Quarterly Market Overview
As of May 10, 2011

The term “whipsawed” relates to reacting to a movement in the market only to see it reverse quickly in the opposite direction. Emotionally reacting to news driven events leads to extreme frustration not to mention potential loss of money. During the first quarter 2011 and since, there have been many lost opportunities if you were a short sighted investor. The earthquake and following tsunami in Japan sent the market reeling but, it reversed back to the upside in a matter of days. The news of revolt in Egypt, other Persian Gulf countries, and Libya caused the market to sell off again but, within a short period of time, we were at highs for the year. The DOW went down 6.7% from February 18th through March 16th but is now up more than 1100 points since the March low.

Though the events of the last few months range from important to catastrophic, the drivers’ of market value are still in place. 1st quarter earnings have been very positive. S&P500 earnings are at eighteen year highs. The market, however, is still a long way from all time highs set in 2007. The market has recovered over 75% of its losses since 2008. This level of recovery usually leads to a new high being achieved in time.

One can focus on the many negatives that abound and reach the point of decision paralysis. We are asked many questions like; what about the dollar? Will it remain the reserve currency? Remember, negative news sells. I recently watched an hour long video on what would happen if the dollar was replaced. The narrator had all the answers to protect you. Finally at the end, you too could get all the answers for a special price of just $49. I thought, if a million people were scared into this subscription. Someone made $49 million!

We remain clearly focused on the big picture. Corporate balance sheets are flush with cash that can be put to work. Earnings are steadily improving. The cost of capital (interest rates) to run, start or grow a business remains low. The recovery that started from the March 2009 low is still historically young in duration. Inflation is a concern but a little inflation is good for stocks. We are not at a level of inflation that stymies growth. As we discussed last quarter, there is little competition for equities. Deposit accounts are paying little of nothing and there is extreme interest rate risk in the bond market.

The numerous negative events year to date have turned out to be opportunities rather then a time to adjust our longer term expectations. We expect any weakness to be bought and remain optimistic for the remainder of this year.

Enjoy the warmth and beauty of spring!

Mark R Sorensen
President

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