March Newsletter

ISSUE:
A L L I A N C E I N V E S T M E N T S O LU T I O N S
MARCH
Economy Report
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2011 INFORMED INVESTOR

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Mike Lathigee
CHAIRMAN & CEO
of Alliance Investment Solutions

This Editions issue
Page
March 2011 Economy Report U.S. Economic Indicators
1 U.S. Economic Indicators

D
Tuesday, March 1st, 2011

T
eeper spending cuts by state
2 Rising Energy Costs he information provided in and local governments weighed
this economy forecast is for down U.S. economic growth
2 Inflationary Concerns information purposes only. If in the final three months of 2010. The
you seek to make an investment based government’s new estimate for the
3 Earnings Look Good
on educational information we provide, October to December quarter illustrates
contact an independent financial advisor. how a growing state budget crisis could
And much more...
hold back the economic recovery.
With all the activity in the Middle East, The U.S. Commerce Department reported
this past month has been one of the most on Friday that economic growth increased
active months that we have seen in the at an annual rate of 2.8 percent in the
last few years in terms of geopolitical final quarter of last year. That was down
events. I’ll talk about the impact these from the initial estimate of 3.2 percent.
events are having around the world in a This is significant because economic
few moments, but first I want to talk about growth must be much stronger than
the economic indicators I’m watching. its current pace of approximately 3
percent in order to make a noticeable
We have a mixed bag of economic dent in unemployment, which remains
indicators that show market momentum at 9 percent. The economy must
to continue, but this momentum may grow at 5 percent for a whole year to
be short lived with all the major budget significantly bring down this high rate
cutbacks underway and their impact on the of unemployment. Thus, economic
consumer. So, investors need to take heed. growth at just 3 percent will maintain
For many months I have been stating the unemployment rate at 9 percent.
the case for investors to participate in This is a troublesome cycle. We need to
the market, but this month there is a put people to work in order to sustain
change in that strategy. Here are some any degree of economic recovery, yet
of the key things I’m watching. weak economic growth overall doesn’t
encourage employers to create new jobs.

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“...government Furthermore, state and local governments would impact everyone. Consumers and
stimulus money with large budget shortfalls have cut businesses would likely spend much less
spending. This means less money and some employers might slash jobs.
is fading and will be entering local economies. The bottom line is that rising oil prices
budget cuts at the Consumers also spent a little less than and budget cuts by state and local
earlier estimates predicted. Consumer governments are creating a pinch that
federal level could spending, which is the economic driver is hurting an economic recovery.
further hamper of the U.S. economy, rose at a rate of 4.1 In addition, government stimulus money is
percent, which is less than the initial fading and budget cuts at the federal level
economic growth. estimate of 4.4 percent. The good news is could further hamper economic growth.
To make matters that these consumer spending numbers To make matters even more intense,
are the best showing since 2006. we have a showdown on Capitol Hill
even more between Democrats and Republicans,
intense, we have The trend that I am watching closely who are haggling over the U.S. budget and
will tell us if consumers can spend threatening a government shutdown.
a showdown
enough this year to help offset the
on Capitol Hill negative forces in the economy; most Inflationary Concerns

A
notably the struggling state and local
between Democrats
governments and the weak housing s if these concerns were
and Republicans...” market that has depressed home values. not troubling enough, the
world wide economy is also
Rising Energy Costs dealing with inflationary pressure

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resulting from the rise in commodity
ising energy prices also pose a prices - led by food and fuel costs.
danger to economic recovery. If On the domestic front, the U.S. Consumer
oil prices were to rise to $150 Price Index rose by 1.6 percent over
or more per barrel and remain there the last year and the core rate of
for months, then we are looking at the inflation rose by just 0.2 percent.
possibility of another recession. If oil I never take this number seriously as
prices continue to climb, we could see the Fed strips out the increases in food
gasoline prices as high as $5 a gallon. This and energy costs. They reason that they

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cannot control these commodities and which shows the distressing lack of
therefore food and energy costs cannot demand for new housing even as prices
be included in an inflation calculation. continue to drop. The main reason for this
We all know that this is absurd. Tell the decline in new home purchases is the fact
average American and Canadian, who is that developers face significant competition
paying much more for food and gasoline from existing foreclosed homes, which
that prices for these goods are rising sell at bargain basement prices.
“...26 percent of all less than 1.0 percent. It is hog wash! In fact, 26 percent of all homes sold
homes sold last year One thing that is keeping downward last year were foreclosures. I predict
pressure on inflation is the high that we are going to see sales, pricing
were foreclosures” unemployment rate. That’s because and construction activity for the
unemployed consumers do not have housing market bounce along the
excess money to spend. After all, bottom for several more quarters.
inflation is determined by the relationship
between total money supply chasing total The U.S. Budget Dilemma

T
goods and services. With less money
in the system we see less buying and his is a huge week for the United
therefore less inflationary pressure. States, because the budget must
be passed by March 4th and it
Earnings Look Good must contain a spending plan for the
rest of the current fiscal year or the

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he most positive sign this month federal government will shut down.
for economic recovery is the For House Republicans, it is a question
fact that of the 80 percent of of whether they can meet the demands of
companies that have reported earnings Tea Party Conservatives, who want them
so far for this quarter more than 70 to slash the deficit and stop the growth of
percent have beat estimates. This is the government. They have rejected the current
strongest sign I’ve seen of an improving spending plan because it fell far short of
economy and a stronger consumer. the $100 billion that many conservatives
However, offsetting this good news was had promised in their 2010 campaigns.
a 12.6 percent drop in new home sales,

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The leaders are now scrambling to Several states are watching Wisconsin’s
find more cuts and are targeting Governor Walker as he leads an effort
many popular programs, including to slash government spending and
“With the U.S. end generous benefits to civil service
funds for road constructions, aid to
deficit and state police and money for education. employees. With the U.S. deficit and
The budget deficit is currently at $1.5 state deficits out of control we are now
deficits out of
trillion. For Obama, the question seeing the drastic steps some leaders must
control we are is whether he can balance a spirit of take to meet government obligations.
accommodation with his resolve to protect Unions were originally a necessary
now seeing the
the programs he most believes in, especially force in the days of Charles Dickens
drastic steps some education and the new healthcare law. when workers had few rights. But now
The United States also has to deal with we are seeing the difficulties facing
leaders must take
its costly entitlement programs such as European countries where Unions
to meet government Social Security, Medicare and Medicaid, have become too powerful and turned
which combined consume a vast and Europe into a socialist continent.
obligations”
growing amount of the federal deficit. Worldwide, steps must be taken to
cut back on the influence of unions in
The Budget Dilemma countries where the debt has spiraled
at the State Level out of control due to governments
trying to cope with their obligations.

S
ome states are taking extreme steps If the Wisconsin Governor wins this
to control entitlement programs. showdown, don’t be surprised if it starts
The Wisconsin Governor wishes a trend among Republican leaders
to reduce the power of employee unions, in other states. We have seen many
which will enable him to trim state years of government overspending that
spending. At this time all eyes are on now must be countered with extreme
Wisconsin where the Republican proposal decisions that are appropriate to control
to curb the power of public sector unions American entitlement programs.

T
has sparked mass demonstrations and
created a tense stand off with Democrats. he Impact Of Government

Cut Backs On Investors

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“It is always easier
to give market
The important question all Subscribers are Feds will continue on their program
guidance based on asking is, “What does this mean to me?” of quantitative easing. Quantitative
closely monitored We are sure that budget cuts at the easing causes downward pressure on the
Federal and State levels are bad for the American fiat currency. I have talked
economic economy in the short term. We need only about this several times in the past.
indicators than look to England to see proof of this. Downward pressure on the dollar is
At the Federal level, I estimate we will good for gold and it is good for the stock
on unpredictable see budget cuts between $60 and $100 markets as a weaker US dollar makes
geopolitical billion. That will mean less money American equities cheaper to international
in everyone’s pocket for spending buyers. A weak US dollar has been the
events. However, and, in particular, less money in the number one reason for the bull market
I will attempt pockets of public sector workers. rally we have seen over the last few years.

U
I believe the big American retailers are
to explain some going to see an ugly year ahead due to npredictable Geopolitical
of the economic State and Federal budget cuts and the Events Impact Markets
possibility of much higher gasoline prices.
forces driving As we follow the money through the Since my last Economic Outlook the
the revolution in system we can see that U.S. consumers will biggest story by far has been the domino
buy fewer products and companies that effect of long established regimes
the Mid East.” rely on those consumers will be hurt. collapsing in the Middle East and Northern
With that in mind, it would be prudent Africa. It is always easier to give market
for investors to avoid including companies guidance based on closely monitored
that are dependent on U.S. consumer economic indicators than on unpredictable
spending in their portfolios at this geopolitical events. However, I will attempt
time. Instead, investors should focus to explain some of the economic forces
on companies that have a strong export driving the revolution in the Mid East.
market with growing international sales. The Egyptian revolution has shaken
The Weak US Dollar is Good for Investors the Middle East like no other event
Another positive factor going for investors since the Iranian Revolution. It has
is the continued weakness of the US sparked uprisings in Libya, Yemen,
dollar. The weak economic indicators Bahrain, Algeria and we can expect it
for the US dollar mean that the U.S.

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“Investors are seeing • Arab countries have the highest
to trigger more uprisings but we cannot
the effects of these predict exactly which countries. unemployment rates in the world,
But we can note the similarities among with an average of 14.5 percent
uprisings in higher unemployment compared to an
the countries currently in upheaval. We
oil prices, but for are seeing repressive regimes under international average of 6 percent.
fire. These regimes oversee populations • Sixty-five percent of the population
the United States of the Arab League is under the age
where unemployment rates are very
and other West high - particularly among young of 30 and youth unemployment
people - and where people have seen in some countries like Algeria
nations the major is as high as 75 percent.
recent inflation in food prices.
concern is the For the most part these regimes have I believe that a primary factor driving
governed with an iron fist and on many the revolts in the Middle East and
identity of the new Northern Africa is this high rate of
levels appear to have enriched themselves
entities or leaders at the expense of their own people. These unemployment among a large portion
circumstances are sparking an international of the youth. This kind of pressure has
that will assume
outcry for more freedoms and more often been a driving force in protests,
power in the wake rights for the citizens of these countries. riots and political tension. But youthful
Investors are seeing the effects of these unemployment isn’t the entire story.
of these uprisings”
uprisings in higher oil prices, but for the • Young unemployed people spend nearly
United States and other West nations two-thirds of their income on food
the major concern is the identity of and higher food prices have reduced
the new entities or leaders that will their ability to meet even basic needs.
assume power in the wake of these To help us put things in perspective,
uprisings. Libya with its warring tribes we need to understand that Canadians
is particularly vulnerable to finding itself and Americans, on a comparative
under the control of an extreme party. level, spend less than 15 percent of
In order to understand this spreading their entire income on food; that’s 66
revolution, those of us in the West need to percent compared to 15 percent.
understand the circumstances the people • In the case of Egypt food costs
of the Middle East find themselves in. skyrocketed over 17 percent in just
the last year. At the same time, people
saw clear evidence of the repulsively

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lavish life-style enjoyed by the regime We have had an excellent run up in stocks
in power. The result was a youthful prices now for almost two years. But on
population that mobilized for revolt. a technical level, I am no longer seeing
incoming volume entering the markets
“I believe we will High unemployment rates among a on a day where the market declines.
young population coupled with soaring This is a sign of market weakness.
see much more food prices set the scene for the current
modest returns in revolution. This younger tech-savvy Although the steps taken by the State and
population has also been aided and Federal governments to control deficits
the stock markets are necessary in the longer term, in the
mobilized by the use of social media.
and a likely Hopefully the power of this coordinated short term they will hurt the economy at
effort by an outraged population will all levels and produce a weaker consumer.
correction in the
serve as a warning to the leaders of other Consumers drive the U.S. economy and
coming months” authoritarian regimes to take action my outlook for the economy with this
now to address problems within their debt control issue is weaker economic
nations and better serve their citizens. growth than originally projected.

The good news is Saudi Arabia began a I believe we will see much more modest
gradual but comprehensive program of returns in the stock markets and a likely
reform six years ago and its people are correction in the coming months.
not upset. If there was any chance of In the face of these factors, I believe
a revolution in Saudi Arabia oil prices now is a good time to start taking profits
would have spiked much higher causing on your stock positions and begin to
dire consequences for all Americans accumulate a larger cash position for the
and to a lesser degree Canadians. higher likelihood of a market correction.
(Canada has large oil reserves) In short, now is the time to be boring,

W
to accumulate more cash and sit on
hat Investors the sidelines and wait for the market
Can Do Now to correct. Of course the market is
not guaranteed to correct, but the
So, what should investors do in probability has increased substantially.
this economic environment?

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T
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MARCH
Economy Report
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Mike Lathigee
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one of our team members will call you back this month and for those of you
in the next 24 hours to take your order. interested in the Las Vegas Real Estate
“You have heard market, reserve your space soon.
Vegas has the A Guided Tour of the Las Until then, I recommend that you
Vegas Real Estate Market discuss the ideas I’ve expressed with
best cash flows in your financial advisor and map out a

A
lso, for those attending the March strategy to take advantage of the changes
the United States we are likely to see in the markets
Summit, I recommend that you
and you can buy stick around for one more day, and the possibilities they present.
because on March 21st we have scheduled
property and get
a one-day fieldtrip of the Las Vegas Real Michael Lathigee
24 percent or more Estate Market. You have heard Vegas has Chairman and CEO
the best cash flows in the United States Alliance Investment Solutions Ltd.
rent in relation
and you can buy property and get 24
to the purchase percent or more rent in relation to the
purchase price each year. Now is your
price each year...” time to see this opportunity first hand.
The tour is limited to 25 people and To subscribe to this monthly report got to:
the cost is $197 per person. Keep Visit: www.allianceinvestor.com
in mind this tour is for sophisticated Email: service@allianceinvestor.com
and accredited investors only and the
Disclaimer: Contents of this report do not
minimum investment is $25,000. Don’t constitute investment advice. You are to
wait to reserve your space. This is an consult with your investment advisor before
making any investment decisions.
incredible opportunity to see first hand
FOR MEDIA, INVESTFEST CONFERENCE and
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SPEAKING BOOKING
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details you need to join in this field trip. (702) 885 6072
I look forward to talking to all of © Copyright all rights reserved 2011 - Mike Lathigee

you at the Power Team event later

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