make us strong to do Your work, willing to heed and hear Your will, and write on our hearts these words: “Use power to help people.” For we are given power not to advance our own purposes, nor to make a great show in the world, nor a name. There is but one just use of power, and it is to serve people. Help us to remember it, Lord. Amen… America is never wholly herself unless she is engaged in high moral principle. We as a people have such a purpose today. It is to make kinder the face of the Nation and gentler the face of the world. My friends, we have work to do. There are the homeless, lost and roaming. There are the children who have nothing, no love, no normalcy. There are those who cannot free themselves of enslavement to whatever addiction—drugs, welfare, the demoralization that rules the slums. There is crime to be conquered, the rough crime of the streets. There are young women to be helped who are about to become mothers of children they can’t care for and might not love. They need our care, our guidance, and our education…. The old solution, the old way, was to think that public money alone could end these problems. But we have learned that is not so. And in any case, our funds are low… We have more will than wallet; but will is what we need. We will make the hard choices, looking at what we have and perhaps allocating it differently, making our decisions based on honest need and prudent safety. And then we will do the wisest thing of all: We will turn to the only resource we have that in times of need always grows—the goodness and the courage of the American people.  I am speaking of a new engagement in the lives of others, a new activism, hands-on and involved, that gets the job done. We must bring in the generations, harnessing the unused talent of the elderly and the unfocused energy of the young. For not only leadership is passed from generation to generation, but so is stewardship. And the generation born after the Second World War has come of age. I have spoken of a thousand points of light, of all the community organizations that are spread like stars throughout the Nation, doing good. We will work hand in hand, encouraging, sometimes leading, sometimes being led, rewarding… The old ideas are new again because they are not old, they are timeless: duty, sacrifice, commitment, and a patriotism that finds its expression in taking part and pitching in.”

Salient Summary  
The markets had their best week in decades in November’s final days, and I am hopeful that the bottoming process has become more assertive. We are far from being out of the woods, and while I’m predicting another deep, scary plunge in early December* (and a chance for those who sold at very low prices to get back in cheap), I’m also expecting a nice year-end rally after that, and a spot of New Year’s cheer when you open your January statements. The Camarda staff has been discussing developing a market/sector timing system as an alternative to ISIS^®, and while I am reluctant I would like your views. Finally, the bad news for annuities keeps getting worse: on top of shaky guarantees, costs – mostly hidden – are rising to sop up insurance company red ink. *It’s already happened by the time this was mailed to you.
Stray Prize Bull Sighted in November Woods 
Heedless of legion orange-blazed hunters, a rare bull, young and proud, risked quick death running a short-shooting field in the days around Thanksgiving. Remarkably, these days marked the first five-day winning streak since July of 2007 – a time when the economy seemed bulletproof and the markets were still heading to record highs in October of ’07. In fact, the S&P 500 popped its best weekly return in 34 years. While there is little doubt beef is still on the short-near menu, it is comforting to the bottoming process play out – or at least, a strong, late-phase bear-market rally.
I can not help but reaffirm my conviction that we are at or near the bottom, and that stock prices will soon be clearly trending upward from here. Make no mistake but that the pain is not yet over. We will see vicious downswings, as early as next week, which will test our resolve and drive more investors to the false safety of the sidelines. This is the nature of markets, especially of brutal bear markets, and we are by no means out of the bears’ woods, or the messy effluent of what one expects to find there. But I do believe we are nearly out, and it helps to remember that bulls sow their crops in the bears’ fertilizer. In other words, bull markets begin in the last, worst ravages of the bear, and the shift is only comfortably clear from the safety of the rear view mirror; all appears doom while we still drive through the muck.
While (as always) I could be completely wrong about the short-term forecast, I remain resolute that stocks now trade at a mere fraction of their value, or the prices they will be trading at in a few years, and that those who go to or stay in cash or other “defensive portfolios” will be crushed by the mega-inflation sure to rain from the printing-press monetary (and soon fiscal) policies required to avert a global recession seriously flirting with depression. I think the last will be avoided, but at the inevitable cost of a de facto if not official devaluation of the U.S. dollar, along with the rest of the world’s major currencies, all of which are similarly exposed and inexorably linked these days. Real assets – shares of companies, property, or commodities in the ground or in the vault – will prove the only antidote to an inflation not seen since pre-war Germany’s. But I digress. In the short term, the siren call of the “protection” of cash, or government bonds, will compel all and prove irresistible to some. Stock prices will gyrate, commodities will bounce between Heaven and Hades, and real estate will continue to dive, perhaps until 2010 or even 2012. The economy – the global economy in which we now all swim – will suffer at least until the end of 2009. Things will look – be – bad for the economy, for a long time. But the markets will get better lots sooner, as they nearly always have in the past. Those that heed this will do better; those that don’t, won’t. For those who hope to ride the sidelines and jump back in once it is clear the markets are headed back up, know that this is mostly a loser’s game, even for those with both great skill and extraordinary luck. Getting in and staying in is a surer path to wealth, though it looks like a fool’s path in times like these.
Now for the most-dangerous short term prediction.* On the heels of last week’s Turkey Rally, I’m looking for a pretty scary plunge down in early December, followed by a strong year-end advance, fueled in part by better than expected (though still pretty bad) retail sales numbers. *I wrote this Thanksgiving weekend, and by the time the email got out on Tuesday, much of the feast had been regurgitated. I’m still expecting more indigestion before the tide again turns by year end.
Market Timing ISIS^® System 
A number of clients have wondered if Camarda should develop some sort of market-timing system, whereby we would try to predict – guess – what the markets will do in the short term, and make portfolio changes accordingly. For much of this year, as the markets plunged, this has been greatly debated by Camarda’s Portfolio Board and practitioners, and the vigorous debate continues. Possible approaches range from total timing – let’s get completely out this week and back in next week – to the so-called “core and satellite” method, where most of the portfolio stays strategically allocated, but we try to time general or specific markets with a small percentage, like 5-10%. If we get the timing right – and our market calls over the years have been pretty good – we can add a little (satellite) or a lot (total) value – but if we get it wrong we can also lose a little or a lot vis-à-vis the market averages. While some have said our calls (like the real estate and stock markets tops of 2006 and 2007, respectively) are excellent, I am very reluctant to do this, since my many studies over the years consistently conclude that the vast majority of advisors who attempt this eventually get it wrong, with unfortunate results for clients. We will continue to debate this, and I encourage client input. If we do it, it will be an alternate portfolio system, elected by client choice, with the appropriate risk disclosures. For the nonce, the working project is called “normalized equity markets Integrated Strategic Investment System,” or “nem-ISIS.” The pun is entirely intentional, and rendered in kindred spirit with those who point out that ISIS^® spelled backwards is “SISI.”  Stay tuned.
More Annuity Trouble 
It keeps getting worse for annuity investors. An article in the 11-25 WSJ proclaims that insurance companies are ratcheting up the internal costs on annuities, especially the “variable” sort that wrap life insurance features around what amount to overpriced mutual funds. Bad enough that new contracts will boast far higher costs and much watered down “guarantees.”  Worse still, and unmentioned by the article, is that internal costs on existing contracts will rise even beyond current usurious levels, probably to the contractual maximums embedded in the many pages of prospectuses and policy legalese which define these hideously complicated and expensive vehicles. The reason?  Life insurance companies are bleeding from more orifices than even the banks, and must apply countless tourniquets as they struggle to survive the economic sinkholes that have sprouted, like pox, everywhere.
Your input is requested on the market-timing item mentioned above – or any other subject you’d like to discuss. Call, write or email us with your thoughts, concerns or questions.

The US stock markets – not to be confused with the international markets which make up a substantial part of every ISIS^® portfolio – have been whipsawed since early October, driven down by a “perfect storm” of factors like the exploding credit crisis (killing US banks’ profits by billions and compelling too many princely CEO’s to fall on their swords – or their boards’), an economy driven to the brink of recession by plunging real estate and a falling dollar, looming inflation fears driven by that same falling dollar (the dollar drops and oil, Toyotas, and even Chinese toys go through the roof), and pushing a freshman-Fed to that old rock-and-a-hard-place “er, George, do I fight inflation or recession…George??? George!”
We stand on the edge of a knife, and I have not been more troubled about the US economy since the winters of the last recession. The credit crisis has tumbled almost out of control, and the bankers still have no idea how much worthless paper their greedy ways have hung on a nearly-hapless world or on (fittingly* but frighteningly) themselves. The Fed is truly in a dilemma – dropping rates pumps the US consumer (it hopes, but no pulse yet) and so the US economy, but foreign interests are tempted to dump dollars and invest in countries with higher rates, further lowering the dollar and raising the price of imports, like oil and BMWs and vegetables from South America. (You have no idea how much food we buy from abroad these days – or how much US agriculture has been shifted to things like ethanol from corn.) This does not mean I am predicting a market crash or deep recession, only that the risk equation has shifted a bit toward the south.
Enough minutia, and on to the predictions you look for here, for there is some sunshine.
I think the US dollar is getting close to a bottom, and has been driven there by an insidious Federal policy that has ostensibly espoused a “strong dollar” policy but has sought to erase America’s profound trade deficit by devaluing the dollar, tantamount to a stealth trade war with China and others, about which they are not well-pleased. As US goods – and don’t forget that includes foreign investment in US equities like stocks! – get right cheap, I think that the trade deficit will improve, the US dollar and stock markets will rise, and inflation will abate as imported goods will cheapen with the rising dollar. I might as well add that I think oil is making a technical top near $100 and will fall – perhaps to $50-$60 if the dollar improves – as the world realizes it is not quite on empty, yet. Long term, we are clearly running out of oil, though if we can harness coal cleanly we may extend the petro-dance a bit longer, perhaps till the end of the century.
Anyway, absent a complete real-estate-driven credit melt-down – which remains a profound risk and the reason for my “edge of the knife“ melancholy – I still think things look pretty strong for our country’s economy and stock markets.
Hang on, things will probably turn up soon, and trust in ISIS^®, which hedges your bets across the investments world, just in case I am wrong. I am still expecting a strong year-end rally and a very profitable year for investors – especially ISIS^® clients – by the time 2007 rolls into the record books.

*The greed-driven, unscrupulous, unsuitable and odious lending that got us into this mess appears to continue unabated, and it ought to be a crime. Just yesterday I got a solicitation from Global Mortgage in a government-looking envelope promising to cut my payment by 75% with a “fixed payment rate” of 3.75%…and letting the mark (in this case me) believe, if they would, that this is a real interest rate, and not just hype for what is clearly an adjustable (and probably high) rate negative-amortizing (what you owe goes up each year, not down) piece of predatory garbage that is destined to blow up one day, dragging down borrowers, lenders, and the credit market liquidity on which we all depend in the modern age.

The following is a summary from December’s Wealth Advisor, which will be printed and mailed to you shortly.