Despite the hopes of America’s stockbrokers, we do not believe a rally is just around the corner or that we’ve seen the last of the damage from our current market woes.

We do believe there are still opportunities out there and it’s our job to help identify those for our clients. In an effort to assist clients through this difficult time, each week we will present an action item to help you protect and grow your net worth.

Our first action item - Proactively assess all debt obligations to lock in at a lower rate.

Your Home Mortgage:
If you have a home mortgage, now is the time to lower your interest rate. With the recent rate cuts by the feds, now is your opportunity to lock in at a lower rate. Waiting too long could mean hindering your chances of growing your overall net worth.

Here’s an example: A few weeks ago, I called my mortgage broker and asked if I should be doing “anything.” I wanted to show I was an active and decisive client and in general, I just wanted to be on my broker’s radar screen.

I have a 25 percent loan to value and 11 years left in my mortgage. Yesterday, my broker called with a 10-year fixed loan that also pays off in 10 years. The rate was low enough that I will save $6,000 a year on a no-fee refinance. Perfect.

The lesson here is to do more than check the going rate in the paper. Brokers don’t advertise unique loan products. All it takes is a quick call to your broker and a proactive approach.

Credit Lines and Credit Cards:
Most of our clients don’t carry credit card debt from month-to-month. Credit lines are another story.

Credit lines can be a useful way to acquire assets without taking out a new mortgage. Most credit lines are tied to the prime lending rate, which now stands at a historical low, 3.25 percent. If you can lock in a fixed rate on your existing credit line before rates begin to rise, you can save yourself a tremendous amount of money.

Here’s an example: A client of ours received a credit line for $500,000 in 2007. The rate was prime - 1.25 percent. At the time, the prime rate was 7.50 percent making his rate 6.25 percent. Today his rate is two percent on a 10-year credit line. Now would be a good time for this investor to call his lender to discuss rates.

We feel a sense of urgency given the current rates and encourage you all to asses your debts. We are happy to answer any questions you may have about mortgage rates, credit lines and more. We’ll continue sending tips your way.

One more time, today’s top action item - proactively assess all debt obligations to lock in at a lower rate.

If you watched 60 Minutes on Sunday, you heard about the next wave of the economy’s meltdown - the resetting of adjustable-rate mortgages. It’s expected that between now and 2011, losses from ARMs, owned by investors who cannot afford their higher payments, will cause losses as great as those from the sub-prime meltdown. We agree with this line of thinking.

Fortunately, most of you are either mortgage free or have fixed-rate loans. Below we’ve outlined what we think will happen next and what you can do to reduce your risk, while taking advantage of opportunities that will come out of this next wave.

The Financing Meltdown
Today, it is extremely difficult to get a loan if you want to buy commercial property. Unfortunately, there aren’t many lenders that can increase exposure for good quality real estate. The affect is trickling down. Since it is increasingly more difficult to get a loan and there are fewer investors willing to bid on real estate, sellers are consequently taking fewer bids at lower prices - not something sellers like to hear.

The REIT Meltdown
Real Estate Investment Trusts, commonly known as REITs, are a means for investors to invest in the real estate market. However, many publicly traded REITs are now in trouble after using their stockpiles of cash to buy real estate at high prices and with plenty of leverage in the past.

REITs used to be simple. The funds owned real estate and paid out seven to eight percent of the income in dividends. In 2006, the stock prices rose so high that the dividend was only three to four percent.

A good example is General Growth Properties (NYSE:GGP). A year ago, the stock price was $50 and the dividend was $2. Therefore, the yield was only four percent. However, due to over leverage and the acquisition of some great properties at premium prices, General Growth found itself with too much debt and was subsequently forced to sell assets to whoever could bid for the property in order to save the company. As a result, the stock fell to $1.72.

This is something we’re seeing across the board with REITs.

How to Reduce Your Risk
If you own commercial real estate, it is vital that you have strong tenants and good mortgages that do not adjust anytime soon. These investments will be stable performers in the years ahead.

Lakeside has focused on these parameters in our real estate purchases.

The Opportunity Ahead
Now we know that there will be fewer buyers because of financing difficulties and more sellers because they are in trouble. That always means better prices for well-capitalized buyers who can get financing.

We have a long time client who passed on in 1993 and his son took over his business. He was a savvy investor and an early mentor of mine. He told me that he only bought real estate when the yield was more than nine percent. Those days are back again.

Here’s to you, Ed.

As a Lakeside client, you know our guiding principal is to see your net worth increase over the course of your lifetime.  Life may not be all about the money, but it often starts with the money.

Before I make a purchase, I always evaluate the replacement value. This is a strategy we can apply to any investment to help give the purchaser a sense of whether they’re getting a good buy, while helping eliminate risk. Purchasing wisely and limiting the downside also reduces the risk that your net worth will decline.

We’ve outlined different areas of a high-net worth investor’s life that can benefit from the replacement value strategy. By making informed small decisions, you will see an overall impact on your net worth and investments.

The Stock Market
Warren Buffet, founder of Berkshire Hathaway, espouses the investment philosophies of an early 1900s professor named Benjamin Graham. Professor Graham believed that the only sure way to limit your downside and provide long-term returns in the stock market was by acquiring stocks at close to “book value.”

Book value is the liquid value of all net assets owned by a company.

For example, technology firms usually sell at a huge premium to their book value because of intellectual property or intangible assets. In contrast, banks usually sell at a modest premium to their book values. In many cases, it is typical for a well-run bank to sell for 1.25 times its book value.

A big red flag to investors is a bank selling at three to five times its value. This happened in late 2007.

We warned investors two years ago about Frontier Financial, a bank located in Everett, Wash. At the time, Frontier was valued at more than $1.5 billion while its shares were valued at more than four times the book value. As a result, Frontier celebrated its crowned status as “One of the best banks in the nation.”

Today, Frontier is down more than 90 percent and both the chairman of the board and CEO have been replaced. Understanding book value may have eliminated the capital losses many investors suffered in financial stocks. The banks that survive this recession will likely provide outstanding investment returns.

Real Estate
We assist many of you in acquiring a remarkable collection of real estate holdings - hotels, assisted-living centers, office buildings and development properties. When you look at the overall picture of what we have accomplished in the real estate arena, you will see we have very few developments and quite a few properties that pay out distributions even if you do not need the money right now.

The few developments are well located in urban areas instead of outlying rural areas. That was no accident. As speculation abounded in 2006 and 2007, we consciously ignored aggressive developments and land speculation unless the assets were being acquired at a discount to prevailing prices.

Today, we are about to enter an unprecedented period of real estate opportunities at huge discounts to replacement values. This has not occurred in more than two decades. Low interest rates and prices below the cost of construction are unique characteristics that we will pursue.

Consumer Goods, Personal Spending and your Expenditures
Most people will tell you that if you pay less, you end up with more. That phrase isn’t always true. What if you bought a car for $25,000 that has already fallen in value? Conversely, what if you paid $20,000 for a cheaper new car? Who has a greater asset in 10 years, the person who paid $25,000 and their car is still worth $15,000 or the person who paid $20,000 for a car that is now worth $5,000?

When I acquire a personal asset, I always try to assess what it will be worth further down the road. Are you better off spending $25,000 on antiques or $10,000 on new furniture? It is personal choice, for me I know that antique furniture has a ready market among dealers than something new.

What about business expenses? If you are a business owner, you are usually better off owning your building than renting. It surprises me the number of our wealth management competitors who will pay millions in rent over their lifetimes rather than acquire a building as an investment. Maybe they think that their more impressive offices will convince clients to hire them.

We believe that when investors see us following our own advice they understand our commitment to the philosophies we espouse to each of you.

Your Home and Vacation Property
There is a simple formula, which any investor can use, that helps limit the risk of overpaying on a home. The formula starts with an assessment of what it costs to build a house followed by an estimate of the land value. If you add those figures together, you now know what it costs to replace your home. By comparing the replacement cost to what you have to pay, you can limit your mistakes.

Here is an example:
In my neighborhood, there is a home with an asking price of $2,995,000. The land would cost $1,500,000 leaving the value of the home at $1,495,000. The house is 5,000 square feet. $1,495,000 divided by 5,000 square feet means you are paying $300 per square foot for the home. If the home would cost $450 per square foot, you are buying the home for less than replacement value and your risk is limited.

Conversely, if the same home cost $3,995,000 you would be paying $600 per square foot and likely be over paying.

This formula is a simple way to assess any real estate purchase.

Just two years ago, most real estate was selling for far more than replacement value. Today, opportunities abound to buy real estate for far less than replacement cost. Add in the benefits of low interest rates and moving up to a larger home may be a very smart strategy.

Art, Antiques, and Collector Cars
To some these categories are meaningless, and to others, their livelihood. The majority of us see art, antiques, and cars as discretionary purchases that we acquire to enjoy. However, these purchases can also be very profitable if one is careful and diligent.

It surprises me how much the price of a painting, an antique chest and a 50-year-old car move in tandem. Over the past three years, the expansion of credit allowed the well to do to acquire more of all three at higher prices. Today, the inability to get financing has caused the price of all three to decline 25-75 percent.

My advice is to only acquire each of these with cash. Cash purchases reduce your stress and limit your downside. If you acquire a collectible with 30 percent cash down and it falls 30 percent, you have lost 100 percent of your investment.

Conversely, if you aspire to acquire a significant painting, sculpture, antique or car, now may be the very best opportunity to do so in many years, though I personally think 2009 will prove to be even better.

Conclusion
The strategies we’ve shared today are guiding principals of our work at Lakeside. Our goal with your investments is to grow your net worth. The understanding of book value, replacement cost and cash purchases is an invaluable lesson and one that should be a core philosophy you use in the attainment of your net worth growth.

Yesterday, eliminating any lingering doubts, the National Bureau of Economic Research made a pronouncement we all knew to be true - we are in a recession.

I don’t think we were the only ones who saw this coming. Back in May, we wrote that oil and gold would fall and the dollar would rise. Now, the stock market is down 43 percent and oil has sunk from $143 a barrel in July to $46 today. Gas has fallen 55 percent since summer and interest rates have plummeted.

Here’s our next prediction - given these figures, the majority of brokers and financial planners will offer the following recommendations: buy bonds for safety and high-dividend paying stocks for cash flow. Further, you will likely hear you should no longer worry about higher interest rates and the risk they cause with adjustable mortgages, credit lines and credit cards.

We have a different point of view. Our approach is don’t follow the conventional advice. Here is Lakeside’s perspective on what’s to come:

• The recession will be over in a year. The economists will not announce it is over until it is too late to proactively respond to the changes ahead.
• The trillion-dollar economic stimulus will cause inflation to spike upward. You cannot have this much money printed without inflation.
• The resulting economic expansion will cause hard assets, like real estate, to rise two ways; first, higher rents will raise property values and second, low -interest rates on real estate that are locked in now will expand the net profit to building owners.
• Oil prices will settle above $50 per barrel.
• The banks that survive will need to find ways to be profitable, and this certainly means charging customers more for services.  Fewer banks means less competition, which results in higher fees.

Here is what Lakeside recommends you do to protect yourself and thrive as these changes occur:

1. Stay away from high-dividend stocks. It is as easy to feel comforted by the most conservative stocks now, as it was to buy “failsafe” banks a year ago. As interest rates rise, these stocks will fall. Preferred stocks will be one of the worst performers. In 1999, most preferred stocks lost 10 to 20 percent while the stock market was rising 20 to 30 percent. Our valued clients will own stocks but in a carefully managed fashion.
2. Stay away from Treasury bonds. Treasury and government bonds are close to an all time high. A two percent increase in a 10-year Treasury bond yield causes the bond’s value to fall 15 percent. Municipal bonds continue to offer very little value. It is no fun losing 10 percent on an investment that you believed was going to make you a steady four percent.
3. Manage your liabilities carefully. If you have a mortgage or credit line that feels good because of falling interest rates, be careful. Rising rates could cost you tremendously a year or two from now.

The conventional wisdom is often wrong and can cost you dearly. If you just lost 30 to 40 percent with another financial advisor, you could lose another 15 to 30 percent by taking the conventional road and over allocating to preferred stocks and government bonds, not to mention the additional cost of having your loan rates rise.

For our clients, we will allocate a portion of our portfolios to stocks, but not a large portion. The risk is missing a potential 30 percent rally, but we do not need the stock market alone to accomplish our goals for you.

Our lending opportunities are now offering double-digit returns for the first time in many years. We will present those as they come our way.

Lastly, the real estate market potentially offers the best opportunities since the early 1990s. It will be very tough for the stock market to compete with the returns offered on high quality properties and our access to the best properties is unparalleled in the wealth management field.