August 5, 2011 Market Commentary

Dear Clients and Friends,

Based on the past couple of weeks, we’re in for a period of higher that usual volatility- even above the already high levels we have seen so far this year.

We have fortunately prepared in advance for this situation.  We have prepared by emphasizing managers who have dynamically shifted to more defensive postures.  We have prepared by building up cash reserves in accounts that distribute monthly income to our clients.  We have prepared by increasing our allocations to nontraditional asset classes such as agricultural products and bonds of emerging countries that are less affected by economic activities in the US and Europe.  In short, we have made a lot of effort to be proactive, and remain “out in front” of some of the developing trends

Chances are, you noticed that the credit rating service Moody’s Investors Service (fast on the heels of Standard & Poors last month), has placed the U.S. government’s sterling Aaa bond rating on review for a possible downgrade. The reason was clear, but Moody’s spelled it out anyway: there is uncertainty whether Congress will raise the U.S. government’s debt ceiling by August 2. If it doesn’t, the U.S. will join Venezuela (1998), Russia (1998), Ukraine (1998 and 2000), Pakistan (1999), Ecuador (1999 and 2008), Peru (2000), Argentina (2001), Moldovia (2002), Uruguay (2003), the Dominican Republic (2005) and Belize (2006) as a nation that has recently defaulted on its bond obligations. And not only that: if no deal isreached, the government would have to stop paying military active duty pay and veterans’ benefits, IRS refunds, Medicare, Medicaid, Social