April 15, 2012 Greetings All: As an investment community we still remain suspect. How can the market have the best quarterly performance since 1998 with a National debt at the highest it has ever been, a political machine running on “un-greased” bearings, unemployment still at a very high level and no clear picture from our Government as to how we are going to reduce spending and manage our debt? It is quite perplexing. So here are some potential reasons for the markets strong performance this past quarter: • The run of strong labor market data continues with nonfarm payroll growth over the past three months. • Regional reports (states) reporting recent job gains that are also encouraging. Over the past year, the “sand states”—Arizona, California, Florida, and Nevada—as a group have gone from underperformers in terms of job growth to outperformers. These were the states with the biggest housing bubbles and consequently causing the most severe private sector financial damage. The fact that they are now creating jobs more rapidly than the nation as a whole suggests that the negative impact of these states is diminishing. • Housing continues to strengthen. • Interest rates, or the cost of money, remain low. • Inflation is reported to be in check but I guess they may not be considering the cost of groceries, gas, possibly insurance – specifically medical and consumer goods – soap, tires, toothpaste, etc. • A very accommodative Federal Reserve Board • Accommodative European Central Bank and International Monetary Fund in helping to minimize problems in Europe. That being said I guess we should conclude that all is “fine” in the ole US of A? Well… optimistic conclusion based upon some positive short term indicators might not dictate that we take action in the same manner based upon faith. Therefore I still maintain a cautious action plan. Let me continue by looking at what might cause risks to financial strength and economic recovery: • National Debt resulting from continued Government spending and failure to curtail that spending with the biggest issue being the Congressional budget debate. • Oil and middle east tensions • A slowing of the improvement within the unemployment rate – but improvement none the less. • The Federal Reserve (Bernanke) saying that strains in global financial markets continue to pose significant downside risks to the economic outlook – reason they are keeping interest rates low. • Continued uncertainty in Europe. So…if any one of the above “risks” get, solved/managed/eliminated in a favorable manner, which you all know that in my optimistic world will happen in time, then the positives, albeit small, may continue to outweigh the negatives and the markets can continue their advance; up to November! You had to know there was a “but” coming. They say election years are great and it is certainly starting out that way but I have very little time to evaluate and research politics so I will just have to let others provide summary information and formulate my advice around that. In that light, here are some comments out of Goldman Sachs regarding the issue of politics and election result scenarios: • Market participants have begun to focus more on the fiscal “cliff” approaching at year end, when policies set to expire or take effect could impose roughly $600 billion (around 4% of GDP) in fiscal restraint if there is no congressional action. It is assumed, however, that the actual amount of $600 billion may be much lower. • While there is a great deal of uncertainty regarding how potential political scenarios could shape policy outcomes as we approach the election and year end, it appears to us that the risk these policies could actually lapse in the first quarter of 2013 is greatest under a scenario where control of the House, Senate and/or White House changes hands. This may lead to unexpected fiscal restraint and policy uncertainty. • By contrast, if political control stays the same, a “divided government”, then we may not see this potential fiscal restraint surface until sometime in 2013. Basically for us as investors, this means continued uncertainty. Not supportive of strong investment markets that we would come to expect from a recovering and healthy economy. Isn’t it sad that politics are playing such a huge part of politics that negatively affect our lives and the lives of our families in the future. What ever happened to government for the people by the people? Seems today it is government for the people by the politicians that will best benefit themselves! My thoughts? Presently I have developed a 5% downside target on the S&P 500 which as of Monday, April 2 was at 1350. What this means is that if the S&P starts to approach this level, I will begin discussing with each client the best investment approach and decisions in moving forward. As the S&P 500 hits new closing highs, then I adjust my April 2nd value upward. For each of you this has differing and varied meaning but it at least provides us and starting point for discussion and a potential plan. My suspicion is that the markets, economically driven, will continue to strengthen up until the election. Baring any global catastrophe or economic unknown that could always happen, I remain optimistic – imagine that – and I maintain we continue with our present investment plan. I would like to thank those that have referred new clients to me over this past quarter. The consensus reasons are lacking customer service, good information and access to an advisor that will simply discuss thoughts and concerns in a relaxed, concerned and easy to understand manner. I may not always be right with my interpretations but I will take the time to help all understand and make sense of investing as it pertains to their specific situations. Please, do not hesitate to let others know of my work here. It can take several years to develop a financial relationship but I am willing to begin that journey with those you personally feel could benefit from my guidance. I sign-off for now but remember if you have any questions, thoughts, concerns or needs regarding your investments, accounts, markets or things you read/hear within the media, give me a call so we can discuss. Regards, Martin Martin McClellan The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. The views expressed by Goldman Sach’s and Steamboat Financial Group do not necessarily reflect the views held by LPL Financial