4th Quarter 2010
January 15, 2011

Welcome to 2011!
We would like to wish everyone a healthy, happy, and prosperous New Year!

What a year 2010 ended up being. We have seen the return of savings. U.S. Bank deposits have risen to $7.74 billion (an all time high), and the U.S. savings rate has risen to 5.7% from 3.1% over the prior decade. U.S. consumers have paid down almost $1 trillion in debt since the end of 2006. We have had an increase in real U.S. wages along with an increase in consumer spending . U.S. household net worth, at the end of September, was $54.9 trillion, down only 16% from the peak of $65.7 trillion and the end of the second quarter 2007. These all have a positive impact on the continued recovery of the U.S. economy as well as the long-term health of our economy.

U.S. consumers were not the only one’s shoring up their balance sheets over the last two years. The non-financial companies of the S & P 500 have accumulated almost $2 trillion in cash or cash equivalents on their balance sheets. This is the highest level of cash to total corporate assets since 1959! Not only are businesses sitting on record levels of cash they are also reporting record earnings. Businesses have added jobs for nine months in a row now (thru November), adding almost one million jobs. We feel U.S. companies will continue to hire throughout the coming year. During the last two recessions, unemployment did not reach its peak for two years after the recession ended. If this recovery looks anything like the last two that means unemployment will not peak until mid 2011. Unemployment is a lagging indicator of economic recovery, but it is a big news story so expect to hear more about it.

We are still the world’s largest manufacturer, larger than number two and three combined (Japan & China). The U.S. is still the leader in innovation and new technologies in the world. As we listen to the nightly news and read the headlines each day, we begin to believe things are as bad as they tell us they are. The English historian Thomas Babington Macaulay stated “On what principle is it that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us”. We are still optimistic on the U.S. economy and we all need to remember pessimism is not merely wrong: it is counterintuitive.

We feel that in 2011 we will continue to see growth in the U.S. economy with business’s investing in both infrastructure and additional people. Things will not change overnight, the news coverage will not suddenly turn positive, and the stock market will not necessarily go straight up, but the recovery will continue.

Just a parting thought regarding TARP and Bernie Maddoff. It was almost unimaginable a couple of years ago that we would get any of the TARP money back. As of December 31st the estimated losses to the U.S. taxpayer is now $25 billion, down from a loss of $109 billion in March of 2010. In the Maddoff settlements, they have now recovered almost half of what people invested in his firm with several large settlements still pending.

Daniel P. Michalk, CFP®, ChFC