LFC Viewpoint: 2012 Market Summary & 2013 Economic Outlook

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2012 Year-End edition of LFC Viewpoint, Lee Financial's quarterly summary of the economic markets.

Lee Financial is a fee-only wealth management firm in Dallas-Fort Worth, providing investment management and financial planning & advisory services to clients nationwide.

For more information, please call us 1-800-960-1703 and visit us at www.leefin.com.

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LFC Viewpoint: 2012 Market Summary & 2013 Economic Outlook

  1. 1. LFC Viewpoint 2013 OutlookAs we reflect on 2012, we believe it is important for investors to realize how resilient the markets were in the faceof geopolitical and market uncertainty. Despite many risks and a sharp slowdown in global economic growth,global equity markets posted strong returns for investors. We believe the year also provides an excellent examplefor the history books as to why it is important to remain invested, as investors who ignored the market’s short termgyrations generated higher returns than any individual trough to peak throughout the year (based on the S&P 500).While times of market uncertainty and volatility can be unnerving, we continue to believe it is important to remaincommitted to a long term investment plan. Further, we look for ways to dampen the effects of market volatility bybuilding portfolios that can generate consistent income, are diversified across asset classes, and utilize managerswho deploy various types of hedging techniques. Heading into 2013, our primary objectives remain largely thesame; however, we remain mindful of the potential for both higher inflation and interest rates, and believeeconomic growth could surprise to the upside if fiscal uncertainties are adequately resolved in the near term. December 31, 2012 Lee Financial Corporation
  2. 2. ECONOMIC UPDATE 2012 Recap Overall markets performed well during 2012 despite the barrage of negative headlines throughout the year. Let’s reflect upon some of the financial and non-financial headlines from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espite the headlines, corporate profits and returns remained strong throughout the year, and broad-based indices 1 2 performed well : the S&P 500 ended the year up 16%, U.S. bonds posted positive performance of 4%, and 3 developed market equities were up 18%. 2012 serves as a prime example of how easy it is to get lost in the noise of the media, which is why we take a disciplined approach to managing your portfolios and focus on long-term trends in the markets. Other positives to focus on for the U.S. are the recent U.S. housing market recovery (albeit steady) and prospects for U.S. energy independence. These two measures could continue to provide the support that our economy needs for 2013 and beyond. Marked improvements in the process of extracting and refining oil and the discovery of natural gas fields have set us on the path for not only becoming energy independent in years to come, but for becoming a source of energy exports for other nations. ,QFOXGLQJ UHLQYHVWHG GLYLGHQGV $V PHDVXUHG E WKH L6KDUHV &RUH 7RWDO 8 6 %RQG 0DUNHW $V PHDVXUHG E WKH 06&, ($)( 1
  3. 3. ECONOMIC UPDATE 2013 OutlookDomestic OutlookWith some resolution in sight on the fiscal cliff negotiations, there has been a small relief rally to the start of 2013. Thebiggest unknown for individuals going into 2013 was the tax rate status. Despite the promises to keep taxes low forthe majority of Americans, tax rates are likely to steadily increase given that they are at historical lows (see chart for acomparison of historical dividend, wage, and capital gains tax rates). While the tax rate for families making more than $450,000 is increasing to 39.6%, the Social Security payroll tax holiday is also set to expire for everyone. As such, middle income Americans could see a decrease in their take-home pay by as much as $2,000 for married couples earning a combined $100,000. Additionally, after two months, Congress must face another deadline to address spending cuts. Previously, “if left unaddressed…the Congressional Budget Office estimates [it] has the potential to lead to a 2.9% decline 4 in growth in the first half of 2013,” so the consequences are steep if the spending cuts and tax increases simultaneously go into effect. It is our view that the debate is less about if tax rates will increase but more about both who and howmuch tax rates will be raised. Given the challenges facing the future of entitlements, there are likely changes that willimpact generations to come.1RUWKHUQ 7UXVW 1RYHPEHU 3HUVSHFWLYH *OREDO DQDOVLV GHVLJQHG WR NHHS RX DEUHDVW RI WKH ODWHVW HFRQRPLF DQG PDUNHW FKDQJHV 2
  4. 4. ECONOMIC UPDATEA dominant theme in our portfolios that we expect to continue in 2013 and 2014 is our focus on cash flow - whetherthrough the bond market or in pockets of the stock market. We continue to search for “current yields, which comprise 5the majority of tomorrow’s returns nearly universally across asset classes.” In the volatile conditions we have all laidwitness to the past five years (and arguably longer), the patient investor finds cash flow a source of both currentincome and long-term stability.International OutlookWhile we expect growth in the developed world to remain low, we see some compelling growth opportunities inemerging economies. We remain offensive with respect to U.S. and developed market equities and emerging marketexposures (both on the debt and equity side of the spectrum). Emerging markets had little debt coming into the GreatRecession, so many are positioned well to take advantage of improving market fundamentals and an emergingmiddle class.Not surprisingly, the Eurozone has continued to struggle amid further austerity measures and struggles to balancetheir budgets, and we expect the struggles to persist long into 2013 and beyond. Only time will tell if the greatexperiment that is called the European Union can persist.Despite the political changes and the recent negative economic news in China, we feel their economy is set for a soft-landing and could begin to see improvements (although we do not expect them to reach the levels of growth theyhave experienced in the recent past). We are also optimistic about the recent leadership change in Japan where ourprimary overseas equity manager has a large established position.For any questions regarding the content discussed or for any other matters pertaining to your portfolios, pleasecontact your Lee Financial representative.From all of us at Lee Financial, we thank you for your loyal business, and we wish you a happy 2013!DisclaimerThe information provided herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell oran offer to buy securities, investment products or investment advisory services. It has been prepared without regard to the circumstances andobjectives of those who received it. Research prepared by Lee Financial personnel is based on public information. Lee Financial makes every effort touse reliable comprehensive information but we do not represent that it is accurate or complete. All information, views, opinions and estimates aresubject to change or correction without notice.Any use of estimates contains forward-looking opinions by the Investment Analyst which may differ from the views of Lee Financial. All estimates arebased on assumptions that may not be realized and actual results can be meaningfully different. Actual events in the markets, company or stock maycause adjustments in expectations from those currently expressed within.All securities are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially fromthose projected, including potential of significant losses. These forward-looking statements speak only as of the date of the communication, and do notinclude transaction fees. Prices, values, interest rates, indicated are based on best current information at the close of the date indicated, and willchange.Nothing contained herein constitutes financial, legal, tax, or other advice. The appropriateness of an investment or strategy will depend on an investor’scircumstances and objectives. These opinions may not fit to your financial status, risk and return preferences. Investment recommendations maychange and readers are urged to check with their investment advisors before making any investment decisions. Estimates of future performance arebased on assumptions that may not be realized. Past performance is not necessarily indicative of future returns. $UQRWW 5REHUW 1RYHPEHU $UQRWW RQ $OO $VVHW 4 $ 3

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