We believe the recession is over. The outlook for 2010 is positive in our view. The broadening of the U.S. economic recovery along with the Federal Reserve holding rate hikes to a minimum for 2010 should keep the recovery on track for this year. It is too early to tell whether the equity recovery that started March of 2009 is the beginning of a multi-year bull market or a shorter variety of 18 months or less. It will depend on whether sufficient conditions exist to create an above average GDP recovery. Some of the conditions would be easing of credit for both small businesses and households, strong payroll recovery, and return of more consumer demand. So far financial conditions are much better than they were the last quarter of 2008 and first quarter of 2009. Much of this we feel is due to the reform of mark-to-market accounting, the Feds easing of interest rates, and the markets healing from the panic driven insurance and bank failures. The action of the Federal Reserve maintaining low interest rates and the pumping of massive amounts of liquidity into the system has many worried about future inflation. However, in the current environment, businesses are reluctant to invest in plant and capital expenditures until they see signs of a recovery. Consumers have also reduced their spending and are worrying about debts and struggling with job losses. This sluggishness means the economy will improve slowly and no real inflation threat over the next 12 months in our view. Unemployment rates tend to be a lagging indicator and continue to rise after the economy has stopped declining. Employers tend to rehire after they have seen sustainable growth and hiring usually continues long after the economy has recovered. We believe the jobless rate will begin to recover by the second half of 2010. China seems to be leading the global recovery, helped by its massive stimulus package. The U.S. is recovering due to our own government measures taken, and a rebound in world trade and increasing demand from large emerging markets. The U.S. housing market is showing signs of bottoming out. The weak dollar is making U.S. exports more competitive giving a boost to American manufacturers. The overall outlook for the U.S. is much better than it was a year ago and it continues to improve. The mid-term elections in November 2010 will be very interesting. The stock market seems to favor gridlock. Should a large number of democratic seats be lost during the November elections as happened to the Clinton administration you could see the stock market move higher? If you have questions or would like a free portfolio review to keep you on track with your investments or retirement plans, please call me.

Russ Colbert
Senior Portfolio Manager
1-888-878-0001

Advisory services offered through Royal palm Investment Advisors, Inc., a registered investment advisor.