For the Week of June 30, 2008
THE MARKETS
In an attempt to hold back inflation, the Federal Reserve opted to leave interest rates unchanged at
2 percent after its meeting this week, after nine months of decreases meant to stimulate the economy.
The Dow lost 4.19 percent to close the week at 11,346.51. The S&P dropped 2.96 percent to end the
week at 1,278.38, and the NASDAQ fell 3.76 percent to finish the week at 2,315.63.
Returns through 6/27/08 1 Week YTD 1-Year 3-Year 5-Year
Dow Jones Industrials -4.19 -13.40 -13.42 5.77 7.18
NASDAQ Composite -3.76 -12.69 -11.12 4.23 7.34
S&P 500 -2.96 -12.03 -13.40 4.39 7.52
MSCI EAFE -1.69 -11.41 -9.37 12.76 16.40
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three and five-year
returns are annualized. The S&P, excluding “1 Week” returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.
More Money – Household finances got a boost from the economic stimulus payments that the IRS
began sending out April 28. The Commerce Department reported that after-tax incomes grew by
5.7 percent in May, the biggest increase in 33 years, thanks to the $48.1 billion the IRS has rebated so
far. In contrast, after-tax income grew just 0.4 percent in April. Consumers did their part by increasing
spending 0.8 percent, the biggest increase since November 2007. The stimulus payments, which will
total $106.7 billion, will be completed by mid-July. Overall (before-tax) incomes grew 1.9 percent in May
after a much smaller increase of 0.3 percent in April.
Baby Steps – The National Association of Realtors reported Thursday that sales of existing single-
family homes and condominiums increased a slight 2 percent to 4.99 million in May, the second
increase in the past 10 months. The number of unsold homes dropped by 1.4 percent to 4.49 million,
which represents a 10.8-month supply, down from an 11.2-month supply in April.
More Planes, Less Automobiles – Orders for durable goods, items expected to last more than three
years, remained stable in May after declines in April and March of 1 percent and 0.2 percent,
respectively. Orders for commercial aircraft rose 10.3 percent and orders for military planes and parts
rose 14.9 percent, offsetting a 3.3 percent decline in orders for motor vehicles. The flat May reading was
in line with analysts’ expectations.
Here We Go Again – The House last week approved an alternative minimum tax (AMT) relief bill that
would keep about 25 million taxpayers from a tax originally meant for the wealthy. Enacted in 1969, the
AMT was meant to ensure that about 160 very wealthy people paid some federal income tax, according
to Reuters. The original legislation made no provision for inflation, thus creating the annual event of
Congress passing a patch – often late in the year, as happened with the December patch approval of
2007. The bill would remove about $62 billion in tax revenue, which the House proposes replacing with
taxes on private equity fund managers, revocation of tax breaks for big oil companies and tax on some
payments to merchants made by service companies like PayPal. The IRS estimates that permanent
AMT relief would cost the U.S. Treasure about $900 billion in tax revenues over 10 years, exacerbating
the U.S. deficit.
Page 2 of 2
WEEKLY FOCUS - Lessons from Bill Gates’ Retirement
Bill Gates’ retirement from Microsoft on Friday points out three interesting lessons: the need for
business owners or leaders to have a clear succession plan; the potential magnitude of leaving behind a
career that defined you; and the opportunity for retirees to parlay their work experience into
philanthropic work. This week, we look at the importance of succession planning, and we’ll discuss the
other two lessons in our next two issues.
Gates and his wife, Melinda, began discussing increasing his involvement with their charitable
foundation back in 2004, and Gates announced his formal plans in June 2006. Microsoft CEO Steve
Ballmer will take the reins, but Gates’ technical duties will be split between Craig Mundie, a 16-year
Microsoft veteran, and Ray Ozzie, the Lotus Notes inventor who joined the company in 2005.
If you own a business, your succession plans most likely do not rival those of Bill Gates, but the
principles remain the same. Owners often associate succession planning with simply choosing a
successor. The first step, however, lies in an analysis of what has made the business successful. Does
that success rely on skills or knowledge you as the owner have that would leave when you leave? That
is often the case of sole-practitioners such as lawyers or doctors – unless they have the foresight to
bring in a junior practitioner who will eventually take over.
Entrepreneurs, particularly those with family members involved in the business, often dread actually
naming a successor because they anticipate it causing rifts among employees and family members.
Again, having an analysis of the business and its future needs to continue its success gives you a
platform from which to discuss issues with those affected. Open communication plays an important role
in smoothing the way for your successor.
Unlike Gates, whose company is publicly traded, most business owners will face additional challenges
in the financial transfer of their company to the successor. The succession plan must take into
consideration both the financial future of the business and the financial future of the owner in retirement.
We can help you explore your options and build a plan that achieves your need for adequate assets for
your retirement while mitigating the tax burden and leaving the legacy of your business positioned for a
solid future. As always, we are happy to work with your accountant and attorney. Call our office to
schedule a discussion of your succession plans.
* 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 Dow Jones Industrial
Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common
stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index
(MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market
structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. WMCSAI# 281718