November 2012

The Election and Your Investments and some Name Changes and Place Changes
The election is over, the results are in. You may be excited or depressed depending on your politics. Ill not even try to make any political comments. Too much has been said and written already, and we are all fatigued from the chatter. We know now who our leaders will be for the next four years. What we can ask ourselves is; what are the possible investment implications of the re-election of the president? The people have spoken loudly and clearly that they approve of (or at the very least do not seem to mind) a ballooning national debt, an out of control annual budget shortfall, and an astounding and frightening amount of money printing. Our leaders might consider the results of the election as validation and permission to continue the current direction of monetary policy. Arguably the biggest and most influential force impacting our investments and economy is this immense overhang of government debt and the inconceivable amount of money printing that accompanies it. Lets quickly review the facts and current status of these two highly significant factors in each of our financial lives and futures.

Money Printing
The US money supply grew rather slowly and gradually to $800 Billion in the 90 years from the birth of the Federal Reserve until 2008. In the last 3+ years since the financial crisis we added another $2 Trillion in new money. In other words we printed almost three times more money in those three years than was printed over the preceding century! (please see the Federal Reserve Adjusted Monetary Base graph at
the end of this letter.)

History has not been kind to countries that increased their money supply that rapidly, especially if that money has no backing. (The US stopped redeeming USD for gold in 1971.) Germany, Argentina, and other countries in modern times, all the way back to antiquity and the mighty Roman Empire all

The Election and Your Investments and some Name Changes and Place Changes November 2012 Gevers Wealth Management, LLC Page 2 suffered painful consequences for rampant money printing, including inflation and/or a collapse in their currency value. The Fed announced back in September that a third stage of money printing (Quantitative Easing or QE) would be implemented, and gave hints that it was willing to print much, much more. For example, the President of the San Francisco Federal Reserve John Williams recently commented,

the central bank may buy more than $600 billion in bonds by extending its third round of quantitative easing well into next year. It should be at least that big but I would think it would probably be bigger given my view on how slow the economy is going. (http://www.bloomberg.com/news/2012-11-06/fed-s-williams-says-bond-buyingmay-exceed-600-billion.html)

So what are the investment implications of Fed money printing? Many hedge fund and Wall Street money managers are counting on Fed money printing to pour into the stock market and boost asset prices. Economist James Bianco holds a view similar to many on Wall Street when he stated,

Fed policy will produce the worst possible outcome. It will make rich people richer, because rich people own stocks, and they will go up. And it will make poor people poorer, because it is not going to create jobs and they are going to pay higher gasoline prices. Bianco Research Sept. 2012
Are Bianco and the hedge fund types right? No one knows the future, but it is interesting to see how the US Markets responded during and after the last three major money printing operations by the Fed. (Please see chart below) Obviously they are hoping that the US stock market continues its recent trend of going up sharply after each new bout of QE.

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(Source: Casey Research)

The Debt and the Deficit

The deficit is the amount that the US government spends each year in excess of what it takes in. Of course the country must borrow to cover this deficit. The deficit was somewhat reasonable up until the early 2000s when it started to widen rapidly. In 2008 the Bush administration smashed the old record for an annual deficit when the federal budget that year was $500 Billion greater than revenues. Here is something that you might find quite curious as I did. If a family is in financial crisis and decides to commit to fixing it the general response is to make a sincere effort to stop using debt and pay off the debt they have. I have been a volunteer counselor to families in financial distress for years and have watched the families who were successful at getting out of their troubles do just that. By strange and bizarre contrast the US government has responded to the most severe financial crisis since the Great Depression coupled with the largest debt in history by going into debt at an even faster rate! Our current president has made Bushs 2008 swan song debt record look positively frugal red ink has gushed from 2009 -2012 as each and every year of his presidency the deficit has been over a trillion dollars.

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Why this strange and counter-intuitive behavior? Most government monetary leaders and central bankers are followers of an eccentric and unconventional economist of the 1920s named Maynard Keynes, who believed that governments should spend money to save the economy even if it meant going deeper into debt. And of course, a deficit inevitably increases the total debt.

(Notice how dramatically the deficit has increased in recent years. Source: zerohedge.com)

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The US Debt
The number is beyond comprehension. $16 Trillion and rising rapidly an amount that is equal to $141,000 per taxpayer. And, what isnt commonly understood is that the US government is on the hook for much, much more than that. The US also has an additional unfunded liability for Social Security & Medicare payments and prescription benefits of over $100 Trillion dollars! Here is one way to try and understand how big and terrible that number really isif you took the value of everything that every citizen in the US owned, their homes, cars, bank accounts, personal belongings and investments, and then to that added the total value of every small business in the US, and then to that number added the total value of every US corporation, their land, buildings, inventory, patents, cash, and stocks and bonds that total sum would be the total net worth of the entire US, and is about $87 Trillion dollars. So if you liquidated every asset in the US it still would not be even close to enough to satisfy our countrys obligations. Keep in mind, we are not just talking about taxing the rich more but rather if you took every penny of every citizen both poor and rich, and stripped every company of all of their money and assets it still would not be enough to pay off our national debt and liabilities. And perhaps most crazy and absurd of all the CBOE, a non-partisan government agency, projects the US debt to metastasize to $22 Trillion by 2016 - another 1/3 larger than today. (Source: US Federal Reserve, CBOE, USDebtclock.org)

The Election and Your Investments and some Name Changes and Place Changes November 2012 Gevers Wealth Management, LLC Page 6 Again what are the investment implications for us? Other countries who have struggled with massive debt and out of control money printing have typically and eventually suffered one or all of these maladies: inflation, currency collapse, financial repression/taxation and/or debt default. It would be wise for us as investors to include an allocation to investments that might do well if the USD continues to weaken, and might also provide some protection in the event of potential higher inflation. We also want to maintain a stock allocation especially if the hedge fund types are right and money printing pushes up stock prices. In balance to that, since the economy is still floundering, it is important to maintain a risk level that is suitable for your goals. Finally, pro- active income and estate tax planning is especially relevant if we face higher tax rates in the future. We still live in the greatest country on earth. One important lesson to me from this weeks election is that democracy still works. We might not like the results but we live and participate in a democratic and still relatively free society and if we dont like the way things are going, it us up to us to try and encourage and engender change.

Some Housekeeping Issues Name and Location Changes

Turning to the mundane, our clients will notice a name change by our broker/dealer. Financial Network Investment Corporation is changing its name to Cetera Advisor Networks LLC at the first of the year. This is a name change only there is no change in ownership and my relationship to the broker/dealer will remain the same. Over time youll see the new company name and logo on your statements and other formal communications you receive in the mail or view online. We prize our independence as we feel it allows us to serve our clients free of any proprietary pressures, and allows us to select from an open menu of the best investment solutions and planning tools for our clients benefit. To summarize, you will see the Cetera Advisor Networks LLC name on your statements in the near future, but it is a name change only and has no impact on the relationships with our dear clients. A little more significantly, our landlord has recently informed us that they will not renew our lease next summer as Costco Corporate will be taking over our entire building. We have been in our current location for close to eight years, and as of next August we will be in a new spot. I am currently looking at alternatives. One possibility is for us to purchase a small building or perhaps remodel a home for our offices, or of course we could just rent a new space in one of the many office buildings in Issaquah. We will keep you updated on plans, and look forward to announcing our new location! Best wishes for a wonderful Thanksgiving celebration to you and your family. I look forward to our next meeting, and all of us are very thankful for your trust, our relationship and for the opportunity you have granted us to serve you. Warm Regards,

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William R. Gevers Financial Advisor PS: We have been repeatedly asked by clients if they could share these e-mail notes with their friends or neighbors. Please feel free to forward this with the stipulation that it may only be forwarded if done so in its entirety with no portions omitted. We would be delighted to share our comments and opinions with your friends, and welcome your comments and feedback. If you received this and would like to be included on our newsletter list, please email us at wgevers@geverswealth.com

Copyright 2012 William R. Gevers. All rights reserved.

Gevers Wealth Management, LLC I-90 LakePlace Center 1605 NW Sammamish Road, Suite 250 Issaquah, WA 98027 Office: 425.657.2238 Fax: 425.657.2138 E-mail: wgevers@geverswealth.com
The views are those of William Gevers, Gevers Wealth Management, LLC, and should not be construed as individual investment advice. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investors can not invest directly in an index. Please consult your financial advisor for more information.

Securities and advisory services offered through Financial Network Investment Corporation, Member SIPC. Gevers Wealth Management and Financial Network are not affiliated.

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US Money Supply, US Dollar, and Inflation/Deflation Watch

US Money Supply Adjusted Monetary Base

(http://research.stlouisfed.org/fred2/graph/?s%5B1%5D%5Bid%5D=AMBNS#)

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US Dollar Price (DXY) USD Index Measured against Other Currencies

(http://barchart.com/chart.php?sym=DXY00&style=technical&template=&p=MC&d=H&sd=01%2F01%2F2000&ed=&size=M&log=0&t=LINE&v=1 &g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump)

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Inflation/Deflation -Year to Date Price Increase in Commodities and Basics as Measured by Futures

(http://www.finviz.com/futures_performance.ashx?v=17)

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Velocity of Money

Velocity is a measure of how quickly money is spent. High velocity is typically a precondition for inflation. (http://research.stlouisfed.org/fred2/series/MZMV)