December 26, 2008

Dear Clients and Friends:

It's Thanksgiving Eve, 2008. The staff has just left for the holiday weekend. The phones are quiet - there's a peaceful feeling in the air. As I look out the window of my office in the Kelly Building on Timonium Road, I reflect back to a different place and time -- November 1988 to be exact. It seems like only yesterday. Ronald Reagan was serving his last three months as President of the United States. The World Trade Center stood proud and tall in Lower Manhattan. Toyotas, Hondas, Mercedes, BMW and Nissans held a fairly modest market share of new vehicles sold on the American road. "The Big 3" were just that - just ask Lee Iacocca - then President and Chairman of the Board of Chrysler Corporation - always the "Father of the Ford Mustang". A few short months earlier, I had written Mr. Iacocca in an effort to persuade him to rescind the decision on the closing of American Motors Kenosha Wisconsin's Assembly Plant (Chrysler had acquired AMC in late 1987) which employed 5,500 workers. The Dow Jones Industrial Average stood at a relatively moderate 2,102; "Black Monday" as it is referred to, was just 13 months prior causing many to panic thinking that this was the beginning of the end. Standing at a crossroad in my career, I vividly recall thinking long and hard about taking the plunge and "going out on my own". While I had the necessary knowledge and experience, and had worked hard and trained for this very moment, it was still nevertheless, quite frankly unsettling. My kids, Jessica, Nicole and

Joe had just turned 2 in August. In my heart-of-hearts, I knew I must "press on" and face whatever adversity and challenges that lie ahead.  By this point in my life I had learned to trust my instincts and "hit the ground running" and never looked back. What was one day a thought in my mind, became a reality as I penned our MISSION STATEMENT and began an incredible journey which would take me places I never dreamed of, build on friendships I had had since my high school days at Calvert Hall, not to mention develop relationships with incredibly good people that I didn't even know or know of at that point, and vice versa.  Carlozo & Company was born and my life would never be the same again.  In looking back 20 years, I can't help but wonder,

"Where did the time go?"  What did we learn along the way? Where do we stand today in our Firm's evolution?  What challenges lie ahead in light of today's economic climate?  My inner dialogue remains lost in thought pondering answers to these questions. As I close my eyes and reopen them, I wipe away an emotional tear of happiness. I am so thankful to God for all my blessings. Still there is sadness that comes from reminiscing about a place and time in one's life that is simply a fond memory and so with laptop in hand, I begin my President's letter for 2008 hoping that you and your family had a great holiday and that 2009 brings you all the very best that life has in store.

WOW!!!!!!!!!! What a year in so many aspects!  We witnessed first hand not only a historic, but an incredibly hard-fought, epic presidential election which drew record voter turnouts. And if it's excitement you like, you were clearly not disappointed with all the hysteria surrounding an economic melt-down of immense proportion followed by a series of government bail-outs/rescues/bridge loans that is beyond comprehension.  Amidst all that was going on around us, life continued and to every extent possible it was "business as usual" as we all battled our way through $4.00 gallon gasoline, investment portfolios which were hit extremely hard, credit that virtually disappeared and passage of a series of major pieces of tax legislation.

When I signed off on last year's President's Letter as we closed out on 2007, it was "the calm before the storm" as tax season was just around the corner. Fortunately, preparation, teamwork and a concerted effort on behalf of everyone here proved to be a winning combination. While nothing can take away the hard work and long hours, I am happy to report that it was, by every account, successful in so many aspects. Nevertheless, success, at any level, is no reason to rest on one's laurels but rather an opportunity to "raise the bar" for even higher standards. In that regard, Carol and I have already begun to lay the groundwork for tax season 2009.

As we approached April 15th 2008, Sue and I anxiously awaited our traditional after tax season get-away.  With plans set for Myrtle Beach, SC followed by a return to the National Corvette Museum in Bowling Green, KY, I was at the local Chevy dealer on April 16th when I received a call from my Dad that would

From the halls of the nursing home in April, Sue and I "flew" into May with three very special days that we will treasure for as long as we live. Starting the first weekend of May, and for the next two weekends, daughters Nicole (St. Mary's College of MD - majors in Biology and English) and Jessica (McDaniel College - Communications Major), followed by son Joe (York College of PA - Sport Management Major - Minor In Marketing) graduated from college. It was just yesterday that I remembered them hiding under my desk some 20 years earlier when C & C was founded and now here

they were receiving their college degrees and in four years no less. Saying we were proud is an under-statement. Nicole and Jess were both admitted to Phi Beta Kappa and graduated Suma Cum Laude and were recognized accordingly. After two short weeks, son Joe traveled up the road to Penn State for the summer and did a 450 hour internship in the Athletic Department of my Alma Mater while Nicole headed south to Annapolis for a 6-month internship with the Smithsonian Institute.God we were proud of all of the kids and the fine young, responsible adults they had grown up to be. When the dust settled, Sue and I looked at each other and breathed a huge sigh of relief. Mission accomplished! 

Sadly, along the way in May, we all lost a familiar face in many of our households, that being Tim Russert. Although like many of you I had watched him countless times on television, I never really knew that much about him until he was gone at a far too young age of 58. The more I read about him, the more I was intrigued. I learned he was a "regular guy" who never forgot his roots in his hometown of Buffalo and loved his father so much he wrote a book entitled "Big Russ & Me" honoring their relationship. Although he acknowledged being a Democrat, he was uncompromising in his questioning of his guests, on "Meet The Press", from both sides of the political isle. The outpouring of respect given to him by not only Democrats and Republicans, but his peers, many of whom were competitors, was simply unbelievable. Perhaps, more than anything, the work ethic themes that Tim practiced and religiously believed in of accountability, discipline and preparation rang a familiar chord close to home as can be found sprinkled throughout C & C's MISSION STATEMENT. Tim Russert was a good man by any standard, full of faith, hope, love and a little boy's enthusiasm for life.

With Pop in the nursing home, staying close to home this summer was the rule rather than the exception. Fortunately, we did take time in August to travel to the annual Corvette   pilgrimage in Carlisle, Pennsylvania - Corvettes at Carlisle www.carlisleevents.com/ce/events/corvettes  Joined by daughter Jessica and son Joe (Nicole had stayed behind to attend to job responsibilities) both Sue and I were honored to win "Celebrity Choice Awards", mine coming from a Corvette/Car Enthusiast who was also, can you believe it, an Elvis impersonator by the name of Ron Swartley www.carnut.com/photo/33-34/04/33-34p1.html. Neither Ron nor I knew each other prior, and for sure he had no idea I was also an Elvis Enthusiast, so his selection of my Vette bordered on the eerie side. In any event, it was a great time to see old friends, as well as make new ones, some of which actually traveled from overseas. Jess and Joe also participated in their very first "Carlisle Corvette Parade" which culminates with everyone

The week after Carlisle, Sue and I were on the road again, heading up to State College PA, this time for reunion of my football team at Penn State. Upon seeing everyone, it was like no time has passed. The bonds of friendship created when a group of 17-18 year olds first met on the gridiron in the summer of 1970 (the first time most of us were ever away from home) was as strong as ever. It should be noted that although we were now all middle-age adults, we still talked to one another as if we were back in 1970 ribbing each other at every opportunity.  Coach Paterno joined us for a social on Friday night (before

Saturday's game) singing right along and actively participating in the festivities.  I had a chance to talk with him briefly. Reflecting back on my own personal growth, I thanked him for being tough on me and for making me a man with his iron will of discipline (not really a bad word). It goes without saying that there have been a lot of players who have followed our class, yet I was amazed that he still  remembered me. It is worth noting that Coach Paterno is now 82,meaning that he was 43 when our class arrived on campus in the summer of 1970. While at Penn State, neither I, nor the vast majority of my teammates, could not fully understand or appreciate the discipline Coach  Paterno was instilling in us. Years later, its profound effect found its way into all of our lives. In my case, I only need to look as far as C & C's MISSION STATEMENT.

On the day following the social, we regrouped at Beaver Stadium for a game with Oregon State. When we played, Beaver Stadium's seating capacity was just short of 60,000; 35 years later for our reunion, that number had grown to 108,000.  Regardless, it was still Penn State football. The themes of PRIDE and POISE which we learned as young men were evident as ever. At half-time, they brought us on the field and introduced us to the crowd. It was a nice touch. It was a very special day in another sense in that Jessica, Nicole and Joe joined Sue

(surprising her for her birthday) and me for their very first Penn State football game and had a chance to meet many of my former teammates. The names from the stories "back in the day" now had faces which they could associate. The tradition of the annual trip to Hershey had run its course; a new tradition of going to a Penn State football game had started. Most important, we were all together as a family.

About the same time the Presidential Election campaign really started to intensify, all of us at C & C were saddened to learn of the sudden loss of Tina's Mom at the all too young age of 55. Understandably, while there are no words that can take away the grief of loss for Tina and her family, the outpouring of support from clients was special beyond words; I know I was touched and can only imagine how much it meant to her. This together with staff camaraderie exemplified by everyone pulling together (while Tina was out for bereavement) to make certain work production continued as usual gave true meaning to the "we are family" theme.

Perhaps it was a diversion from everything else that was going on, but I closely watched the plethora of news coverage from May through November on the Presidential Election. Aside from the obvious results, I was trying to put things into perspective as our country faces extremely difficult challenges. I couldn't help but wonder to how we evolved from a time when politics meant "respectively disagreeing" to the point to where it has virtually become a "vendetta". Who is the really enemy in our society? Who are the good guys? Why is there so much hatred? Who are our real leaders, political, religious or otherwise? What happen do doing the right thing, to treating others the way we would like to be treated? What happen to manners, respect for elders? Perhaps even more important than "what happen" begs an answer to "What can we do about it?" Is there a common denominator that can help us better understand? Without being a political activist, what can each of us do to make the world in which we live a better place for our children and our children's children?

The economic meltdown of 2008 hit like a tsunami leaving countless "stretchers in the financial field for the Red Cross removal team". Its roots run a broad spectrum of cause and effect along the way with plenty of blame to pass around in all directions. Unfortunately, the timing of the implosion within the "stretch run" of the Presidential Election only added fuel to the fire, creating in my opinion, a level of hysteria which was counterproductive to what we needed. Comparisons to "The Great Depression" were simply unfounded. In attempting to "take the lemon and make lemonade", I believe we all need to put things into proper perspective and reflect on the following financial fundamentals:

o     Live within your means - differentiate between wants and needs and good debt vs. bad debt vs. no debt. This takes discipline and a plan with a laser-like focus combined with periodic review and revision.

o     Surround yourself with competent advisors who take great pains to place your interest first but always use your own judgment and common sense in making financial decisions within your comfort level.

o     Cash is, was and will always be "King". Get into a habit of systematic saving (pay yourself first concept) and stick to it. Sitting at the right hand of the "King" is the "Queen", that being your credit score. While establishing credit is important, it's even more important to value your credit rating and protect it.

o     Remember, an "Emergency Fund" is a necessity, not just a financial planning term or concept. Generally speaking, you should have a 3 - 6 month reserve of your living expenses set aside for a "rainy day".

o     Diversification in both stocks and bonds is critical. Remember more risk can mean more reward, but could also translate into more potential loss. While bonds are much safer, they offer far less rewards. However, they will also help provide downside risk for the prudent investor.

o     Mutual Funds can and do make good investments up to a certain level in an after-tax account, but as the account value increases, they are not as tax efficient as a "Managed Account".  In that regard, when there is a "run on a fund" causing the manager to sell off holdings, those sales will many times create capital gain distributions.  Unfortunately, the fund holder will not actually see monies from these distributions, yet will be taxed on them. Perhaps even more painful, is the corresponding drop in the funds Net Asset Value (NAV). This is where a "Managed Account" of diversified stocks and bonds repeatedly demonstrates its superiority over Mutual Fund investments.

o     If the history of the stock market teaches us any lessons, stock prices will rise again. In the interim "opportunities are available" but should be only done after careful consideration and a willingness to accept risk, and finally,

o     Having a plan and working a plan is more important than ever. This is where our sister company, Master Key Financial Services (MKFS) and our Professional Alliance Team (PAT) are working harder than ever in helping our clients attain their financial goals and objectives.

Last, if not least, from the time I was a young boy, and for those of you who know me just a little better, my love for cars (and for that matter the industry) has held a special place in my heart. It goes without saying, the bailout/rescue/bridge loan of/for The American Auto Industry strikes close to home.  As a taxpayer, I do not like any of these government programs which use taxpayer funds in their effort to fix things; I work way too hard like many Americans. However, I now find myself in a predicament in that I am part of, what many consider, a dying breed referred to as "American Car Guys". I can't help but feel that sometimes lost in the translation is the little known fact that from February 9, 1942 until July 1945 civilian car production in the United States stopped and all auto plants were converted to military production; this should not be forgotten, national security considerations aside, but even more so, as their sacrifice for our country. Further, history actually shows us that the American Auto Industry was in effect "hijacked" during the Great Depression of the 1930's and basically forced by government to recognize the UAW. Speaking as a "Car Guy", have we forgotten the dire financial situation after the September 11 attacks, when GM introduced 0% financing (a concept unheard of until then) in an effort to stimulate our economy? Again, from my perspective, "The Big 3" were there for our country when we needed them; perhaps it is now our time to be there for them and show some loyalty in return. Regardless of your political affiliation and your view of all the various issues which make up this very complex subject, The American Auto Manufacturers are much more than bricks, mortar and assembly lines; they are people, families, and ironically include union workers. Through my membership in the National Corvette Museum, www.corvettemuseum.com I have met and spoken with Corvette engineers, plant managers, assembly line workers, designers and vehicle line and marketing executives. In all cases, without exception, I found them to be quality people. They care about GM and their customers. I am sure they have counterparts at Ford and Chrysler. Now is not the time for band-aids, rock-throwing and finger-pointing, but rather there is an urgency to get to the root of the problem and fix it once and for all. Is this best accomplished in Chapter 11 Bankruptcy? Possibly, but I believe, if that can be avoided, it would be in the best interest of everyone. In light of the economic conditions and tight credit, the new car market has declined from approximately 17 million vehicles annually to 10.5 million. This is not fault of "The Big 3" as the drop is felt across the board affecting all brands - Domestic and Foreign. Unfortunately, it appears however that the dilemma facing "The Big 3" has transformed into a political stick of dynamite. Hopefully, cooler heads will prevail and this industry can survive, recover and eventually prosper. For more information, you can go to www.gmfactsandfiction.com.

Joe Gibbs, the legendary former Head Football Coach of The Washington Redskins is credited with the phrase "You win with people." I couldn't agree more and even as the founder of C & C, I never felt that I was an island. Right from the start until this very day, I have been most fortunate to have quality staff that did their best in "buying into the C & C way" even if at times they needed a little "friendly reminder" from the boss. It might come as a surprise, but I have been, on selected occasions, tough on our staff (some more than others) when I felt that they had more God given ability that wasn't being fully utilized. Hopefully, if they haven't realized already it, they can someday understand that I was simply trying to help them reach their full potential just as Coach Paterno had demanded the best from me and my teammates at Penn State some 35 years earlier. Discipline, as I learned, found its way into our lives from "that little voice in the back of your head that keeps reminding you that there is no shortcut to success". Staff, however, is only part of what makes a winning team. We have been truly blessed with a loyal clientele who without, we would not be celebrating our 20-year anniversary. In many ways they have become part of our extended family and "thank you" in this case is simply not enough. Our "thank yous" must come everyday with our spirit, commitment and enthusiasm in providing you the very best of professional services bar none. We want you to be proud of us as your CPAs, business consultants and financial advisors.

Twenty years from our founding, Ronald Regan is no longer with us having passed away in 2004, yet his spirit and enthusiasm live on in many Americans. As President Regan left office in the infancy stage of C & C, he was followed by Presidents Bush 41, Clinton and Bush 43; in a few short weeks President-Elect Barack Obama will take the reins. In the last 20 years, we also lost, to name a few, icons Roy Orbison - 1988, Lucille Ball - 1989, Sammy Davis, Jr. - 1990, John Candy - 1994, Dean Martin and Mickey Mantle - 1995, Zora Arkus-Duntov (the patron saint of the Corvette) and George Burns - 1996, Chris Farley, Princess Diana and John Denver - 1997, Frank Sinatra and Sonny Bono - 1998, Joe DiMaggio - 1999, Perry Como and George Harrison - 2001, Johnny Unitas - 2002, David Brinkley, Johnny Cash and Bob Hope - 2003, Rodney Dangerfield - 2004, Johnny Carson and Peter Jennings - 2005, Heath Ledger, Charlton Heston, Jim McKay, Levi Stubbs, Paul Newman and Sammy Baugh - 2008,  as well as Presidents Nixon - 1994 and Ford - 2006 and Vice-President Spiro Agnew - 1996. Perhaps as a country, our biggest loss was on September 11, 2001 when we lost not only the World Trade Center as a symbol to point to of America's greatness, but more importantly 3,000 innocent lives. Amazingly, Lee Iacocca did write me back (his letter framed as a keepsake to pass down to future generations). Nevertheless, the Chrysler Assembly Plant (formerly AMC) in Kenosha, Wisconsin closed in 1989 citing a "shrinking domestic auto market". Once called "The Big 3" when we opened our doors, The American Auto Manufacturers are now sometimes referred to as "The Detroit 3". Today they stand at the crossroads of survival on the edge bankruptcy as foreign manufactures now make slightly over 50% of the new vehicles sold on American roads. Despite the economic meltdown, the Dow Jones Industrial Average closed at 8,829 at the end of November 2008 proving the cynics of "Black Monday" hysteria dead wrong. My kids are now 22 as they stand ready to enter their chosen careers at a time when the job market is extremely tight resembling in many aspects the credit markets. Twenty Super Bowls and twenty World Series later, we stand as a much different firm in size, sophistication and the evolution process. Many people have come and gone, while some have left only to return to a new beginning; still our nucleus remains intact. Yet despite all that has changed, the principles on which C & C were founded remain entrenched in our everyday affairs. It's a commitment to excellence, by everyone who is a part of our team; simply stated it's our commitment to "be the best we can be". It's a commitment to a disciplined work ethic which insures that our clients always receive our very best efforts. It's a commitment to our people, for they are the engine which powers our services. It's a pride in our work, a certain positive spirit in our efforts. It's that little something extra which cannot be measured, but we sincerely hope you feel when you do business with us. It's these principles which you began to expect from us over the last 20 years and it's these principles we pledge to adhere to as long as there is a Carlozo & Company.

In closing, to President-Elect Barack Obama and all of our elected officials on both sides of the political isle as they find themselves entrenched in an extremely difficult time in serving our country, to "The Big 3" automakers and all of their employees as their fate rests outside their control, to the family and friends of Tim Russert as they attempt to move on and find hope for a better tomorrow, to Tina and her family and friends as they grieve their unexpected loss, to my Dad as he struggles to overcome being bedridden and paralyzed and to my kids as they anxiously await making their own mark in life, I once again recall and offer the words of another legendary former Head Football Coach (of the Green Bay Packers) for whom The Super Bowl Trophy is appropriately named after, Vince Lombardi:

"The mark of a great champion comes not in how many times he wins, nor in how much he wins by, but rather, in how he gets up after he has been knocked down."

Life has a strange way of knocking us all down, many times quite unexpectedly. During the last 20 years, I can tell you I have had more than my fair share of setbacks and disappointments, yet I still consider myself the luckiest guy in the world. In difficult times we must summon strength from within.  Interaction with and support from family and friends is more important than ever. Persistence and determination are paramount.  If either now, or down the road, life knocks you down, recall these words and you will without even realizing it, summons up the courage and strength you have from within, to not only rise, but to fight again, because God created us all in his vision as truly great championsall we need to do is trust. Your acceptance of and commitment to this belief is fundamental to recognizing that "the most important voice you hear will be your own". Just make certain it is broadcasting positive thoughts of faith, hope and love. If it is not, make a slight adjustment and change the tuning on your radio (WJOE). It is, after all, your choice of what station to listen to. Keeping that in mind, I wish you and your family a happy, healthy and prosperous New Year, and hoping that we share many, many more years together in a mutually beneficial working relationship.

May God bless you and your families, I remain,

Very truly yours,

CARLOZO & COMPANY, P.A.

Joseph V. Carlozo

Joseph V. Carlozo, CPA, CFP

President