Current Letter To Clients {Conclusion}

What the playbook and game plan are telling us: Assuming that this same yearly pattern we've chronicled continues through the rest of 2011, than look for stocks to trade within this same range until sometime late in the summer or fall. It would not even surprise me if we saw some kind of decline between now and then. Markets are showing more neutral readings right now in regards to money flows as both the bulls and bears are jockeying for position. Since we see nothing to change our earnings estimates at this point then we believe that {a price of} 1,350 to 1,400 is still possible by year end for the S&P 500. That implies three to seven percent potential total market return between now and then. Total market return refers to price appreciation plus any dividends received between now and then.

Every investor should have a long term investment strategy. For clients of our firm this strategy comes from our understanding of their unique risk/reward criteria and then incorporating that into our investment disciplines. All of our strategies are based on our playbook. The playbook is situational analysis based on historical market results. We study money flows along with the disciplines of fundamental and valuation analysis to see how markets have responded to similar historical events. It gives us different scenarios regarding market activity. We use it to formulate our game plan. The game plan is a tactical and a strategic allocation of assets based on what the playbook tells us has historically occurred. It is then further refined to the specific risk/reward parameters of our clients.

While the market seems to be sorting things out, we should remember that stocks are up significantly in the last twelve months. I would also note that the net yearly return for equities on Labor Day weekend last year was negative. Given the extent of that move it is not unknown for stocks to rest and regroup for a certain period of time. This is in fact healthy as it allows markets to digest their most recent gains and makes the likelihood of a blow off investment top and subsequent decline a lower probability event.

We have been the least active in client accounts in many years in terms of transaction activity. We have carried more of a defensive orientation this first half of the year. Depending on client mandates, account sizes and strategic orientation we have also carried some of our highest cash levels in several years going into the spring. Some of that money we opportunistically put back in the market in late June. We will look for other opportunities this summer if the market trades sideways as expected. In case stocks do decide to take a turn for the worst we will have the defensive pages of our game plan nearby. Areas of sector concentration currently include technology and energy. We have also added opportunistically to our dividend related ETFs on the recent pullback and we believe that certain international markets and sectors are beginning to look attractive as well.

*Long ETFs related to the S&P 500 in client and personal accounts.