MARKET UPDATE: 8/4/2011

To our clients and prospective clients,

With a drop of 60.27 points (or -4.78%) on the S&P 500 today and a drop of over 10% over the last 10 days, it appears that the market is beginning to price in a softening U.S. and perhaps global economy. How long and how substantial the correction will be, is anyone’s guess. According to one market technician, during times like these, the market will tend to have, “sudden and violent” bounces to the upside. We tend to not react to short-term price movements, but will remain patient.

As we have been discussing for the last several months, the stock markets around the globe, in general, are fairly to richly valued compared to historic valuations. This is not an environment that we consider particularly attractive. We will not make risky bets with our clients hard earned money without a reasonable return expectation. The market is officially in correction mode.

With our proactive management style, our clients in aggregate are holding more than 40% of their portfolios in cash (this includes all assets custodied at Charles Schwab Institutional under our discretionary management as of 7/31/11). We have been prepared for the possibility of a significant correction for some time and await the opportunity to put the substantial cash in our client accounts to work at more reasonable valuations.

"Nothing gives one person so much advantage over another as to remain always cool and unruffled under all circumstances." - Thomas Jefferson