Greetings All:   I must start off this quarter by recognizing the patience and calm that my clients have demonstrated this last quarter, specifically since the big downgrade by Standard and Poors (S&P) of US Treasury Debt late in the evening of Friday August 5^th.  That downgrade followed a week in the market that saw the Dow Jones Industrial Average Drop 5.6% and in my opinion; “revenge” oriented by S&P, demonstrated wanton negligence and was not corroborated by Moodys or Fitch.  This quarter, I am going to break from my normal format.  I am just going to provide my insight on what has happened since July and what I think may happen going forward.  What we have seen over the past three months have been wild market fluctuations driven by what I am going to term “global-political” issues; not financially economic issues.  Let me expand… We’ve gotten to the point where people have had so much downbeat news dripped on them for so long that they can’t even imagine there is a positive side to recent events or that any logical case can be made for financial investing to meet their financial goals.  We are not seeing volatility in the markets because earnings are down (they are not)  or because banks are still operating recklessly (they are not) or because unemployment is getting worse (it is not), we are seeing this volatility because “global-political” woes – namely stemming from within the European Union – have intensified over the past 12 months and the US Markets are fed up with the European Unions and the European Central Banks lacking ability to implement definitive, concise and measurable actions necessary in correcting their problems! You must realize that it is not possible for anyone to accurately and consistently predict economic growth or stock market performance. But here’s a truth that has been stalwart for decades, “share prices follow earnings” and when you look at corporate earnings over the past several quarters, here is what you see…In Quarter 3 of 2010, the companies that make up the S&P 500 reported all-time record earnings. In the Quarter 4, those record earnings were exceeded, as they were again in the first quarter of this year and yet again in the most recently reported second quarter.  You have heard the term “deleveraging”?  This means nothing more than paying down debt.  Corporations are doing it and so are main stream America.  As I mentioned in my last letter, people of America are paying down debt instead of spending.  This means that at the point in which people are confident that they are not going to loose their home, secure in the fact that their home prices are increasing, certain that their equity is coming back and convinced that they are not going to loose their job, all this “deleveraging” and cash build-up within corporate America is going to provide us a path back to the prosperity and growth this country is used too!  In our current domestic environment, financial conditions are agreeably still tightening and banking stresses are increasing but what we have to consider is are we facing stagnation or a period of just slow growth?  So far we have experienced two years of growth, albeit sub-par but still…growth.  Most sectors of the economy are already depressed.  Corporations are lean and operating at levels of efficiency shareholders should expect.  We are hearing talk of recession.  Here is what I think.  We are heading into an 18 month to 2 year period of slow growth.  Growth that will be slowed by cautionary spending by people still concerned about the reliability of employment; mired by the excess housing inventory; growth delayed by banks unwillingness to lend; but growth.  So let me continue.  If you didn’t hear that we are in a period of all-time record corporate profits, please give some consideration to the “bias” as to who is delivering your newsworthy information. As investment legend Peter Lynch once noted, “People have all this data and yet they look at all the wrong things… It’s about earnings. They need to follow the earnings.”  Of course, just because corporate earnings have been running strong for four quarters in a row, doesn’t mean they will continue.  However, conversely, it doesn’t mean that they won’t! If you can’t imagine why stocks would rally from here, just imagine what will happen if the much pontificated “recession” does not appear; there are more professionals saying it won’t happen than there are saying it will…the media is not reporting the positives. Just for fun, let me interject a story of one US company, a great company, well managed and globally positioned is down over 30% since May not because they had some huge financial mishap or corporate negligence.  It is down because of speculation over those “global-political” issues I mentioned earlier.  There are plenty of good reasons to be bullish right now for the long-term; as I have said before, the short-term is unpredictable! But if you are developing your investment perspective from gloom-and-doom media reports, you may not recognize all the potential positive factors. Here are a few as I see them:

• ·        Interest rates are at historic lows and inflation is negligible. That isn’t likely to change any time soon.
• ·        Energy and food prices are moving lower
• ·        Bernanke has pledged to hold short-term rates at zero for two more years.
• ·        Valuations are cheap. When the S&P 500 traded at these levels eleven years ago, it sold for 44 times earnings. But because profits have been strong lately, the S&P 500 today sells for just 13 times trailing earnings, well below the long-term average of 16.4.
• ·        There are no excesses right now with possibly the exception of precious metals (another letter entirely).  But when focusing upon the markets, we are not getting excessive interest on money markets.  Dividends are not excessive.  Debt is not excessive.  Home prices are not excessive and as mentioned above, earnings ratios are not excessive. However, most importantly, stock prices are not excessive! 

So I ask, why the fear?  The media driven hype that is negatively portraying all aspects of our global economy for the sake of creating “sellable” headlines! Many of you remember my father Dale, a 20+ year veteran of this industry before his passing in 2000 and my partner for 10 years.  He had mentors and his favorite was investment pioneer Sir John Templeton. Sir John rightly said, “Bull markets are born on pessimism, grow on skepticism, peak on optimism and die on euphoria.” Do you know anyone who’s feeling euphoric right now?  Not me. I hope this basic discussion helps you to understand the state of our present investment situation; many things to ponder; many outcomes possible.  I end knowing that you may have many more questions so I stand at the ready; phone lines open; office visits welcome.  Let me know your thoughts and concerns so we can review your investments and make the best decisions going forward.  Best,     Martin      PS.  Just a reminder that we did a complete rebuild of our Legacy Wealth Planning website.  When you get a chance, go take a look.   Same address as always, lwpreno.com and you access your online account information from LPL in the same exact manner.  Let me know what you think.                    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.