January 25, 2013 Greetings All: I once again find it hard to believe that another year has passed.  In my usual routine of preparing this “beginning of the year” report, I review the previous year’s letter.  In doing so, I took pause!  Here is what I wrote last January:  “The New Year has begun and on a good note as we had a nice upward market move on January 3rd and several reported and notable economic indicators are also showing improvement;  the Institute for Supply Management (ISM) reported its manufacturing index rose to 53.9 in December (the best result in seven months); Goldman Sachs on January 4, 2012 reported that factory orders were up for the month of November, 2011 and that their most recent estimate for quarter four, 2011, Gross Domestic Product (GDP – the market value of all final goods and services produced within our country) was also positive.   Recently we have seen improvement in new orders, production, and on January 6th, employment numbers showed progress.  The consumer seems to be more optimistic and looking at the most recent numbers from the housing industry there are signs of improvement there as well (more later on housing). And, all of this, there is a continuation of the generally solid US economic data seen in recent months.” What caused me to take note was that I could have used last year’s paragraph above to begin this year’s letter!  On January 2, 2013, we had a large move-up in the market (read: our politicians have come to a solution on the fiscal cliff), economic indicators still improving, consumers maintain optimism, etc. etc. etc.  Interesting don’t you think? Looking at the 2012 performance for the U.S. economy we see that it grew and it was better than 2011.  Inflation was stable, borrowing rates remained low and jobs increased by about 1.9 million; a fairly positive outcome for 2012.  Personally,  (and I have felt like this for some time) there continue to be good things happening in our Nation, however, most investors remain suspicious; intense focus the media is placing upon the negatives and the continuing failures of our politicians.   As investors, it’s time we  look at what the economy (and markets) can do in spite of the pending negatives and governmental weakness; in fact, we might consider assessing what the economy (and markets) did do over the past several years in spite of all this pessimism;  grow.  I suspect what we should expect next is for the media to start building the next “crisis” headline, creating investment fear, paralyzing action and hindering the growth of the entrepreneurial spirit of our Nation; which has demonstrated to be quite a resolute economy.  Expecting that, let us continue our work together, communicate often, mesh the investment opportunities that are consistent with your needs and block out these often incorrect assessments of the future. As we enter the New Year, we enter a new earnings quarter.  Alcoa was the first company to release earnings.  On Jan 8th it did so and exceeded expectations, but in their press release, their words were more interesting than their financial results.  They are projecting improving global growth going forward into 2013.  They expect the aerospace industry to grow 9-10 percent, automotive to grow 1-4 percent even after double digit growth in 2012 along with commercial transportation, packaging, building and construction, to all grow during the year and to be key drivers to Alcoa’s sales throughout 2013. 2012 was remarkable in the resilience corporate America displayed.  In the face of huge uncertainty they were able to create value and grow.  Europe mitigated the risk of large-scale insolvency and we now see the economic risks in Europe declining.  Further we continued to see the middle-class economies in developing nations and emerging markets grow; with that emerging market expansion expected to continue through 2020.  All these conditions are expected to continue into 2013 especially for corporate America.  They continue to remain in great financial health, they have solid balance sheets and lean cost structures.  They have been cautious, avoiding major expenditures and postponing hiring amidst a weak and recovering economy.  However, as clarity improves within our present fiscal and tax issues, we could see a substantial pickup in corporate spending and hiring; “pickups” that have higher probabilities of occurring today than 3-5 years ago.  Here’s the thing…the forecasters are saying (average numbers are being used here) for 2013 we look to see overall economic growth of 2% increasing to 3% in 2014. Presently interest rates remain low, inflation is null, housing continues to improve, corporate America looks solid, the Fed is accommodative (good or bad, this is undecided…I think good), consumer confidence fluctuates but trends positive, oil prices seem to have stabilized and more people are working.  Five years ago we were told this was not going to be the case.  It is, we are a robust Nation, recovery remains underway and we are growing. “So…what do we do going forward?”  Maintain your personal investment plan; look for good quality investments consistent with your asset allocation, risk tolerance and financial goals.  Look for good quality companies, both domestically and internationally and try not to focus on specific individual markets.  Maybe emphasize income oriented investments; investments with yields greater than the expected growth rates.  It may be time to redefine your investment path.  There are simply a vast number of ways we can approach this investment world but the one that is right is the one we have created (or possibly re- create) through discussion of these conditions and how they specifically affect you. It continues to be complicated out there.  Working together will help us all be successful and allow me to continue my work on your behalf.  Your support and input on this journey is critical so please keep in touch with me as often as possible as I will with you.  My best to you and your family as we enter 2013, enjoy life, family and friends and I will continue this ever developing story in April. Regards, Martin