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 IHA Monthly   May 2011 
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Market Commentary
April 2011 Asset Class Returns
Credit Scores
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History Speaks

In the spring of 1974, a special shooting contest was held among the cowboys who worked at the Circle K Ranch. The best marksmen would receive a special assignment riding 'shotgun' on a huge delivery of silver.Shotgun This delivery wasn't being made aboard Wells Fargo stagecoaches through Indian territory but on three Boeing 707's flying to Switzerland. Those hired hands were at the service of none other than Bunker and Herbert Hunt. The Hunt brothers were oil billionaires who had become infatuated with silver and in 1973 bought over 55 million ounces of the precious metal. They continued accumulating silver throughout the 1970's, all the while searching the Middle East for partners in their attempt to corner the market. In 1979, the Hunt's formed International Metal Investment Company in partnership with two Saudi sheiks. Soon  the price of silver doubled to $16/oz and kept rising as the Hunt's and their Saudi partners continued to purchase silver contracts and then accept physical delivery of the metal. The silver market hit panic mode - participants feared there was not enough actual silver to meet delivery requirements on these contracts- and the price hit $50/oz in January 1980. However, the confluence of regulatory restrictions in the silver market, rising interest rates and increased supply (much from the public who were melting silver spoons, jewelry, and antiques as fast as they could) reversed the Hunt brothers' fortunes. As the price began falling the Hunt brothers had more and more difficulty meeting their margin requirements on the silver contracts. In a single day, March 27th, 1980 (Silver Thursday) the price dropped over 50% to $10.80/oz. The Hunt brothers were ruined, their fortunes, so to speak, pumped full of lead.
Market Commentary

InnerHarbor Advisors, LLC is a Manhattan based financial planning firm catering to market professionals. If you would like to speak with a financial planning expert - or if you are currently working with someone and would like a fresh perspective, please contact John O'Meara or Michael Keating at 212.949.0494 ...or simply 'reply' to this email.

Returns across most asset classes were strong in April. Stocks were led by non-U.S. developed nations although much of that gain could be attributed to the declining value of the U.S. dollar. The weaker dollar was also a key factor in the continued rally in commodities. The S&P/GSCI Commodity Index gained nearly 50% from last July to the end of April. Undoubtedly the poster child for the commodity rally has been silver which was up over 250% in that time period. The commodity party received quite a jolt in the first weeks of May, though, as a decent US employment report and rather dovish language from the European Central Bank head unleashed a wave of selling across all commodities and a rally in the dollar. Silver dropped over 25% in just a few days:


*Although for some historical perspective, here is a chart of silver from the spring of 1980 as the Hunt brothers saw themselves fall from the ranks of the world's wealthiest men to mere millionaires*:


For the broader economy, the bigger story has been falling oil prices- now 15% off the highs of April. This is likely to reinforce the view within the Federal Reserve that whatever inflationary pressure is being applied by commodity inflation is transitory. Chairman Bernanke and a majority of the Fed board seem unwilling to move on interest rates until they see inflationary pressures in the labor market... not likely with unemployment remaining near 9%. To get an idea of what the Fed is closely watching, take a peek below. That graph shows the yearly percentage change in Unit Labor Costs, a measure of labor prices that accounts for changes in productivity, is still well under 2%:


The central bank will not raise rates without signs that inflation is taking root in other parts of the economy. The recent volatility in commodity prices will reinforce their belief that those markets are not predictive in nature. At this stage we see little possibility of a rate rise before mid-2012. While the stock market generally prefers low rates this does reinforce the view that the lackluster recovery will continue at its meager pace and leaves market vulnerable to shocks such as further trouble in European periphery countries.    


Asset Class Returns

Through April 30th, 2011
Monthly and 52 week returns for major asset classes. Performance information is for total return assuming reinvestment of interest and dividends. It excludes any types of management fees, transaction costs and expenses.  



A rare positive month for all asset classes on our matrix as stocks worldwide continued the uptrend that started in mid-March. This despite the fact that bond yields declined for most of the month and commodities recorded their eight positive month in a row. The commodity party has taken big hit in early May though, as oil is about 15% off its highs and silver lost nearly 8% on May 3rd alone.


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Financial Planning Highlight

Credit Scores and Credit Reports ... the straight scoop

How do companies evaluate my credit?
To start it is important to distinguish between your credit score and your credit report. A credit report is a history of your credit accounts and your payment history for those accounts. Your credit score is a number calculated by a company called Fair Isaac based on your credit report. There are three big credit reporting companies, Equifax, Experian and TransUnion and you will have a credit score for each of those companies. Your credit score can vary for each reporting company because the information each company has about you will vary to some degree.

You will have to pay to get a copy of your credit score. Obtaining credit scores is not necessary for most people (unless ther is fear of identity theft) but the following calculator will estimate your score based on the information from your credit report.

While the actual formulation of your credit score is proprietary, the factors involved are:
  • 35% on how regularly you pay your bills on time
  • 30% on the amount you owe and percentage of your total available credit you are using
  • 15% on how long your credit history is
  • 10% on how many new credit accounts you have opened
  • 10% on the types of credit you have (for example, credit card versus mortgage)


How your credit score affects your life.. and your wallet.

Your credit score will determine the interest rate you are charged on nearly any credit account, from your mortgage to your, ehem, Bloomingdale's credit card. For example,  the payment for a 30 year, $300,000 loan from one of the largest U.S. banks for an individual with a 690 score is nearly $100 more than the same person with a score of 765. If the score was below 660, they would not even be eligible for a thirty year loan without further underwriting by the bank.


Credit scores are not just for the issuance of credit lines. It has become nearly a standard practice for landlords to vet potential renters by checking their score. The rates most auto insurance companies charge is partly based on your score and many employers factor your credit report (if not the score) into hiring decisions.



How to Maintain Your Credit Score

The first step is to make sure that your credit reports are accurate. You can get a free copy of your report (not your score) from each of the major reporting agencies once a year at .  Review the report for any inaccuracies such as accounts that do not belong to you, reported missing payments that you have made, and contact the agency to correct any mistake.


Assuming all information on your report is correct, the best ways to maintain, or improve your score are:

  • Pay all your bills on time. This is the most important factor. We have seen a credit score knocked down by 100 points over late payment on a $125 bill.
  • Do not utilize all of your available credit. While you may think it looks prudent  to maintain a credit card with a low credit limit to ensure you do not overindebt yourself, the credit agencies see you as someone who nearly maxes out your cards every month. It is also not a good idea to maintain a balance that rolls over month to month.
  • For purposes of your credit score it is important to have some kind of credit history, even if you do not need the credit. You will find it surprisingly difficult to get a mortgage if the bank can find no payment history of any type when they look at your report.
  • Do not open a lot of new credit accounts. You may get offers from every store you shop to open an account but that will be viewed negatively when your score is calculated. When it comes to your credit score, the fewer, older and underutilized your credit lines are the better.


We recommend you review your credit report once a year to ensure accuracy. If you are entering a transaction where your credit is an important factor, such as buying a home, you should do so more frequently. We have seen home closings delayed by information that appears on a credit report in the time between when the purchaser started looking and when they are ready to close.

s always we welcome your comments or suggestions. Stop in to see us at 420 Lexington Ave, Suite 2920, New York, NY... Call us at 212.949.0494 or simply 'reply' to this email.  

Thank-you for reading,

John O'Meara, CFP
Michael Keating, CFP



Mike and John InnerHarbor Advisors 

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InnerHarbor Advisors, LLC
212-949-0494 and