8/14/2019 AMM - Q1 2010 Letter

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AMERICANMONEYMANAGEMENT,LLCSEC Registered Investment Advisor

POBox675203,RanchoSantaFe,CA92067 Tel8889991395 Fax8663641084 info@amminvest.com www.amminvest.com

January 2010CLIENT NEWSLETTER

THE LOST DECADE (FORPASSIVEBUYANDHOLDINVESTORS)Thefuturehasawayofarrivingunannounced. GeorgeWill

2009markedtheendoftheworstdecadeforU.S.stocksinhistory. Overthisperiod,thepricereturnontheS&P500

(ChartA)was24.1%. Attheendof1999,fewhadpredictedthatthefirstdecadeofthenewmillenniumwouldoffer

suchmiserablereturnstopassive buy&hold equityinvestors. Itwasevenworseforpeoplewhoboughtandheldthe

mostpopularstocks(aftertheyhadalreadygoneupduringthe90s)onDecember31,1999.

Accordingtoanarticleon12/21/09byBrettArendsintheWallStreetJournal, themostwidelyrecommendedstocks

10yearsago,according toaquick surveyat the time in theWashingtonPostwere:AmericaOnline,CiscoSystems,

Qualcomm,MCIWorldCom,LucentTechnology,andTexasInstruments. $1,000.00 investedinthesepopular,widely

recommendedstocksonDecember31,1999hadturnedinto$291bytheendof2009. Thisisnotsurprisinggiveninvestorswillingness toextrapolate therecentpast inmakingdecisionsabout the future. Allof thewidelyrecommended

stockslistedabovehadexperiencedmassivereturnsbytheendofthelastdecade. Andthebroadermarket,asmeas

uredbytheS&P500,hadrisenmorethan300%(ChartB)byDecember31st,1999.

Onemightviewthepoorreturnsofthelastdecadeasaconsolidationoftheaboveaveragereturnsofthe90s. Look

ingforward,wewouldviewanother lostdecade forequitiesasimprobable.

ChartA

ChartB

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Regardlessofwhatthenext10yearshaveinstore,webelievethatthejobofamoneymanagerisnotaboutmaking

bold predictions/bets on future outcomes,but rather about understandingthecurrentinvestmentlandscapeandinvesting

accordingly, whiletakingstepstoprotectcapitalwhenitappearsprudenttodoso. Thisprocess(i.e.recognizingthatthefuture

isunknowable) allowsustostaymentallyflexibletonewdata. Makingpredictions,ontheotherhand,cancauseoneto

staycommittedtotheirpositioneveninthefaceofnewevidencecontrarytotheirprediction. Theideaisnottopredict

thefuture,

but

to

seek

to

understand

the

present.

Currently,

we

believe

market

participants,

and

therefore

asset

prices

(stocks,bonds,commoditiesandrealestate)arebeingdrivenbothbyinflationexpectationsandthecontinuationofthe

globaleconomicrecoverythatbeganin2009.

INFLATIONPapermoneyeventuallyreturnstoitsintrinsicvalue zero. Voltaire

Inflation is avery realdanger for any investor

andcanhaveamajoreffectonassetprices. Fixed

incomeinvestorsmaybeparticularlyharmedbya

high level of inflationbecause theirbond invest

ments generallydo not provide for the samede

greeofpriceappreciationasstocks(whichcanhelp

tooffsettheeffectsofinflation). Withmassivegov

ernment stimulus, soaring federal and state defi

cits, and near zero interest rates on savings, it

wouldappearonthesurfacethatareturnofrobust

inflation is only amatter of time. CPI (awidely

followed measure of inflation), however, is cur

rentlyrunningatalowannualrateof1.7%. AsChartCshows,in2008theU.S.entereditsworstdeflationary(negative

pricegrowth)phasesincethegreatdepressionandhassinceonlyslightlyrecovered.

Tohaveahighdegreeofinflationrequireseitherahuge

increaseinaggregatedemandorasimilarlylargedecrease

in thesupplyofgoodsand services. Neithercondition is

currentlypresentorlikelyforsometime. Highunemploy

mentandlowcapacityutilizationhavecreatedalargelevel

of slack in the economy. Perhaps even more impor

tantly, however, is thatwhile rates have remained low,

consumer credit growthhas remained constrained (Chart

D).

Credit is thebackboneof thecapitalist system. In theNovember reportingperiod,consumercreditcontractedby

$17.1Billion. Fornow,theconsumerhasretrenched. Whilethedatasuggestthatrunawayinflationisnotashortterm

threat(

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GLOBAL ECONOMIC RECOVERYTheUnitedStatesisspewingapotentiallydamagingsubstanceintooureconomy greenbackemissions. WarrenBuffett,August2009

It isacommonlyheldviewthatthestockmarketisa leading indicatorofeconomicactivity. Overmanyyears,we

haveobserved that this isgenerally the case. Exceptions typicallyoccurat tops andbottoms (i.e.October2007and

March2009). Currently,globalassetmarketsare forecastingacontinuationof theeconomicrecovery thatstarted lastyear. Thereseemtobetwopolarviewsregardingthedurabilityofthisrecovery: theskepticsviewandthecyclicalre

coveryview.

Theskepticviewstherecoveryasdrivenmainly

bymassivegovernment stimulusand easymone

tarypolicy,notbelievingthattheeconomicexpan

sionissustainable. Inadditiontohistoricallyhigh

unemployment and consumer credit contraction,

weakness in the residential housing market is a

cause for significant concern among the recovery

skeptic. Newhome sales surprisedon thedown

side in theNovember reportingperiod, fallingby

11.3% from the monthbefore. The New Home

Sales chart (ChartE) illustrates themassivehous

ingbubble (and subsequent deflation) of the last

decade. Additionally, thenumber ofnewhomes

soldappearstohaveexperienceda deadcatbounce andresumeditsdownwardtrend. Housingstrengthwasanim

portantpartofthecyclicalrecoveryfollowingthe 0102recession.

Whiletheskeptichasrealcauseforconcern,postre

cessionary periods over the last 30 years have been

dominatedbythecyclicalrecoveryview. Evenaftertherecession that followed thebursting of the technology

bubbleandthetragedyof9/11,theU.S.economyexperi

encedabroadcyclicalrecoverythatlastedseveralyears

andbrought the DOW and S&P 500 to new all time

highsbyOctober2007. Infact,theeconomyisexpand

ingandmanyindicatorscontinuetoimprove. TheISM

PurchasingManagersIndex(PMI)isanindicatorofeco

nomichealthinthemanufacturingsector(ChartF). The

indexiscurrentlyat55.9(readingsabove50areconsid

eredexpansionary) indicating that the sector isexpanding,and therefore thegeneraleconomy shouldbedoing like

wise.In

addition

to

the

PMI,

the

Weekly

Leading

Index

(WLI),

aleading

indicator

of

economic

activity,

continues

to

signaleconomicexpansion.

Fornowitisclearthatthemarketisfavoringtherecoveryview. Werespectthecurrenteconomicandmarkettrend

and,whereappropriate,continuetopositionourmanagedaccountsandfundstowardsgrowth. Asalways,however,

weremainvigilantinrecognizingandunderstandingtheriskstotherecoveryandwillbecomemoredefensiveifwe

believeitisappropriatetodoso.

ChartE*

ChartF*

*Source:Moodys,Economy.com

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AMERICANMONEYMANAGEMENT,LLC

Gabriel Wisdom Michael Moore Jim Rhodes, CFA Mickey Christian Tom Jolls Joseph Dang, Esq. Managing Director Chief Investment Officer Executive Director Executive Director Executive Director In-House Counsel

Glenn Busch Adele Canetti Bryan Case Allen Kay Robert Frazier Vicki Moore

Portfolio Manager Portfolio Manager Financial Advisor Financial Advisor Financial Advisor Operations Manager

2009 YEAR IN REVIEW

For2009 theS&P500returned26.5%, InternationalStocks (EAFE)returned31.8%andbonds (BarclaysCapitalUS

AggregateBond)returned5.9%. Afterdecliningformostof2008(includingatotalpricemeltdowninthefourthquar

ter),mostassetclassesbottomedinMarchof2009andexperiencedrobustreturnsforthefullyear. Ouraccountsgener

allyperformedwellduring this reboundyear,havinghealthy exposure tomost recoveryasset classes. Stocks, real

estateand

commodities

all

recovered

from

oversold

conditions.

The

large

supply

of

sidelined

cash

raised

throughout

the financialcrisisof2008hasbegun to shiftback into theseassets,providingbothbuoyancyandsupport tomarket

prices. Moreover,thelackofanyrealinflationaryconcernsin2009causedmostbondorientedinvestmentstoperform

verywellthroughouttheyear.

YourPortfolioManagementTeam

Tel:(858)7550909 Tel:(888)9991395 Fax:(866)3641084 Email:info@amminvest.com

2010: THE YEAR FOR BIG DIVIDENDS?

AccordingtothelatestanalysisfromStandard&Poors,2009wastheworstyearinhistoryfordividends.Dividend

cutsinU.S.tradedcommonstockcostinvestorsover$58billioninincome,with804companiesreducingcashpayments

toshareholders. Ifhistoryisanyguide,Standard&Poorssuggeststhattheworstisoverfordividendcuts. Itisesti

matedthatdividendswilllikelyrisein2010andreturntotheirpre2009levelssometimebefore2012or2013. Forour

clients,wearefindingwellruncompanieswithstrongbalancesheetsandtheabilitytopayincreasingdividendsover

time.

PleasefindacopyofourcurrentPrivacyNotice. WecanalsoprovideyouwithacurrentcopyofourSECFormADV

PartII,atyourrequest. Shouldyouhaveanyquestionsregardingyourinvestmentaccount(s),oriftherehavebeenany

recentchangestoyourinvestmentand/orretirementobjectives,pleasedonothesitatetocallus.

Thankyouforentrustingourfirmwiththemanagementofyourassets.

WishingyouaHappy,HealthyandProsperousNewYear!

MailingAddress:POBox675203,RanchoSantaFe,CA 92067

14249RanchoSantaFeFarmsRd,RanchoSantaFe,CA92067

www.amminvest.com