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

Q3 2010CLIENT NEWSLETTER

THE BIG PICTURE

Assessingthebusinessandeconomiccycleisanimportantpartofourinvestmentprocess. Weoftenrefertothisas

gettingthebigpicture. Oursecondquarterletterpointedtohistoricallylowinterestrates,lowinflation,improving

corporateprofitabilityandanimprovingjobssituationas bigpicture factorssupportingthecontinuedeconomic

recovery. Thesefactorsgenerallyremaininplace;however,ouroptimismonthestrengthofthebroadrecoveryis

somewhatreducedsinceourlastcommunication. Below,weoutlinesomeofthereasoningbehindourtemperedout

lookalongwithabreakdownofwhereweseeopportunityacrossaspectrumofassets.

Thereiscurrentlyatugofwarbetweenimprovingeconomicandcompanyfundamentalsontheoneside,andcon

cernsaboutdebtrelatedstresspointsandthelongertermstrengthoftheeconomicrecoveryontheother. Thosecom

mitted tospendingourway to recovery (including thecurrentAdministrationandamajorityof theFederalReserve

Board)are focusedon continuedgovernment stimulus and an easymoney monetarypolicy (seenearzero interest

rates)tomaintainthemomentumofthecurrentrecovery. EconomistPaulKrugmansumsupthispositioninarecent

NewYorkTimesopedpiece:

Ofcourse,tofundcontinuedstimuluswilllikelyrequirelargerdeficitsandincreasedfederaldebtlevels. Thepasttwoyearshavemade theconsequencesof toomuchdebtpainfullyclear toindividualsandbusinesses. Someofthesame

basicmathapplies tothe federalgovernment. Bythemselves,highdebttoincomelevelsdonotnecessarilystrainre

sources.(Manypeoplecarrymortgageloadsinexcessoftheirannualincomes.) However,whentheinterestrateondebt

ishigherthantherateofincomegrowth,aproblemstartstodevelop debtservicingeatsupaprogressivelyhigherper

centageofincome unlessdebtispaiddown. Overthelast28years,therehasbeenalongdeclineintheinterestrate

paidontheTenYearU.S.TreasuryNote(ChartA). Thishaseffectivelyallowedourfederalgovernmenttoissuemore

andmoredebtatincreasinglyfavorablerates.

ECONOMIC TUG-OF-WAR

AMERICANMONEYMANAGEMENT,LLC

SECRegisteredInvestmentAdvisor

AMM

Yes,Americahas longrunbudgetproblems,butwhatwedoonstimulusoverthenextcoupleofyearshasalmostnobearingonour

abilitytodealwith these longrunproblems. AsDouglasElmendorf,thedirectorof theCongressionalBudgetOffice,recentlyput it,

Thereisnointrinsiccontradictionbetweenprovidingadditionalfiscalstimulustoday,whiletheunemploymentrateishighandmany

factoriesandofficesareunderused,andimposingfiscalrestraintseveralyearsfromnow,whenoutputandemploymentwillprobablybe

closetotheirpotential.

ChartA

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Since the startof thenewmillennium, theamountof thisdebtheldbyForeign& International investorshasbal

looned(ChartB). Whileconcernsaboutthenationaldebtarenotnew,themassiveincreaseindebtasapercentageof

GDP (notseensinceWorldWarII)combinedwiththeEuropeandebtscare inMayhavecausedinvestorsaround theworldtoquestionboththeabilityofdevelopedeconomiestorepaytheirdebtsandthepointatwhichcreditorswillde

mandahigherrateofreturn. Regardlessofwhenratesmayriseinthefuture,itisclearthattheglobaleconomy,while

betteroffthanitwasinlate20082009,stillfacesmanychallenges. Highgovernmentdebtlevelsinthedevelopedworld

willhavetobedealtwiththroughinflation,highertaxes,entitlementsoracombinationofthethree. Noneoftheseare

particularlygoodforeconomicgrowth.

Regardlessofhowgood,bador,moreoftenthannot,conflictedthebigpicture,investmentopportunitiesarede

terminedbywhethertheyarepricedattractivelyrelativetotheirabilitytogeneratefuturegrowthand/orincome. An

investmentcanbeattractiveeven ifthemacroeconomicoutlook isdarkorunattractiveeveninanextremelypositivemacroenvironment. Asdiscussedinclientmeetingsandpriorcommunications,ourfirstandmostimportantdecisionis

assetallocation. Howmuchofyourportfolioshouldbe invested instocks,bonds,cashandotherdiversifyingassets

(realestate,commodities,etc...)? Oncewedeterminetheappropriateassetmix,wewillseektoinvestinassetsthatwe

viewasattractiveatcurrentpricelevelsandgivencurrenteconomicconditions. Below,weofferourcurrentassessment

ofthesecoreassets:

ChartB

BONDS: Bondstypicallyserveasthebackboneofatypicalincomeorbalancedaccount. Historically,bondsoffer

lowervolatilitythanstocksandareperceivedasasaferassetclass. Overthelastfewyears,wehaveincreasingly

usedbondorientedinvestmentsingrowthaccountsaswell. Likeallassets,however,bondsshouldbepurchasedat

attractiveprices. Giventheextremelylowinterestrateenvironmentandmassiveinflowsintobondfundsoverthe

lastfew

years,

we

do

not

see

significant

value

in

the

typical

investment

grade

bond.

Longer

maturity

bonds,

which

willfallmoreinpriceintheeventofrisinginterestrates,areespeciallyunappealingatthisstageinthebusinesscy

cle.Nevertheless,westillfindsomereasonablevalueinthreeclassesofbondinvestment:

1.EmergingMarketBonds: ThesebondsincludethebondsofdevelopingeconomieslikeBrazilandIndone

sia. Potentialreturnscomefrom the interest incomeandourexpectationthattheeconomic fundamentals

(lessdebtandmoregrowth)inmanydevelopingeconomiesareverylikelytoleadtocurrencyappreciation

(versus thedollar)overamultiyeartimeframe.

CAPTURING RETURNSAND PROTECTING CAPITAL

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Bonds(cont.)

2.InflationProtectedBonds:CommonlyknownasTIPS(treasuryinflationprotectedsecurities),theprinci

palvalueofthesebondsfluctuatewithchangesininflation. Givenourviewofhigherfutureinflation,we

viewthesebondsasanattractiveinvestmentgradealternativetoowningregulartreasurybonds.

3.Shorterterminvestmentgrade(taxfreeandtaxable)bonds:Whileweviewlongermaturitybondsasun

attractiveatcurrentlevels,someshortertermbonds(17yearsinmaturity)arestillrelativelyappealingat

current levels. If interestratesdobegin torise,shorter termbondholderswillbeable toroll intohigher

yieldingbonds atmaturity.

STOCKS:Basedon long runhistorical risk/rewardprofiles, stocksprovidehigher longterm returnsbut signifi

cantlygreatervolatilitythanbonds. Whilestocksremainacorepartofmostgrowthandbalanceorientedinvest

mentportfolios,wehaveloweredourweightingtothisassetclassinrecentmonths.

1. EmergingMarket Stocks: We view the financial strength, demographic makeup (younger popula

tions)andgrowthopportunities in these countriesas supportiveofhigher stockpricesover thenext35

years.

2.DividendPayingStocks: Somehighqualitystockswiththeabilitytopaydividends(generateincome)are

currentlyattractive.

DIVERSIFYING ASSETS: Diversifying assets include nonstock andbond investments like gold and real es

tate.WecontinuetofavorincomeproducingglobalrealestateviatheAlpinePremierPropertiesFund. Thisfundis

currently tradingata15%discount tounderlyingnetassetvalueandyieldingapproximately7%. Additionally,

where appropriate,we have provided accountswith exposure tobroad commodities through exchangetraded

funds. Bothoftheseinvestmentsaremeanttoprovidesomehedgeagainstfutureinflation.

SECOND QUARTER 2010 IN REVIEW

Afterastrongfirstquarter,investorenthusiasmwastemperedinMayandJuneasconcernsoverthepossibilityofa

sovereigndebtdefaultinEuropeandtheoilspillintheGulfofMexicodominatedheadlines. YeartodatethroughJune

30th, theS&P500 lost6.7%, International stocks (EAFE) lost 13.2%andBonds (BarCapUSAggregate Index)gained

5.3%. The strongbondperformanceunderlies investoruncertaintyabout the strengthof the recoveryasmoneyhas

flowedoutofstockfundsoverthelastfewyearsandintobondfundsfortheirperceivedsafety.

COMPLIMENTARY RETIREMENT ANALYSISFOR CLIENTS

Anewstudyby theEmployeeBenefitResearch Instituteshows thathighpercentagesofAmericans,even those in

upperincomecategories,arelikelytorunshortofmoneyafter10or20yearsofretirement. AlmosttwothirdsofAmeri

cansin

the

two

lowest

pre

retirement

income

brackets

will

run

short

of

retirement

income

after

10

years.

After

20

years

ofretirement29%ofthenextincomebracketwillrunshortofmoneyafter20years.Finally,1in10ofthehighestincome

bracketwillrunoutofmoneyafter20years.

So,overall,over45%ofpeopleworkingtodayfromallincomelevelsareatriskofrunningoutofmoneyduringre

tirement. Whileitisidealforworkerstostartsavingmoneyveryearlyintheircareers,ifyouareinyourlaterworking

years,strategiestoincreaseretirementsavingsmaybeappropriateorevennecessarysothatyouminimizethechanceof

runningoutofincomeduringretirement. Pleasecontactourofficeifyouwouldliketoreceiveacomplimentaryre

tirementanalysis.

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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 Manage

YourPortfolioManagementTeam

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

InMay,we sent a MarketUpdate to our clientsvia email. We intend to sendmore of these updatesperiodi

cally. Pleasecontactusifyoudidnotreceivetheupdate,sothatwecanconfirmyourcorrectemailaddress.

Asalways,wethankyouforentrustingAMMtohelpyouachieveyourinvestmentandretirementobjectives.

Ifyouhaveanyquestions,concerns,orcomments,pleasedonothesitatetocontactus.

MailingAddress:POBox675203,RanchoSantaFe,CA 92067

14249RanchoSantaFeFarmsRd,RanchoSantaFe,CA92067

www.amminvest.com