The Markets

Where does 2 + 2 = billions of dollars? In the stock market, of course!

Back in the “good ol’ days,” investment professionals would spend their waking hours poring over financial statements, developing financial models, and analyzing reports to try and find undervalued stocks. The thought was you could find stocks that were selling below their “intrinsic value,” and, if you held them long enough, you would likely earn a nice return. Warren Buffett exemplifies this style of investing, and he’s done pretty well with that strategy over the past 40 years.

But today, with an interconnected world filled with impatient “fast traders” and economic uncertainty, there seems to be a fixation on the latest data released by Washington or some other business group that has its pulse on a sector of the economy. Last week, we had two great examples of how the publication of certain data helped move the markets.

On Wednesday, the Institute for Supply Management said its closely watched index of factory activity rose to 56.3% in August from 55.5% in July, according to The Wall Street Journal. This number was better than expected and suggested the manufacturing sector of the economy was holding up well. A similar report on China’s manufacturing sector also showed an unexpected rise. Stocks reacted by jumping 2.5% that day as measured by the Dow Jones Industrial Average.

And on Friday, the government released the August nonfarm payroll report and it was better than expected, according to CNBC. Stocks jumped on the news and the Dow rose 1.2% as fears of continuing gloom in the job market eased a bit.

So, the release of two reports in two days, (the 2 + 2), helped the stock market as measured by the Dow soar 3.7% and add billions of dollars in market value, according to data from Wilshire Associates.

In this type of data-driven market, trigger-happy traders can help cause big swings — both up and down — that tempt some investors into thinking that either the end of the world is near or happy days are here again. Ultimately, two pieces of data in two days may help add (or subtract) billions in market value, but they are insufficient to discern a new trend. Intrinsic value still matters over time, and daily data, while helpful, is only part of the puzzle of investing.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.


HOW THE RICH SPEND THEIR MONEY may have a big impact on the pace of our economic recovery. Consider this, the top 5% of Americans by income account for 37% of all consumer outlays, according to an August 5 Wall Street Journal article that was based on data from Moody’s Analytics. At the other end of the spectrum, the bottom 80% by income account for 39.5% of all consumer outlays. So much for the 80/20 rule!

The share of spending by the top 5% has grown over the years, too. Back in the third quarter of 1990, the top 5% accounted for 25% of consumer outlays versus the 37% today, according to the Journal article.

In a 2005 research report, analysts at Citigroup coined the phrase “Plutonomy” to describe countries that exhibit significant income and wealth inequality. Plutonomies also are disproportionately dependent on the spending habits of the wealthy. According to that 2005 report, Citigroup classified the U.S., U.K., Canada, and Australia as Plutonomies.

So, if you want to know where the economy is heading—follow the money!

Weekly Focus – Think About It

“If you start small, dream big, plant a seed of intention, and care for it, it’s not unrealistic to expect something marvelous to come up.”
–Marc Ian Barasch

Best Regards,


Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

LD38054-8/10

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

On Labor Day, we celebrate the work of Americans. For many people, work is an important measure of self-worth. It provides a means of supporting families and creating value in communities. Here are some recent statistics that shed some light on the American workforce:

154.4 million
Americans (ages 16 and older) were in the labor force in May 2010

16.1 million
Workers were labor union members in May 2010

4.0 million
Americans had two jobs (one full-time and one part-time) in May 2010

1.7 million
Workers were Chief Executive Officers in May 2010

42.7%
Percentage of Americans worked 40 or more hours a week in 2007

$46,367
Median earnings for male full-time, year-round workers in 2008

$35,745
Median earnings for female full-time, year-round workers in 2008

Source: U.S. Census Bureau,

In this office, we gain satisfaction by working to help our clients meet their financial goals. If there is any way that we can provide assistance, just let us know.

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The above material was prepared by PEAK
Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors., member FINRA, SIPC and a Registered Investment Advisor.Sorensen Wealth Management is not affiliated with TFA. Non-Securities products and services are not offered through Transamerica Financial Advisors, Inc. CA Insurance License No. 0778771

The Markets

Has corporate America lost its gumption?

Three of the things that have made the United States so great are the determination, fearlessness, and entrepreneurial spirit of our people. Unfortunately, that seems to be a bit lacking right now with the leaders of some of our country’s largest companies.

For more than two years now, corporate America has been on a belt-tightening, cost-cutting push that has helped contribute to our high unemployment rate. While that has been bad for employees, it has sparked a significant revival in corporate profits. For example, according to a New York Times article based on data from the Bureau of Economic Analysis, second quarter corporate profits were within 4% of their pre-recession peak. And, by another measure, Barron’s magazine pointed out that corporate profits as a percentage of gross domestic product are near 40-year highs.

So, if corporate America is doing so well, why aren’t they hiring and why is the stock market stuck in neutral?

In a word — uncertainty.

Even top Federal Reserve officials are having a hard time agreeing on what to do next to help the economy. On August 10, 17 of them met and, according to an August 24 Wall Street Journal article, at least seven of them spoke against or expressed reservations about the ultimate decision Chairman Bernanke made to keep the Fed’s balance sheet from shrinking. Toss in government regulation, an upcoming mid-term election, tax policy uncertainty, a deflation/inflation debate, and stubbornly high unemployment, and there’s plenty to muddy up the waters.

Corporate America is reacting to this uncertainty by conserving cash and keeping a lid on hiring. However, this will eventually change, and, on a positive note, we may be starting to see that happen as corporate acquisitions are on the rise. The current bidding war between two blue-chip technology companies for an obscure data-storage company may be one example of gumption returning to the boardroom… and that’s good!

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.


WHO HAS A WORSE DEBT BURDEN, countries in developed markets or countries in emerging markets? Well, by at least one measure, developed countries are in worse shape.

According to the August 2010 newsletter from Research Affiliates, LLC, “Developed markets account for 62% of the world’s GDP and owe 90% of the world’s sovereign bond debt. The emerging markets collectively produce 38% of the world’s GDP and owe just 10% of world sovereign bond debt.” In other words, relative to the size of its economies, developed market countries (like the U.S.) have a much higher debt burden.

This debt level is problematic because it hampers a country’s ability to grow.

On the flip side, emerging market countries that are not swimming in debt are some of the fastest growing in the world. China is a good example. Its breakneck growth has led to a 60-mile long traffic jam on a main highway leading into Beijing that is still unfolding, according to The New York Times. The culprit? A parade of coal trucks trying to supply the rapidly growing energy needs of Beijing.

Over time, as the developed world tries to pare its debt through austerity programs, sluggish growth may result. World leaders are banking on emerging countries like China to help pickup the economic slack. The extent to which these emerging countries can do that may have a big impact on how long the U.S. stays stuck in neutral.

Weekly Focus – Think About It

“Don’t waste life in doubts and fears; spend yourself on the work before you, well assured that the right performance of this hour’s duties will be the best preparation for the hours and ages that will follow it.”
–Ralph Waldo Emerson

Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

LD38054-8/10

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

  1. Family First

  2. Plan for the future, learn from the past. Enjoy and maximize the present.

  3. The past is bedrock, unchangeable, but the future is clay to be molded day by day.

  4. A successful man gets what he wants. A wise man wants what he gets.

  5. Our true home is in the present. It’s a miracle to live in the present.

  6. Think big, start small, scale fast.

  7. The price of progress is the pain of change.

  8. Stop defending what I know and embrace the unknown.

  9. Death ends life, not a relationship.

10. We have more hunger for love and appreciation in the world than bread.

11. Today is the first day of the rest of your life. Make the most of it!

12. You have not failed until you quit trying.

13. I will win. Why? I’ll tell you why. Because I have faith, courage, enthusiasm and strength and I am       committed to doing my best!

14. Learn like you’ll live forever. Live like you’ll die tomorrow.

15. Your reach should be further than your grasp.

16. The difference between what we do and what we’re capable of doing would suffice and solve most of       the world’s problems.

17. Perfect practice makes perfect.

18. Repetition is the mother of skill.

19. I will do until I master.

20. Leaders are readers and readers are leaders.

21. With the why the how will happen.

22. Ask, Believe, Receive.

23. Attitude of gratitude.

24. You have not lived until you do something for someone who never expected it and can never repay       you.

25. If you think you can or you think you can’t, either way you are right.

26. People of my passions are trying to find me.

27. True wealth equals all that money can’t buy and death can’t take away.

28. Do not major in minor things.

29. Resourcefulness is the ultimate resource.

30. What more can I give today?

31. How can I add more value to more people?

32. Now I am the voice.
      I will lead not follow.
      I will believe not doubt.
      I will create not destroy.
      I am a force for good.
      I am a leader.
      Defy the odds.
      Set a new standard.
      Step up!
      Step up!!
      Step up!!!

The Markets

“We don’t think the world has ended.”

With so much doom and gloom being published these days, it’s refreshing to hear a respected leader of a global, blue-chip company make a positive statement. Doug Oberhelman, the chief executive officer of Caterpillar, met with analysts last week and painted a rather bright picture of the world economy, including the quote above.

Oberhelman went on to say that Caterpillar does not expect a double-dip recession because the world’s central bankers are staying on top of the situation and the global economy is improving — especially in the developing world. As the world’s largest maker of construction and mining equipment, Caterpillar is considered a good indicator of worldwide economic health, according to Associated Press.

One question that many analysts and economists are struggling with is, “Can the world recover without the United States?” As the world’s largest economy, there’s an old saying that when our economy sneezes, the world catches a cold. Well, we’ve certainly done more than sneeze in the past three years. Optimists say that yes, the U.S. is still important in the world economy, but other countries, most notably China, India, and Brazil, can still prosper even if the U.S. is down for a few counts. They call this “decoupling.”

Underscoring this idea of decoupling is the fact that China just passed Japan as the world’s second largest economy, according to The New York Times. Forecasters are predicting that China will surpass the U.S. as the largest economy by as early as 2030.

Caterpillar, for one, thinks the world will continue recovering even if the U.S. is a bit weak. And the stunning growth of China makes that idea plausible.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.


YOU MAY NOT HAVE HEARD OF STANLEY DRUCKENMILLER , but he will be remembered as one of the most successful investors (speculators?) of all time. Since 1986, Druckenmiller has generated average annual returns of 30%, according to an August 18 article by Bloomberg. Incredibly, in 30 years of managing money, he’s never had a losing year, according to Bloomberg.

Perhaps his most famous moment came in 1992 when he was working for famed investor George Soros. Together, they made a multi-billion dollar bet that the Bank of England would be forced to devalue the pound. Sure enough, that occurred and the duo made a $1 billion profit for their investors — in a single day – according to Forbes. Over the years, Druckenmiller did well personally, too, as Forbes magazine estimated his net worth at $3.5 billion in 2009.

When it comes to making money, Druckenmiller said, “It is not whether you are right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Last week, Druckenmiller announced that he was retiring from managing client money.

The fact that he was retiring was not unusual, rather, as it was the reasons he gave for the retirement. According to The New York Times, Druckenmiller said, “I have had to recognize that competing in the markets over such a long timeframe imposes heavy personal costs.” He went on to say, “While the joy of winning for clients is immense, for me the disappointment of each interim drawdown over the years has taken a cumulative toll that I cannot continue to sustain.”

Two days after Druckenmiller announced his retirement, another famous investor, Paolo Pellegrini, said he was getting out of the business of managing other people’s money. Pellegrini is famous for betting against risky mortgages and helping his former boss, John Paulson, score a $15 billion profit a few years back, according to The Wall Street Journal. This coup was chronicled in the bestselling book, The Greatest Trade Ever, by Gregory Zuckerman

Why should you care that these two famous investors are exiting the business of managing other people’s money? It’s important because of the possible signal that it sends.

Back in August 1979, BusinessWeek magazine ran a cover story titled, “The Death of Equities.” It concluded by saying, “The old attitude of buying solid stocks as a cornerstone for one’s life savings and retirement has simply disappeared…The stock market is just not where the action’s at.” Exactly three years later — in August 1982 — the stock market took off on an 18-year bull run that was one of the greatest in history. That story, in hindsight, served as an early inverse indicator of the future direction of the market.

Could the disappearance of Druckenmiller and Pellegrini be a signal similar to the infamous BusinessWeek story?

A stretch, perhaps, but it’s non-traditional clues like this that — if you get enough of them — could help lead to a conclusion that mainstream investors miss. Food for thought.

Weekly Focus – Think About It

“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” –George Soros

Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

The Markets

One week, the glass is half full, the next week, it is half empty.

Investor’s lack of conviction was on full display last week as a scandal at Hewlett Packard, a change of heart from the Fed, a revenue miss from tech bellwether Cisco Systems, and an unexpected rise in weekly jobless claims led to a decline in global stock markets, according to Bloomberg.

In particular, a press release dated August 10th, the Federal Open Market Committee met in June and slightly changed its economic outlook by saying, “The pace of economic recovery is likely to be more modest in the near term than had been anticipated.” To help the economy maintain momentum, the Fed announced that it will goose the economy a bit by reinvesting the principal payments it receives on its agency securities in longer-term Treasury securities and that it will roll over its maturing holdings of Treasury securities in new Treasury securities. Effectively, this means the Fed will not shrink its balance sheet for the time being.

Whether this move is good or bad for the economy is subject to debate. One camp says it will help keep interest rates low, which could be good for the economy. Another camp says it will help keep interest rates low, which could be bad for the economy at this stage of the economic recovery. That was not a misprint — smart people are taking opposite views on whether low rates are good or bad for the economy. Kansas City Fed President Thomas Hoenig leads the dissenters. In a speech in Lincoln, NE last week, Hoenig said, “We need to get off of the emergency rate of zero, move rates up slowly and deliberately” and “We will repeat the cycle of severe recession and unemployment in a few short years by keeping rates too low for too long.”

This tug-o-war between smart people makes for interesting reading (at least for us, anyway!)… but generates no clear trend in the market.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.


IF YOU HAD TO DESCRIBE THE STATE OF THE ECONOMY as an animal, which animal would you pick? This may sound like a silly question, but it is an actual question from a national survey released last month and sponsored by the Certified Financial Planner Board of Standards.

Some of the less common survey responses included cow, kangaroo, lamb, dinosaur, possum, rat, giraffe, hyena, and, not surprisingly, bull. Looking at this list makes us wonder… what attribute does a giraffe or a possum have that can be compared to the economy? Let us know what you think.

The most common responses were bear, snake, turtle, sloth, lion, pig, dog, and skunk.

Okay, have you picked your animal?

For discussion purposes, let’s say that you picked a bear as your animal. Of course, a “bear” is also commonly used to describe a weak stock market. Now, here’s the point. Often, investors get an idea in their mind — e.g. this is a “bear” market — and have a hard time changing their perception even in the face of new evidence that would suggest their perception is inaccurate. Psychologists call this “anchoring” and it has led many investors astray, according to Investopedia.

The key to overcoming anchoring is to keep an open mind, be willing to change, and utilize rigorous thinking.

So, no matter what animal you picked, whether it be bull, bear, turtle, sloth, or skunk, be alert to new information that may suggest that it’s time to pick a new animal. As your advisor, we are mindful of the “anchoring” bias and we do our best to base our decisions on rigorous thinking and not on an outdated opinion.

Weekly Focus – Think About It

“To get all there is out of living, we must employ our time wisely, never being in too much of a hurry to stop and sip life, but never losing our sense of the enormous value of a minute.”
–Robert Updegraff

Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

LD37838-8/10

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

The Markets

Despite a disappointing jobs report, stocks still managed to post a solid gain last week. In fact, all three major U.S. indexes –the Dow Jones Industrial Average, the S&P 500, and the NASDAQ Composite –ended last week in positive territory for the year, according to CNBC.

Strong corporate earnings are helping to keep a floor under the market. Roughly 75% of the companies that have reported second quarter earnings beat Wall Street estimates, according to CNBC. Of course, one factor that helped corporate America post strong earnings was keeping a tight rein on employment costs. Unfortunately, what’s good for corporate America may not always be good for “employment” America.

Bond yields continued to decline last week as the 2-year Treasury hit a record low of 0.50%. The 10-year Treasury yielded 2.82%, which is a 15-month low. Foreign country bonds are sporting low yields, too. The 10-year German Bund hit a record low yield of 2.51% last week, while the benchmark Japanese 10-year government bond yielded just 1.05% last week, according to Barron’s.

Low yields suggest either slower economic growth ahead or little to no inflation, or both, according to Barron’s. Low rates are generally good for businesses because it makes their cost of capital lower and makes it easier for them to reinvest for future growth. So far, the low rates appear to have helped stabilize the economy, but robust growth and reinvestment has yet to materialize, according to The New York Times.

Overall, the mixed economic data is helping keep the market stuck in a broad range.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

“WE ARE IN A NEW NORMAL WORLD in which the distribution of outcomes is flatter and the tails are fatter,” according to a July 2010 Global Perspective report from Richard Clarida of PIMCO. What in the world does that mean?

Clarida’s words might sound like mumbo jumbo, but he actually makes a solid case that planning for “extreme” outcomes rather than “average” outcomes might be the appropriate investment strategy in the current climate.

History tells us that the average annualized total return on the S&P 500 between 1926 and 2009 was 9.9% and the standard deviation was 19.2, according to TD Ameritrade. Standard deviation is a measure of volatility and at 19. 2 (one standard deviation), it means that about 68% of the time, we would expect the S&P 500 annual return to be somewhere between a loss of 9.3% and a gain of 29.1%. At two standard deviations, it means that about 95% of the time, we would expect the S&P 500 to return somewhere between a loss of 28.5% and a gain of 48.3%. At three standard deviations, it means that about 99.7% of the time, we would expect the S&P 500 to return somewhere between a loss of 47.7% and gain of 67.5%.

Clarida is suggesting that, in the future, more of the returns in the financial markets will fall in the 2nd or 3rd standard deviation range (the “fat tail”) instead of the 1 standard deviation range (the “hump”). If true, this means we could expect more volatility — both positive and negative — in the future.

The future could be more volatile due to such things as the unpredictable nature of government regulation and bailouts, sovereign debt levels, high-frequency trading, geopolitical flare-ups, social unrest, high unemployment, and medical or scientific breakthroughs.

Recent events such as the May 6 “Flash Crash,” the 2008 financial crisis, the 2007-2009 bear market, and the 2008 spike and then collapse in oil prices, support Clarida’s idea that we live in volatile times.

So, if we are temporarily living in a “fat tail” world, then it makes sense to plan accordingly. And, that’s what we’re trying to do on your behalf.

Weekly Focus – Think About It

“Take calculated risks. That is quite different from being rash.”
– General George S. Patton

Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

LD37838-8/10

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

Every night I plan for the next day, listing the six most important things I need to accomplish. I prioritize the list from most to least important.

For longer-term goals, an interesting financial planning idea – and also one of the simplest – is to write a letter to yourself. More specifically, write a letter from your “future self” to your “present self.”

Imagine yourself in five years, assuming everything has gone more or less as you hoped it would. You’re healthy, in good financial shape, saved money for retirement, and, well, you know your hopes better than I do.

The point is that the Future You is writing a letter of thanks to the Present You. Future You might thank Present You for exercising regularly, because Future You is fit and looks good. Future You might thank you for being thrifty and watching your budget, putting you on track to retire comfortably – or you may even be retired.

Future You also might thank you for taking time to smell the roses along the way, for maintaining close relationships with friends and family, for spending a little more time accomplishing goals (Starting a new business? Traveling to see the world? Keeping better track of your expenses each year?) instead of spending unproductive downtime in front of the TV.

In other words, thank yourself for achieving specific actions. Then look over the letter and know that these are things you will thank yourself for someday. Commit to doing them and save the letter.

Every week or two, read the letter and ask, “Am I on course? Am I earning the thanks that Future You may give me?”

The point here is that you want your future life to be as good as it can be – as full of fulfillment, happiness, joy, and prosperity as possible. Your actions between now and then will, or will not, make that happen. The letter is a fantastically powerful reminder that you’re counting on yourself to take care of your future.

Meanwhile, in between the times you spend with the letter, you can get to know a variety of Future Selves (the “You Next Week,” the “You Next Year,” the “You Five Years From Now,” etc.), and begin to ask these future versions of yourself about decisions you make now. How much of the money you earn today should go to your Future Self for retirement? What would you, a week from now, like to have cleared off your desk? Would you like to have learned a new foreign language by this time next year? Are there things that are hard to do now, but that you will wish you had done?

Doing this will help you navigate through the complexities of life with a clear vision. And, if you can do that, you’ll be one of the few in the world who are not muddling through their days. You could arrive in the future with no regrets about how you spent the precious, irreplaceable hours of your life.

All the Best,

Jeff Sorensen




Investment Advisor Representative with securities and investment advisory services offered through Transamerica Financial Advisors, Inc. (TFA) Member FINRA, SIPC and a Registered Investment Advisor. Sorensen Wealth Management is not affiliated with TFA. Non-securities products and services are not offered through Transamerica Financial Advisors, Inc. CA Insurance License No. 0778771
The above material was prepared by PEAK.
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The Markets

Consumers are becoming more frugal and that may turn out to be a good thing.

One cause of The Great Recession was the cumulative effect of consumers spending more money than they could afford. Eventually, they got tapped out, business slowed down, and massive layoffs ensued. Of course, simple math says you cannot indefinitely spend what you do not have and, by 2008, the math caught up with many Americans.

Last week, the Commerce Department said the personal savings rate (saving as a percentage of disposable personal income) rose to 6.2% in the second quarter. That’s up from 5.5% in the first quarter. In the heyday of conspicuous consumption back in 2007, the savings rate was a paltry 2.1%, according to CNNMoney.com.

Higher savings is a double-edged sword. On the positive side, it means consumers are acting more responsibly and, by beefing up savings, they are setting the stage for future sustainable economic growth. The downside to this thriftiness is slower economic growth in the short term.

It’s a fine balance between saving enough to get our personal balance sheet back in order, but not too much that the economy takes years to regain its footing. Remember, consumer spending still accounts for about 70% of economic activity, according to The Wall Street Journal. The trick is we still have to shop — but just not till we drop!

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

DOUBLE DIP IS NOT JUST FOR ICE CREAM CONES. Over the past few months, concern has grown that the U.S. economy could experience a double-dip recession. Drooping bond yields, which may suggest slower economic growth, coupled with some soft economic data and weak consumer sentiment, have raised a red flag. However, from an international perspective, the International Monetary Fund has raised its 2010 world economic growth projection five times since April 2009 and it now stands at a forecasted rate of 4.6% — which is rather healthy and certainly not double-dip territory.

Although the likelihood of a double-dip recession still seems small, a July 27 Financial Times article outlined four risks that could possibly derail the recovery:

• A decline in business and consumer confidence.
• An end to temporary boost to post-recession economies, e.g., economic growth emanating from inventory re-stocking.
• A new crisis or “black swan” event that throws the world for a loop.
• Overly austere government budgets that tighten too much too soon and snuff out the recovery before it gets a chance to become self-sustaining.

These risks are reasonable and bear watching. However, let’s face it. No matter how well the world is humming, we (advisors) can always find something to worry about. But, that’s our job. It’s not that we’re pessimists. It just comes with the territory. We worry about things — large and small — in an effort to be proactive and to try and help you stay ahead of the curve.

Weekly Focus – Think About It

Here’s a list of the happiest countries in the world, according to a recently released Gallup Poll based on data collected between 2005 and 2009. Survey participants were asked to rate their overall satisfaction with their lives and how they had felt the previous day (to gauge their happiness in daily activities).

Does this list surprise you?

Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

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* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com

The Markets

“The economy is still struggling; too many Americans are still out of work; and the Nation’s long-term fiscal trajectory is unsustainable, threatening future prosperity,” according to the Mid-Session Review submitted by the White House last week.

This supplemental update of the annual budget contained a number of projections that are of interest to us. Here are a few:

• A projected federal deficit of $2.9 trillion over the next two fiscal years.
• Gross Domestic Product projected to grow 3.2% this year, 3.6% in 2011, and 4.2% in 2012.
• Unemployment projected to average 9.7% this year, 9.0% in 2011, and 8.1% in 2012. It is projected to stay above 6% until 2015.
• The consumer price index projected to rise 1.6% this year, 1.3% next year, and 1.8% in 2012.
• The 10-year Treasury projected to yield on average 3.5% in 2010, 4.0% in 2011, and 4.6% in 2012.

Projections like this are, of course, notoriously difficult to get right. So much can happen in a short period and throw off the best laid plans. But, looking at the projections at least gives us a place to start. Overall, the projections are a mixed bag. The deficit numbers are problematic. The GDP growth projection is good if we can hit it. The unemployment numbers are painful. The inflation outlook is stable and the Treasury yield is favorable for business growth.

If, by the end of 2012, the above numbers come to fruition, then we would likely avoid a double-dip recession and the economy would probably “muddle along.” So far, corporate America is doing its part by showing really solid earnings for the second quarter. Companies such as Caterpillar, 3M, AT&T, and UPS notched solid quarters and suggest there is underlying strength in the economy, according to MarketWatch. In fact, of the 175 companies in the S&P 500 that have already reported their second quarter earnings, a whopping 78% have beaten analysts’ estimates while only 12% missed, according to data from Thomson Reuters as reported by MarketWatch. Buoyed by good earnings and relief over the European bank stress tests, the S&P 500 rose a solid 3.6% last week.

Given all the volatility we’ve had over the past 2½ years, “muddle along” might not be so bad!

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.

WHETHER AN INVESTOR LEANS BULLISH OR BEARISH, there is ample data to support either view. This situation may explain why Fed Chairman Ben Bernanke told Congress last week that the economic outlook was “unusually uncertain.” For those investors who lean bullish, here are several supporting points courtesy of economist David Rosenberg as reported by Financial Times:

• Congress extended jobless benefits, which is one form of stimulus.
• Some Democrats are now in favor of delaying tax hikes.
• China is having some success slowing its property bubble without bursting it.
• Confidence is growing that the emerging markets may keep world growth positive even if more mature countries slow down.
• Eurozone debt and money markets have settled down after the problems with Greece sparked default fears.
• The European bank stress tests contained no major surprises and added clarity to the soundness of the banking system.
• Consumer credit delinquency rates in the U.S. are improving.
• Mortgage delinquencies in California, one of the hardest hit real estate markets, are at a three-year low.
• The BP oil spill is coming under control and is no longer each day’s top headline.
• The passage of the financial regulation bill removed one more cloud of uncertainty.
• Corporate America is reporting solid earnings for the second quarter and their future outlook has been, on balance, positive.
• Fed Chairman Ben Bernanke indicated he’ll keep using monetary policy to stimulate the economy and he’ll get even more aggressive if need be.

So, yes, there are reasons why the markets and the economy could do okay in the months to come. But, in this “unusually uncertain” time, it still makes sense to be “on guard.”

Weekly Focus – Think About It

“Even if I knew that tomorrow the world would go to pieces, I would still plant my apple tree.”
–Martin Luther King, Jr.


Best Regards,

Jeff Sorensen

(805) 379-9870

P.S. Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.

Investment Advisor Representatives with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Securities products and services are not offered through TFA.

* This newsletter was prepared by PEAK.

LD37692-7/10

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.* The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. *Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Consult your financial professional before making any investment decision.

* You cannot invest directly in an index.

* Past performance does not guarantee future results.
* To unsubscribe from the Weekly Market Commentary, please reply to this e-mail with “Unsubscribe” in the subject line, or write us at customerservice@sorensenwealth.com