Locke Financial Quarterly

April 2008

Alan Locke, BS, MBA, CGA, CFPPresident

Locke Financial Services, Inc.662 N. First Bank Drive • Palatine, IL 60067 • Phone (847)991-2705 • Fax ( 847)991-9496 • Email: alocke@lockefinancial.com

www.lockefinancial.com

Status of the Economy and Stock MarketsStatus of the Economy and Stock Markets

The first quarter of 2008 is now completed. It has been one of the more interesting investing quarters that we have encountered. After 5 years of growth we are now experiencing a recession. The current economic problems were initiated by the credit crisis from mortgage foreclosures. According to BCA, financiers have written off approximately $300 billion in bad debt to date with approximately $100 billion yet to be written off. This has stretched the credit

system to such a serious level that the Federal Reserve has lowered interest rates to banks by 3 ½ % and have added more money to the economy.

The second major issue is the higher energy and food prices which are slowing consumer spending. Since consumer spending makes up 70% of the gross national product (source Federal Government statistics), we need a healthy consumer to keep the economy expanding. To address this issue the Federal Government has passed legislation to implement a stimulus package to get the economy growing again. Ben Bernanke, chairman of the Federal Reserve told Congress that the lagged impact of interest rate cuts and the tax stimulus should lead to a gradual recovery in economic activity toward year end.

The stock market has been reacting to these poorer economic times with a reduction in the S&P 500 of 9.4% in the 1st quarter of 2008 (source BTN research). Since the stock market speculates what will happen ahead of the actual results of the economic activity, stock prices will usually bottom in the middle of the recession. After reaching the bottom, the Standard & Poor’s 500 stock index has grown by an average of 12% in the six months after the recession has ended, (source Payden & Rygel). Our economic research source, BCA, believes that the stock market has bottomed and will rally again in the third and fourth quarters when companies’ earnings show improvement.

Currently, the 30 companies of the Dow Jones Industrial Index are priced at 13.4 times forecasted 2008 earnings (source LFS calculations using First Call’s earnings estimates). This means that these stocks are already priced at recessionary levels. This is another assessment that agrees with BCA’s assumption that the stock market has bottomed.

LFS believes that the best course of action is to continue to invest in a diversified way and according to each investors tolerance for risk. As always, if you have any questions or if your tolerance for risk has changed, please give us a call and we will be pleased to assist you.

LFS Office NewsLFS Office News

At Locke Financial Service, we have been very busy helping people complete their 2007 tax returns and have been supplying cost basis to many of our clients. We are also pleased to report that many clients have been able to add to the accounts, especially by purchasing IRAs and other pension products.

We are sorry to announce that Mandy Bell is leaving LFS. Mandy has helped us tremendously to be better organized and has shared her sparkling personality with us. Mandy has decided to pursue her music teaching career. We appreciate her past services and wish her well.

We are pleased to announce that Viktoria Bendikova has joined our staff. Viktoria is managing our administrative activities.

Viktoria joined Locke Financial Services as the Office Administrator in December 2007. She is responsible for customer service, and the administration of day to day office activities. Prior to being employed at Locke Financial Services, Viktoria worked full-time in the healthcare field as an Office Administrator. Previous to that, she worked in the marketing department for a textile company in Slovakia. Viktoria graduated from University of Zvolen in Slovakia with a Masters of Business Administration degree. She majored in Marketing and Business.

Some Interesting FactsSome Interesting FactsHOW OFTEN? – The S&P 500 has suffered 22 stock market declines of 10% or more (i. e., a correction) since 1950, an average of 1 correction every 32 months (source: Federal Reserve Bank of St. Louis).

BANKS – 3 banks failed in the country in 2007, the first bank failures nationwide since 2004. The Federal Deposit Insurance Corporation has 76 banks currently on its list of problem banks. During the 5 years from 1987-91, a total of 1,901 banks and savings & loan institutions failed in the USA or more than 1 per day. A total of 9,096 banks failed in the USA in the 3 ½ years following the stock market crash of 1929 (source: FDIC).

MAKING SIX FIGURES – Only 16 % of all taxable returns for individuals (i.e., Form 1040) show adjusted gross income of at least $100,000, but those returns pay 72% of all federal income tax (source: IRS).

FAMOUS ALUMS – Democratic Presidential candidate Barack Obama, “Dancing with the Stars” judge Carrie Ann Inaba and professional golfer Michelle Wie all graduated from the same private high school in Honolulu. The Punahou School was founded in 1841. Tuition for one year is currently $15,725 (source: Punahou School).

NO TRIP TO THE MALL –American consumers are expected to increase their online purchases by +17% in 2008 over the previous year to $204 billion. Projections include the purchase of $27 billion of clothes, $24 billion of computers and $19 billion of autos (source National Retail Federation).

Quote of the QuarterQuote of the Quarter

Retirement – twice as much husband, half as much money.

Viktoria’s BiographyViktoria’s Biography

We hope that you enjoy the improving weather and have a great summer.

Locke Financial Services, Inc.662 N. First Bank Drive • Palatine, IL 60067 • Phone (847)991-2705 • Fax ( 847)991-9496 • Email: alocke@lockefinancial.com

www.lockefinancial.com