Dear Clients, Friends and Associates;

I just returned from my quarterly meeting in California where we discussed the capital markets in detail, as well as the economic and market outlook as our strategists and research firms see it. The views of these experts are important because they allow one to look beyond the spin of the media to see things as they really are.

Much of what I mentioned in our July 1st update remains accurate. Investor fears are still producing the unusual volatility we have seen in the market these past few months. These fears are driven by the European debt situation as well as domestic unemployment and the media hype on the potential for double-dip recession. Most analysts still don’t see a double-dip recession this year.

As I mentioned also last time; we have been anticipating a relatively strong earnings report for this past quarter and we were not disappointed. This report is what was behind the strong advance in the market yesterday. It is quite encouraging to see a higher-than-expected earnings report in the environment of lower-than-expected GDP growth.

Chairman Bernanke’s remarks on Wednesday before congress didn’t help much, since he came across quite timidly regarding the Fed’s ability to stave off a slowdown. This drove the market down over 100 points that day. Jeremy Siegel, for one, believes the Fed has plenty of tools to stave off a slowdown, if needed.

In summary:
The bottom line of all this is the projections for this year are not as gloomy as the media would like to believe, but are still not too exciting yet either. Our more optimistic strategists see the current valuations of the stock market beginning to be compelling and are looking to weight more to the equity side. Others are not to that point yet.

We still need to maintain our defensive positions across the “rowing” styles we have in place. For those of you taking income distributions; so far we have not reached the level to turn off the “spigot” from the primary portfolios in our Paycheck Preservation System.

By the way; the due diligence has been completed on another Absolute Return and Tactical Unconstrained strategist. We had a good discussion with them last Wednesday in California. We will be discussing these options with those of you whom it will benefit.

We have every reason to be cheerful. The strong bull we had this past year is over for now and volatility is higher, but corporate earnings are strong and we still see some growth over time. The best part is, most of you are in a good defensive position which has helped greatly during this most recent turmoil.

We appreciate each of you and I’m looking forward to seeing you during the upcoming quarterly visits.

Don’t forget to call if you have questions.

Sincerely,

Max W. Smith, CFP^®, CIMA^®