Good Afternoon,

Prior to providing our clients with our Third Quarter Intelligent Index Review I want to pass along some thoughts on the recent market activity. It is often said that the money management world is short on accurate foresight but long on explanations after the fact. While there is certainly truth to that it seems more and more that the ability to correctly forecast the myriad of rapidly changing macroeconomic events requires something more akin to divine intervention than MBA’s or PhD’s. Despite being cautious throughout the year we, like many investment managers were not defensive enough to not experience drawdowns over the last 3 plus months.

Our view is that despite the ongoing deterioration of the Greek and EU debt crises that reemerged early in the year, it was the disappointing results of QE2 and the failure of Congress and the President to engineer a budget/debt reduction package that accelerated the belief of a faltering recovery and decimated investor and consumer confidence. Since mid-summer, default risk for Greece and other countries has continued to increase raising concerns that such a default would plunge the entire EU into recession and cause collateral damage that will extend into the developed economies and in particular the Global banking sector. Within just the last few weeks, credit markets have weakened with liquidity for many bank and lower credit quality corporate borrowers softening considerably. Federal Reserve Chairman Bernanke’s recent testimony underscored this when he referred to the many headwinds that are creating greater risk to the downside for the economy.

With no strategy on the horizon to meaningfully address unemployment, real estate foreclosures, and create effective tax and budget policies, institutions are positioning portfolios for much lower growth both domestically and internationally for the foreseeable future. Hence, a re-pricing of the markets. Most hard hit domestically over the last quarter were small capitalization stocks (due to their sensitivity to the economy) and large banks and financial (due to concern about deteriorating balance sheets and access to credit).

As part of this discussion I have linked to two items worthy of review. First being a summary from a recent conference call hosted by Pimco portfolio manager Saumil Parikh which outlines Pimco’s global economic and investment outlook for the next 12- 18 months. As you will see, it suggests a rather dim view of global economies for the intermediate term and supports our ongoing cautious outlook. While no single opinion or outlook should be considered the gospel, Pimco’s economic team led by Mohamed A. El-Erian and Bill Gross has been quite insightful over the last several years.

The second attachment is an introduction to a Money Management firm that Centerpoint is currently working towards finalizing a relationship with, Good Harbor Financial located in Chicago, Ill. Over the last 18 months we have observed their results carefully, spoken to them on numerous occasions and met with the principals and architects of the strategy. They are only the second sub-advisor we have introduced into the firm since we began in 2006. Good Harbor provides a tactical asset allocation strategy using a proprietary model to help protect capital, especially during multiple month periods of decline, with the goal of enhancing returns over the S+P 500 over time. It complements our Intelligent Index portfolio or a buy and hold approach due do its strategy to take defensive positions in adverse market conditions, and align with equity capital ( go long) during times when it appears that risk premiums are declining. Their primary investment vehicles are ETFs and Treasuries. The attached summary provides some more detailed information as well as historical returns. You’ll note that since inception their results are more than double that of the benchmark S+P 500, yet they experienced only minor losses in 2005 and 2008. For portfolios that may benefit from a greater allocation to hedged or defensive strategies but still seek to experience long term growth of capital, Good Harbor’s Core Tactical may be worthy of consideration. We will certainly provide additional information as we go forward.

As always, please feel free to contact us with any thoughts or questions.

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