Market Perspectives
                                                                                        June 2010
Dear Friends,
 
Last year we had a good performance year in the capital markets following the terrible crisis of 2008. Portfolios have bounced back significantly from the March 2009 bottom, in many cases above the S&P 500 last 52 weeks performance. Over the past few weeks we have experienced a sizable reduction in valuations, the type of thing we are trying to mitigate with our dual custodian strategy talked about in our remarks in January 2010. Last January, in our Perspective commentary, we pointed out that, having experienced the negative impact of two severe market corrections in nine years, we believe they are likely to reoccur at future points in time, given the level of liquidity in global markets and the level of concentration in terms of global (news) media attention from the same information sources. We believe this coupled with current global electronic trading capacities can lead to heightened market volatility. As no one can accurately predict when these types of events might happen, and wanting to retain our valuations as we grow, where practical, we have instituted a discipline of periodically reallocating assets into fixed income type investments at one of our other two custodians, either JPMorgan or Deutsche Bank. With these two quality global underwriters we feel we can get to better implement our investment strategies to grow and to try to retain value, and we get broader custodian diversification. We also get more direct access to broader capital markets and to their convertible securities issues, which should helps us in building value for portfolios. The recent events of sharp market correction experienced last week, serves as a reminder. A combination of Greek/European debt issues and the New York Stock Exchange/electronic trading events that produced a temporary intraday market (INDU) decline of nearly 1000 pts. was a  catalyst this time. Thus far this strategy seems effective for the portfolios already in place.  Portfolios, with the strategic combined custodians, seemto experience a significantly lower devaluation rate. There are still risk of loss as always, but this shold reduce volitiity.This was a primary goal. You should have already had these conversations with your Advisor representative. They are your relationship managers and thus your first point of contact, If not, do not hesitate to call us directly. We do want to know that the communication is going well.
 
We continue to believe the climate is right for continued US economic expansion given the low cost of capital, and the global stimulus initiatives ( except-China is trying to slow growth) to induce economic and jobs growth. April US retail sales rose 0.4% after 2.1% in March and industrial production 0.8%, are signs that the economic recovery gained momentum this quarter. And again, corporations are much leaner given the cost reductions of the past two years. ‘The money supply, which grows robustly when banks are lending and consumers are borrowing, also points to declining inflation. The broadest measure of the money supply expanded at an annual rate of just 1.4 percent in the 12 months through April, vs. 8.4 percent a year earlier. That's a clear sign that consumers have switched from borrowing to saving. Says Gabriel Stein, a director at Lombard Street Research in London:’ (May 13 th- Bloomberg Businessweek Monetary Policy.) To date we have seen little or no inflation, mostly due to unemployment levels above 9% and the resulting lack of consumer pricing power - core consumer expenditure pricing index without food and energy is at 0.6 this year, the lowest since the 1959.
 
Going Forward - given the above expectations we continue to find value in the equity markets. Like most cyclical economic recovery cycles, most of the easy money should be made in the early third of the bounce back after an over sold condition, such as we’ve experienced. The next phase we believe will require diligence focus and  an effective strategy. We believe an incremental strategy of reallocation ( to convertible bonds) so that we don’t miss the equity growth opportunity, but we also have be prepared to retain valuations should there be future inflation. The markets are not efficient in our view, over price and under price investments should sooner or later cross intrinsic value. Our strategy should help to mitigate some of the emotional aspects of investing. Where applicable we are sending you documents to set up either JPMorgan-JPM or Deutsche Banks- DB custodian accounts. It will not replace but should work in tandem with the Schwab account. What are the negatives? You will get additional statements from JPM or DB keeping you up-to-date of your holdings, but this can be done electronically. The positives we believe should increased possibilities to preserve valuations through this process. We think this is important, especially with unexpected market corrections. It should increase the prospect for building capital. As this will primarily be fixed income type investments, there are likely to be fewer transactions. Again, we gain a broader scope and access to investment opportunities to better enhance performance. As always your first point of contact is with your Advisor representative who will help with your questions, but never hesitate to contact us when you feel the need to do so.
 
Sincerely,
Norval Thompson
Investment manager                                                                                                                   see disclaimer

  
Dear friends,
 
It’s a new year again. Hello to old friends and welcome again to all the new people who have joined us recently.  It has been an interesting decade. The Capital Markets were much better in the second half of 2009 than same period 2008. Though most portfolios have bounced back significantly, there is always work to be done, as we attempt to capitalize on opportunities presented by over sold condictions due to high emotions in the market place. In short, we believe that the negative effects of the correction in the real estate market will be with us for some time, but the hurricane has passed and the world economy has a brighter future, particularly in the US.
As real estate investments are typically the largest for the average investor, severe negative corrections tend to have a more lasting impact on consumer spending power, confidence level and the overall economy. The resulting slack in economic demand cause businesses to take defensive measures such as cutting payroll spending. This, unfortunately, has resulted in higher unemployment (US10%) that was already entrenched by labor competition from the emerging economies. This cycle could otherwise be self- sustaining to produce a severe prolonged recession. However, it is our view , that the global stimulus investments and the coordinated efforts of the Obama administration, the Federal Open Market Committee, the US Treasury Dept., and the G20 central banks, significantly reduced the frozen liquidity/credit demand issues, as risk averse banks are reluctant to lend  to . The coordinated effort was a monumental task in preventing the destruction of the global capital markets and the banking systems which had invested heavily in illiquid mortgage instruments used to finance the boom in real estate transactions. Presently the markets reflect renewed confidence: DJIA* 6,648 March 2009 to 10,653 Jan 2010 and S&P 500* 679 March 09 to 1,144 Jan 2010.
While there are concerns about future inflation given the US Debt ($12T +), and the continued low cost of capital, the future looks brighter in our view, as increased competition from developing economies and the new US administration has produced a political willingness to tackle long term structural economic weaknesses such as, the US $300b dependency on middle eastern oil, the crippling health care costs, our declining education systems - K-12 and the need for better financial regulations. The growth in this competition is constructive, it not only provides investment opportunities, it creates more peaceful trading partners that can better afford our high price innovations. From IPods, Smart Phones, the Entertainment Industry, and Med.Tech. Da Vince surgical systems and soon autos, the US continues to produce innovative economic engines from a highly productive labor force. In light of the recent experience, the acknowledged global interdependence demand coordinated systemic financial regulatory efforts. Now, new regulatory bills in Congress will regulate mortgage practices, move us closer to the Glass Steagall Act, and reduce the leverage used by investment banks, which are now commercial banks.
Going forward, we will continue to seek opportunities in the global markets across all grades of investments. In light of the prospects for global economic recovery and possible future inflation, we continue to add short to medium term convertible holdings as a means to address both possibilities. With two significant market corrections in nine years, we are mindful that this can recur given the liquidity and the magnitude of emotional reaction to news/events in present day markets. We have deployed a discipline, which includes additional custodians (J.P.Morgan and Deutsche Bank) to help mitigate the effects of possible future recurrences. Here we seek to grow capital by periodically and incrementally redeploying assets emphasizing fixed income type investments with these custodians, a further attempt to reduce the emotional human factor.
We believe all investors, where applicable, should take advantage of potentially tax-exempt investment Roth IRA accounts The tax costs should be a managed process. In the second quarter we hope to roll out a limited partnership fund for qualified investors. It will remain consistent with our socially responsible investment principles. We believe good capitalism can be constructive and consistent with good practical ecology management. We therefore, seek to capitalize such compatible businesses. For more on any of the above, please consult your Client Advisor.
Thank you for your business. 
Sincerely,
 
Norval Thompson
Investment Manager                                                                                                                                 see disclaimer
 

The markets currently seem to trade in a range: January 10th 2009.
In the recent past; approximately - Dow- 7700 - 9025.  It is a moving target.
 
  In 2008; we witnessed the near collapse of the global capital/Banking infrastructure, a result of exposure to illiquid mortgage related investments. Large financial institutions adopted defensive postures - a lending freeze ensued - in order to strengthen or protect balance sheets or to meet regulatory requirements. This produced a frozen credit environment. Banks wouldn't even lend to each other.The Federal Reserve opened its windows to lend in a highly unusual manner.
 
The global financial markets lost trillions of dollars in valuation as investors watched their pensions and retirement portfolio values decline significantly and grew increasingly risk averse. They gradually hid cash in short maturity Treasury bills, forcing those yields to near 0% and sent corporate credit yields soaring. This added perma-frost to the credit markets, prompting the Treasury Dept. and Congress to respond with a Troubled Asset Relief Program (TARP), a $700billion rescue package when financial institutions ( Bear Stearns , Lehman Bros. Washington Mutual, Wachovia) began falling like dominoes. Others, like Merrill Lynch, MorganStanley,Citi Group and  Bank Of America were bought up or rescued/ backed up by Government cash infusions.
 
The tight credit conditions and the earlier record high oil prices, caused a significant loss of confidence on the part of businesses, which resulted in higher unemployment numbers, as they attempt to manage costs.
Consumers lost confidence and further reduced spending due to concerns with job losses and mortgage foreclosures. This was more evident  with poor retail sales at peak holiday seasons; a sure sign of a  weakened economy, the worse recessionary environment in over 50 years. 
 
 
In the equity markets what is called a "trading range" developed. A tug-of-war ensues where; though the economy is in a recession, investors still find value in stocks trading at prices perceived to be much lower than their fundamentals values.
These shares are in  turn bought up to prices at times as much as 30-40% above the lower range purchase prices.
This short-term increase in share prices tends to bring selling pressure as there is a general understanding that; in spite of the TARP funding , lowered interest rates and stimulus plans; the fundamentals of the economy are still weak and might not support a sustained bull market.
 
In an attempt to rebuild capital, investors preferring to retain the recent gains, raise cash by reducing equity exposure, thus adding selling  pressure on stock prices and pushing the markets towards the lower end of the range... This may or may not start the cycle over again, which could last until the fundamentals of the economy dictate different market conditions.
This usually occurs well in advance of the actual economic recovery.
 
As it appears we are in a significant recession, the worst since the 1930s, we believe these cycles may last for some time, providing opportunities to attempt to rebuild capital while the Government economic rescue/economic stimulus activities manifest themselves to produce the intended economic recovery.
 
Norval E. Thompson

To our friends,
 
Over the past several months we have all been steadily pulling back from the brink of a near collapse of the global capital market infrastructure. As your investment managers, we have been in the process of, and will continue to work at, rebuilding investment capital. Please review the attached reports and contact your relationship manager with questions.
Going Forward
We believe there is a good deal of liquidity in the global economy which will facilitate economic expansion and continue to support stock prices, sourced by:
- The sizable build up of cash in short term U.S.Treasury securities - at  quite low return on capital -due to earlier panic selling as investors sought safety.
- The G20 nations use of stimulus packages, seeking to jumpstart their economies to escape the global recession.
- The Fed. Open Market Committee under Chairman Bernankie has kept interest rates low to stimulate economic growth.
- Oil prices, one of the biggest tax on constituents, has been cut in half over the past year.
While there are still significant economic risks and uncertainties given the sizable job losses, depressed real estate values, and stretched consumer credit conditions, we believe that we are at the beginning of a significant economic recovery. This revived economic expansion we believe will be fueled by the above described liquidity, increased efficiency in business management, better health care and banking regulations and more reliance on the use of alternative energy. There should be increased entrepreneurship and start up businesses due to technological advances, coupled with displaced or under employed intellectual capital.
We believe growth and total return, along with seeking value, is the best way to capitalize on the economic recovery. We also recognize that the capital markets have been significantly changed due to ease of access and readily accessible global information as well the sheer size of available liquidity for investment. These changes, we believe, will result in more frequent wide swings in the market - we have seen two such in the past ten years. To better manage and to help mitigate these unexpected wide swings, we are instituting a process aimed at preserving capital, which includes building capital through the use of fixed income at one or more of our custodians. More on this at a later date.
 
Thank you,
 
Norval E Thompson