Beacon Hill\'s Quarterly Newsletter: Featuring Economic Analysis from William Strauss, Senior Economist with the Federal Reserve Bank of Chicago and Bill LaFayette, PhD, VP of Economic Analysis for Columbus Chamber of Commerce

1. Summer 2009
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(continued on page 3)
Quarterly Economic Review Economists Look to the Future
The market upturn that began in March continued through this
quarter. The major impetus for this movement was a realization We are pleased to welcome guest commentary:
that the economic environment was not catastrophic, it was
merely bad. Risk was generally rewarded. Many companies took
William Strauss
advantage of the stabilizing markets to issue equity to deleverage
their balance sheets. May equity issuance was at a record level. • Senior Economist and Eco-
While the torrid pace of equity issuance in May is unlikely to be nomic Advisor for the Federal
sustained, the motivation to deleverage will continue, creating a Reserve Bank of Chicago
headwind for the equity markets. In addition, a few large bank-
ruptcies will continue to reverberate throughout our economy. On
the other hand, only a fraction of the fiscal stimulus is yet to ‘hit
the streets’. Bill LaFayette, PhD
• VP of Economic Analysis for the Columbus, OH
Consistent with risk being rewarded generally, small cap stocks outper-
formed large cap stocks: Chamber of Commerce
Equity Markets: 2009 2nd Quarter
25% It should be stressed that the general stock market is a
6%
leading indicator of the general economy. By the time the
20%
economy rebounds, the market typically has already moved
up. While we, at Beacon Hill, temper ours and others’ pre-
15% +20.7%
dictions of the future in implementing investment actions,
+16.5% +16%
10% we were impressed while hearing William Strauss present
at a recent investment conference. In addition, we welcome
5% the views of Bill LaFayette PhD, Vice-President of Economic
Analysis for the Columbus Chamber of Commerce for a
0%
Russell 1000 S&P 500 Russell 2000
more localized analysis.
Large Stocks Small Stocks
(continued, next page) (continued, 3rd page)

2. Seen in the Press Quarterly Economic Summary (cont’d from front cover)
In the fixed income market, risk was again rewarded, with junk bonds trouncing
“Small Business Owners– Ways higher quality issues.
you can embrace retirement in a
bear market!” by Mark Fissel BarCap U.S. Aggregate Bond: 1.8%
AffluentMagazine.com 6/15/09 BarCap U.S. Corporate High Yield: 23%
Interest rates along most maturities (i.e.
“6 Ways to Profit from the Fal- the “yield curve”) have in general shifted
ling Dollar” by Roger Fillion up, with the longer term maturities shift-
Fidelity.com 6/11/09 ing up slightly more. That being said, in-
(Clint Edgington) terest rates across all maturities are still
fairly low, with room to move up signifi-
cantly. Readers will recall that when rates
“The New Retirement Reali- go up, bond prices go down (generally),
ties: What to do and How to with the longer maturity bonds generally
showing more volatility. This risk
cope.” by Tom Gray,
(“interest rate risk”) hurt the longer term
Achieve Solutions 1/15/09 bonds this quarter, and is a continued risk
(Clint Edgington) for the future.
BarCap U.S. Treasury 1-4 Year: -.4% Mark Fissel, Partner
“Ohioans taken in by Ponzi M.Fissel@BHAdvisory.com
schemes,” by Steve Wartenberg BarCap U.S. Treasury 10-20 Year: -6% 888-614-4625 ext. 3
Columbus Dispatch 12/21/08
(Clint Edgington) FTSE NAREIT Equity REITS: 28.9%
Consistent with the realization that our economy is merely bad, rather than catastro-
“Practice triage in your spend- phic, the commercial real estate portion of the market enjoyed broad gains as well.
ing...” by Gregory Karp, Chi-
cago Tribune 11/30/08
(Clint Edgington)
“Market Fears, Stay the
Course,” by Clint Edgington,
Columbus Dispatch 10/5/08
Investor Confusion
Investment Advisors Financial Advisors (Brokers)
1.) Revenue is generated directly through 1.) Revenue generated by Sales Commissions,
fees from the client. Sales Incentives and Back-door fees.
2.) What they offer? Investment Advice 2.) What they offer? Transactions with advice
“solely incidental to a transaction”
3.) Do they have a duty to you?
a.) As a Fiduciary, they legally must hold 3.) Do they have a duty to you?
your interest above theirs. a.) As a Non-Fiduciary, no legal duty to
b.) Must monitor your portfolio regularly hold your interest above theirs.
b.) No legal duty to monitor your portfolio
Did You Know 74% of respondents* were not aware that only Investment Advisors have a
fiduciary responsibility to act in investors’ best interests in all aspects of the financial relationship?
*TD AMERITRADE survey of 1,000+ U.S. investors conducted by Penn, Schoen & Berland Associates, 2006

3. Economists Look to the Future (cont’d from front cover)
General Economic Review Capacity utilization (a measure of how much production ca-
pacity our economy is using) is still extremely low by histori-
In general this recession has been brutal, yet Mr. Strauss cal standards”.
points out that “the contraction appears to be slowing, had the
Fed and the fiscal side not reacted we would be looking at While Mr. Strauss does not give personal views on inflation,
something that is bad being quite catastrophic”. All leading he does note that “if you look at the TIPS (see Spring 2009
indicators but Real Estate are up, with decreased consumer newsletter) market or the surveys they seem to be pointing
spending and real estate presumed to continue to be a head- to relatively contained inflation…however, there are a lot of
wind. The Chicago Fed National Activity index (a compilation challenges regarding the fiscal deficits and the very signifi-
of leading indicators) bottomed in January of 2009 and ap- cant increase in the Fed’s balance sheet. We are very much
pears to be rebounding. aware of the risks out there and it will be up to the Fed to be
nimble and aggressive to make sure inflation stays under
“Most outlooks show a very slight positive (growth) in the 3rd control”. We at Beacon Hill also take note that while the
quarter moving to more robust growth in the 4th quarter, albeit Fed controls monetary stimulus, other parts of the govern-
still muted growth” says Mr. Strauss. There was “quite a sharp ment will need to be nimble and aggressive at reining in
drop in inventories in the first quarter, the manufacturing sec- fiscal stimulus (historically that can be much more difficult).
tor specifically has been extremely aggressive about cutting
back on production and have kept inventories relatively in bal- Regarding unex-
ance. Due to this, manufacturing might be able to rebound pected spikes in
more quickly than it historically has due to the need to in- inflation, Mr.
crease production when sales come back (due to the inability Strauss did not
to rely on inventory stockpiles).” explicitly com-
ment on predic-
Our Local Economy tions but con-
firmed our
In the Midwest specifically, Mr. Strauss points out that the thoughts that
“automotive industry problems and the expectation for clo-
“bad things hap-
sures and layoffs will probably cause the Midwest to lag the
pen with proba-
(general economic) turnaround.” Mr. LaFayette generally bly a higher prob-
agrees with the Midwest lagging the general economies turn-
ability that we
around, but points out that “it is less applicable to the Colum-
would have
bus economy. Since the beginning of the recession, the U.S. thought a year
overall has lost about 4.3% of total employment while Colum-
ago”.
bus has lost 2%. The primary reason is that we’re not being as
affected by the bust as we were not as affected by the boom.”
Inflation
Clint Edgington, Partner
The current Beige Book release (6/10/09) points out that C.Edgington@BHAdvisory.com
“With few exceptions, the District Banks reported that prices 888-614-4625 ext. 2
at all stages of production were generally flat or falling.” Mr.
Strauss points out that “there is still tremendous slack in the
The views of William Strauss are his personal views and do not
economy.
reflect the views of the Chicago Federal Reserve Bank or the Fed-
eral Reserve System.
Scheduled Events (cont’d):
• August 18, “Investing for Retirement” Webinar, Back to the Basics: Structuring a Retirement Portfolio, 6
p.m.
See an Event you’d like to attend? Please email info@BHAdvisory.com for instructions!
www.BeaconHillAdvisory.com

4. In Defense of Diversification 8% 12 Month Return
3% 6%
There has recently been a popular uprising
against the idea of diversification in the press -2%
and in public opinion. While the past year has -13.6% -17% -21%
-7%
been difficult for most, diversification has been
a saving grace for many portfolios. Lower risk -12%
assets have buoyed the performance of diversi-
fied portfolios as can be seen by the compari- -17%
-26%
son of the equity markets (S&P 500) to fixed
-22%
income markets (BarCap Aggregate Bond In-
dex) and to a few Beacon Hill Asset Allocations. ‐27%
S&P 500 BarCap Conservative Moderate Moderate
Aggregate Aggressive
Bond Index
Beacon Hill Asset Allocations
Clint Edgington
Mark Fissel
33 North Third Street, Suite 500
Columbus, OH 43215