We wanted to send you a short update given the recent decline in stock prices over the past 8 weeks and the heightened anxiety these periods can cause. At this point, our work suggests that this pull back should be viewed as a "correction," not necessarily the beginning of something worse…at least not yet. We base this view on the recent news and economic indicators, as well as the overall percentage decline of stock prices, time frame and fundamentals.

The renewed concerns in regard to Europe are somewhat old news and the recent weakness in US labor statistics

are likely more of a short term fluctuation than a long term trend. As we have mentioned in the past, it is our view that Greece and possibly one other country may be forced out of the Eurozone. However, most of this bad news is already in the price of securities. Moreover, as opposed to the summer of 2011, we have two positive elements – (1) we know much more about the depth of the Euro crisis; (2) the European Central Bank (ECB) has supported, and we believe will continue to support the Eurozone banks, avoiding a 2008 or 2011 scenario.

The recent weakness in US labor statistics was unwelcome news on Friday. However, after several better than expected unemployment reports, we believe that this recent weak data is an aberration, rather than a long term trend. Moreover, the weaker than expected economic data sets the stage for the Federal Reserve to extend their policies of economic growth – a change that will surely support stock prices once announced.

As we have written in the past, it is not uncommon for stock prices to periodically decline 8-10% during an overall time frame of rising stock prices. So far this correction fits neatly into historical patterns – prices have fallen on average 10% over 8 weeks. Additionally, our work in regard to market momentum suggests that this market is as oversold as it was in late September 2011 – a period followed by a surge in stock prices.

It is possible that there is something lurking out there that we do not know or that we cannot yet see which could cause stock markets to fall further. Therefore, we continue to use tools on your portfolio to manage potential catastrophic loss. These include your portfolio's asset allocation, sector exposure and the use of carefully placed stop loss orders. You may have noticed that a few stop loss orders have already been executed and we want you to know that others are close (unless you have instructed us not to employ stop loss orders).

Stock market volatility can often cause anxiety for some investors. If you feel that you would like to discuss your portfolio or change its allocation in any way, please feel free to let us know. All of us here appreciate working with you and look forward to a period with less volatility and more predictability!

Sincerely,

James E. Demmert
Managing Partner