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