Protect...Grow...Repeat

Market & Economic Brief

Summer 2010

GLOBAL STOCKS
Stocks generally ended the first half of 2010 under pressure. The S&P 500 was down -7.5% and the MSCI Developed Country index declined -15.8%. Q2 earnings reports are expected to be strong but forward guidance is less certain. Leading companies held up surprisingly well as markets sold off.

WORLD ECONOMY
Leading economic leading indicators produced by ECRI continue to signal a slowdown in the U.S. economy but will need to deteriorate further before signaling another recession.

INFLATION DATA
Broad inflation pressure appears to be contained and interest rates remain very low.

U.S. RESIDENTIAL HOUSING
After a pick-up earlier in the year, home sales appear to have slowed after the expiration of the home buyer credit at the end of April in most U.S. markets.

PLANNING
New conversion rules for ROTH IRA's in 2010 may present a unique planning opportunity.

Potential tax changes in 2011 are reason to review tax strategy in 2010.

Growth Strategies

We believe a well designed growth strategy needs to have a preservation of capital component. We address the preservation component with specific investments held in portfolios as well as how the account is allocated toward growth investments.

In terms of the preservation component, it is our job to monitor economic data, corporate earnings, debt markets, stock fundamentals, market sentiment and other metrics to guide our overall view of the investment landscape. We then compare our economic information with asset performance data.

Generally markets are in an upward trend and we are able to maintain our investment allocations with few changes. However, our strategy is designed to deliver value in a variety of market conditions and holding do change with market conditions. The most common term used to describe how we manage portfolios is Core/Satellite.

Our Core investments provide our clients with exposure to a wide variety of global asset classes that tend to exhibit lower volatility than stocks and higher returns than bonds.
Our Satellite investments can include high growth opportunities like small international companies, alternative energy companies, industry sectors or other assets. During difficult market conditions we underweight our satellite investments and increase our cash position.

We believe in asset allocation and diversification, but not in the way modern portfolio theory (developed in the 1950's) prescribes. We are not frequent traders but there are market conditions where investment changes increase. We do attempt to reduce some risk factors by focusing on exchange traded funds (or a similar investment structure) versus individual stocks for most of our market exposure.

In summary, we work hard to find money making opportunities for our clients, but we are not afraid to wait out difficult market conditions with a significant cash position if we feel that is the prudent course of action.