The U.S. Economy is Seeing Some Recovery. We have seen some positive corporate earnings reports, a drop in the unemployment rate, expanding manufacturing numbers and more mergers. However, even taken together these economic improvements give the U.S. little room for error and missteps can come from any direction at any time.

Payrolls, Politics and the People. Corporations are slow to put their earnings into hiring, politicians are cutting government payrolls and under-employed consumers are waiting to see where their next dollar is coming from before they spend the dollar they have.

The U.S. Real Estate Market is Still Struggling. After a short respite in foreclosure filings, we are again anticipating more mortgage defaults. This increase in cheap inventory will further depress housing prices, slow new construction and keep buyers on the sidelines until the dust settles at the bottom.

Japan’s Catastrophe Spreads Around the World. I’m not talking about radiation. I’m talking about interrupted supply lines. Just when manufacturing numbers are improving, Japan’s disrupted exports will force industries around the world, especially the technology industry, to adjust production output downward and production costs upward.

No “sure thing” in sectors. Choosing the best sectors to invest in is only part of the solution in the current geopolitical climate. Even in booming sectors like commodities, agriculture, energy and technology wild cards that could tumble even the most promising trends.

APRIL 2011 EconomIc outLook

ISSUE: APRIL 2011

In The April Economic Newsletter You Will Learn:

An integrated approach to nurturing your wealth and achieving your financial goals.

Inside This Issue:

Economy ReportLas Vegas Real Estate Club

PAGE 2: Good nEws, bAd nEws And wILd cARds In thE wInGs

PAGE 3: nEGAtIvE IndIcAtoRs thAt REfLEct A sLuGGIsh REcovERy

PAGE 4: ImPoRtAnt fActoRs thAt wILL ImPAct thE mARkEt In A mAjoR wAy.And Much More...

In the last few months we have seen much more geopolitical activity than we’ve seen in the last few years. We hear some analysts argue why markets will continue to go up while other experts are convinced the market is overbought and we will see a major correction.

I remain bullish on the markets, but with some caveats about factors that could cause strong nose dives, or in some way skew what appears to be a trend. That is the focus of this month’s economic report – positive news, negative news and wild cards in the wings.

But first, since I am a positive person I always like to start out my reports by discussing the positive economic indicators in the market that give us confidence we are in a strong recovery.

Positive Indicators Reflecting a Recovering Economy

1. Global manufacturing is increasing. Manufacturing activity in Canada, the United States and around the global continues to expand. This situation coupled with lower interest rates will stimulate borrowing by manufacturers to produce goods such as machinery used to produce intermediate or consumer goods, or even housing.

This in turn increases wages and employment in those industries. As this spending makes its way through the economy it results in greater economic activity, thus assisting in the economic recovery. This is the logic of how an economy improves.

The numbers were so strong from the ISM Manufacturing Index that it can be argued that an economic recovery is being led by the manufacturing sector. 2. We are seeing a strong merger and acquisition market. The markets have heated up with plenty of merger and acquisition activity. Almost straight across the board in all sectors M&A activity has increased and this is a sign of an economy moving in the right direction. Companies now have large treasure chests full of monies from strong earnings and as they spend this money they generate economic activity, which assists in the recovery.

3. Earnings are better than expected in early reporting. Fed Ex, AIG and GAP all had very strong earnings. This continues on the momentum of the last quarter.

Strong corporate earnings reflect a healthier consumer. As consumers spend they generate revenue for companies. As revenue is generated corporate earnings improve and money made by investors goes back into the economy through capital expansion.

Two thirds of the United States economy is driven by consumer spending and consumer spending drives half of Canada’s economy, so stronger corporate earnings are a reflection of a stronger consumer and an indication that the economy is definitely moving in the right direction.

4. Employment numbers have seen some improvement. In the last several monthly reports I have discussed how businesses have not been hiring sufficiently to bring down unemployment. The argument for holding off on new hires is that businesses are still uncertain of the economic and political future.

In addition to not adding to their payrolls, businesses have been squeezing what they can out of existing workers through efficiencies. However, according to this month’s unemployment numbers we could be seeing that strategy undergoing a trend change. The private sector created 216,000 jobs in March. The number of unemployed persons in the United States is 13.5 million and the unemployment rate is now at 8.8%. This is a two year low, which is great news as employers created more jobs than forecast and this adds to the evidence that the labor market recovery is gaining traction.

On this better news, stocks climbed. This better news overcame the very high oil prices that could have kept stock prices down.

However, the US Feds still say that these strong employment numbers will not change the Fed’s plans to use Quantative Easing to buy $600 billion in government securities through June to keep interest rates down.

The only bad news in this month’s employment report is that those who don’t have jobs are taking longer to get employed. The number of people unemployed 27 weeks or more has increased 50 percent over the last year.

Good nEws, bAd nEws And wILd cARds In thE wInGs

grow. protect. invest.

5. The United States is clearly recovering. As investors we are in much better shape for a recovering economy than we were a year ago. The Feds Quantitative Easing measures seem to be working.

However, not everything is rosy and as a successful investor you must always pay attention to negative factors as well as the good news, and be aware of those wild cards that could blindside you so that you can prepare yourself and respond appropriately.

So, here are a few areas of the economy that still cause me concern.

Negative Indicators that Reflect a Sluggish Recovery

1. Consumer confidence is still weak. We all know that consumer confidence is a very important indicator of how well an economy is doing. The slow pace of hiring, meager wage increases and rising prices of gas and food are all huge concerns of consumers. As investors, we watch this number very carefully as it drives the U.S. and Canadian Economic engines.

So, when consumer confidence had its biggest one-month decline since February of 2010, people are naturally alarmed. But, we need to keep this recent low number in perspective. I’m inclined to discount this low one-month number, because this drop is simply too sharp to be attributed to normal economic news. It is obvious that the triple disaster in Japan and the political turmoil in the Mid East are important contributors to this pessimistic mood.

Therefore I am not so concerned about this number as a true indicator of consumer attitudes. This number was calculated at the height of a lot of geopolitical tension.

Like much of the world, I am taking a “wait and see” attitude as the Mid East struggles for political stability and Japan makes heroic efforts to dig itself out of the rubble. I believe this recent decline in consumer confidence will quickly rebound as these situations improve.

Now, if we see a downward trend in consumer confidence over several months then we will know we have a serious problem. An ongoing and significant drop in confidence and consumer spending could weaken an already fragile economy and figuratively cut the legs out from under any economic recovery. 2. The United States Real Estate Market is still slow. In January residential real estate prices dropped more than they have in over a year. According to the S&P/Case Schiller Index, property values in 20 cities fell 3.1 percent since January 2010, the biggest year over year decrease since December of 2009.

This raises the risk that U.S. home sales will keep slowing. Rising foreclosures are swelling the number of houses on the market, which may put additional pressure on prices in coming months. This is also hurting construction and consumer spending as owners’ equity evaporates.

At the same time, a further decline in home values may keep potential buyers on the sidelines as they foresee better deals. Housing prices will not turn around until consumers are convinced that housing prices have bottomed out and that they can count on more job security.

Their caution is justified. An unemployment rate of 8.8 percent would indicate that the number of distressed properties may increase, which could lead to more price declines as homeowners struggle to make mortgage payments.

According to data from the Mortgage Bankers Association, about 8.2 percent of loans outstanding were delinquent in the fourth quarter of 2010.

Now, foreclosures did drop in February to a three-year low due to the fact that lenders were under legal scrutiny and have been putting new systems in place for home seizures. However, foreclosure filings may climb about 20% this year, reaching a peak for the housing crisis.

This filing influx could add to the surplus of unsold properties and lead to more declines in home values. According to the National Association of Realtors, the median price of existing homes, which make up more than 95% of the market, slid 5.2 percent from a year earlier. This erased all the gains made since February of 2002.

Faced with declining home prices and the growing glut of unsold homes, residential real estate developers are reluctant to boost construction. According to the Commerce Department March 16th report, building permits have slumped to a record low. It is clear that the housing slump may be the challenge to a sustained US economic recovery.

3. We are seeing a reduction in government jobs. As Federal, State and municipal governments work to balance their budgets we will see cuts in the number of government jobs at all levels. This will lead to up to one million job cuts over the next year in America. That definitely will have a serious impact on both consumer spending and GDP growth.

On top of this, government has another big problem looming as the Friday deadline for passing an effective Federal budget approaches. Politicians are scrabbling to come up with a budget that Republicans and Democrats can both accept. Due to the past excesses in government spending at all levels, the cuts they must make now are especially painful.

So far the parties have agreed to cuts of $33 billion from last year’s spending levels. The Republicans are looking to cut $61 billion. Although this $33 billion cut is a step in the right direction, entitlement programs are going to cost the U.S. taxpayer trillions of dollars over the coming decades. Obviously, the public servants in Washington D.C. have more work ahead of them.

grow. protect. invest.

“we have been seeing a lot of activity on the geopolitical front. We have wars, natural disasters, unmanageable global debt and declining resources – all of which impact investors. ”

Important factors that will impact the market in a major way.

The labor report from last Friday was stronger than expected and has sparked a debate as to whether or not the Feds will stop their Quantitative Easing program. If the government stops buying 10 year bonds to keep interest rates low, we will see an increase in 10 year bond rates, which will lead to a potential slow down in the economy.

Here we have the U.S. economy starting to show signs of a recovery for the first time and we are hearing talk of interest rate increases. This can only fuel the continuing inflation worries.

The market at this time is ignoring any potential bad news as the 2011 rally continues. The consensus among investors is that the Fed will continue its QE programs and not raise interest rates. This will all play out in June as we see the end of the QE 2 program of $600 billion to buy 10 year treasuries. If the Feds stop their QE then we will likely see a rally in the US dollar along with an increase in interest rates to curb inflation and definitely a market correction.

Until we know what the Feds will do with the QE program slated to end in June, investors should be going to a heavier cash position in the market. If QE continues it makes sense to remain in the market. If it ends then we are likely going to see a strong market sell off. If this occurs, subscribers should be in a much higher cash position prior to this development. I will keep you posted and please continue to tune into the monthly reports.

Just to give you some perspective as to what has been happening with regard to the QE program, here is a brief history of how it has impacted the markets.

When the Central Bank implemented its program to buy Treasuries and other debt – the process we know as Quantitative Easing - the markets rallied. When the Fed stepped back and stopped their QE efforts in April 2010 the market fell. Since the QE 2 program began the Standard and Poor 500 has rallied about 28 percent.

Most investors do not think the Fed would stop QE 2 and then immediately start draining liquidity. The consensus seems to be that this drain will likely be done as a slow gradual process. However, if the stoppage is abrupt,

investors need to be ready for a major market sell off.

As I stated at the opening of this month’s report, we have been seeing a lot of activity on the geopolitical front. We have wars, natural disasters, unmanageable global debt and declining resources – all of which impact investors. Let’s take a look at some of these factors and how they might play out in the global economy.

1. Libya is at a tipping point. For the first time we are seeing signs that Gaddafi may be willing to seek a ceasefire and to acknowledge international demands for his removal. He has sent an envoy to the West for discussions. I always try to explain how a situation like this impacts investors. So, let me start out by saying that the most surprising impact we are seeing is that, while world wide demand for oil is down, prices hover in the $106 range.

The reason for the price increase in oil is based on the psychological risk perceived by the marketplace due to the ongoing political crisis in Northern Africa and the Middle East. All consumers are feeling this perceived risk as they pay higher prices at the gas pumps. This causes consumers to have less discretionary spending, which in general hurts the economy.

A report came out this week from HSBC saying it expects oil to hit $200 a barrel in the next decade and that the world will be out of oil in the next 50 years. Obviously oil is a great long term play.

2. Japan is in disarray and struggling at every level. Struck by a 9.0 magnitude earthquake and flattened by the devastating tsunami that followed, Japan has seen whole towns erased, tens of thousands of people killed and hundreds of thousands people displaced. Plus, it is facing a growing threat from damaged nuclear reactors.

Japan’s cost of rebuilding the country after its biggest recorded earthquake will exceed $300 billion in US dollars. This is more than twice the rebuilding amount of the 1995 Kobe earthquake. The World Bank says Japan needs up to five years to rebuild. This number could continue to rise as the Fukushima nuclear plant crisis remains unresolved with an ongoing radiation scare threatening the capital Tokyo a mere 155 miles away.

Recovering from these multiple disasters will definitely weigh on Japan’s economic growth. Japan faces a huge challenge in financing its recovery without expanding its already huge public debt. Right now Japan’s public debt is already at around 200 percent of its GDP, which makes the largest in the industrialized world.

Already dealing with the highest debt in relation to its GDP, Japan is forced into Quantative Easing. The government will be printing money with no additional assets to back up the debt. As I look around the globe, the only country worse off in this regard is Zimbabwe.

Also on the downside for Japan are its demographics, which are not attractive. Japan has an aging population and no immigration laws to assist in changing that trend. Due to this aging population and the high cost of labor, companies looking for locations to open manufacturing plants have already tended to bypass Japan.

While Japan does have one positive advantage, which is its strong foreign holdings, those of you who have followed my discussions in the past know that I have identified Japan as a sinking world leader. You also know that I have stated many times that it would be wise to avoid investing in Japan.

3. Japan’s situation also impacts the West. We in the West are also being impacted by the breakdown in Japan. Manufacturers are seeing breaks in supply chains that are crucial to making cars, electronic gadgets and machinery. On the flip side, investors - particularly Canadians - have seen commodity prices raise even further as Japan’s rebuilding process creates a massive demand for all commodities.

4. Canada is at a political crossroads. We also need to discuss the pending election in Canada and how it might impact the world’s economy

An election will be held in Canada on May 2nd of this year. The big problem I see has to do with the likelihood that the elections will lead to a Conservative Minority with opposition parties forming a coalition. Canadians don’t want that to happen, because it would be devastating for the Canadian public. If it does happen, then Conservatives might win the election, but the coalition would prevent them from running the country.

As a result, the international community would hold much less confidence in the Canadian government, which would definitely lead to negative economic impacts.

Coalition governments exist in Britain, Australia, New Zealand and India, but having a separatist party as part of a coalition will not bode well for Canada.

Despite this potential change in Canada’s power structure, the Canadian dollar continues to rise to almost $1.04. It seems the markets continue to ignore all negative news and as long as commodities are moving higher then the Canadian dollar will be going up.

Although investors in the commodity sector are doing very well, Canadian exporters are getting hurt as the cost of their products in the international market continue to increase due to the strong Canadian dollar.

What sectors to discuss with your financial advisor

As I mentioned at the opening of this report, I want to make sure subscribers understand the good news and the bad news regarding the markets, along with the wild cards, or caveats that need to be considered when making investment choices. So, here is an overview of the opportunities I’m watching along with my concerns.

1. Agriculture is still strong. Soaring food prices are hurting family budgets, but they are proving very prudent for investors. The stocks of many food companies have risen sharply as investment pours into the agriculture sector in a bid to meet rising demand.

Food prices have been rising since the middle of 2010 largely due to the droughts in Russia, floods in Australia and snowstorms in the U.S. These high food prices were also a central reason for the political crisis in the Mid East and Northern Africa, because unemployed youth could no longer afford the price increases for food and unrest grew.

A rising global population and shrinking amount of arable land will keep food prices high. It is likely we are going to see high food prices for the next several months and this sector remains a great place to invest.

Fertilizer companies remain a good play and you want to discuss possible agriculture Exchange Traded Funds with your financial advisor. However, be careful as the best time to invest in agriculture was in 2009 when food prices hit rock bottom. They have recovered strongly since them. This is a volatile area to invest in and a couple of good harvests could lead to a sharp fall in food prices, which will hurt investors.

2. Commodities are booming. With the growth of emerging markets the commodity boom is showing little sign of running out of steam. Also, the $300 billion Japan will need to spend to recover from its triple-whammy disaster will bode well for commodity prices.

Investors keen to prevent their returns from being eroded by inflation should consider investing in commodity stocks. Discuss energy and mining stocks with your financial advisor. If you don’t have the ability to do proper due diligence on commodity stocks then Exchange Traded Funds are the best way for investors to play this sector.

3. Gold remains a good hedge. In my monthly reports over the last 10 years my subscribers have heard me talk and write publicly about overweighing their portfolios in gold. Gold has been on a fascinating journey and I’d like to congratulate those of you, who followed my teaching over the years and took action to invest in gold.

Many years ago I said to own between 15 and 20 percent gold in your portfolio due to the massive U.S. debt and the declining US dollar. Then a few years ago I lowered my guidance to holding between 10 and 15 percent.

Now, I am taking a more traditional stance, which is to hold between two and a maximum of five percent of your entire net worth in gold. Of course, you need to discuss this with your financial advisor.

For the most astute investors gold stocks are the best way to invest in this commodity, but most people are not equipped with the due diligence skills to look at gold stocks. The next best way for them to invest in gold is through gold Exchange Traded Funds and lastly, in gold directly.

The reason I don’t suggest investors buy gold directly is generally because the broker’s fees are so high you are paying a huge premium over the spot price of gold, so in this regard an ETF tends to be a better deal.

Please avoid the multi-level marketing scheme of buying gold and silver. In my opinion, these schemes are a very bad deal and investors are paying prices that are considerably higher than the spot price of gold and silver.

4. Technology is well funded. Technology stocks remain an excellent place to invest as companies have lots of money in their accounts right now. In fact, it is estimated that cash reserves in the S&P 500 sit at $2 trillion. This is great for technology companies, which reap the benefits of spending.

However, you must be very careful as many technology companies rely on parts imported from Japan and I already discussed how supply chains are being interrupted by the events in that country. Certain technology companies have already been and will continue to be negatively impacted as Japan struggles to rebuild its industries. Make sure your broker is aware of the complete supply chain for any technology company he recommends.

5. Emerging Markets are gaining strength. Exposure to China, India and other emerging markets continues to make sense. GDP growth in America is approximately 2.8 percent while many emerging nations are seeing growth in the double digits. That growth reflects very strongly in stock market prices, which are escalating and outperforming North American markets. Be aware that these Emerging Markets are volatile, but as their economies grow the security level of these holdings also increases and every portfolio should have some exposure to these Emerging Markets.

grow. protect. invest.

6. Natural gas and coal offer alternatives to nuclear power. Natural gas and coal have seen a strong run up due to the uranium disaster. Natural Gas in particular was badly beaten up with low prices due to vast quantities of supply, but with the Japanese nuclear disaster we are likely to see governments spend more money on natural gas and coal as an alternative to uranium.

7. Possible uranium Dead Cat bounce. We have heard many announcements about governments closing down old nuclear reactor plants since the Japanese disaster. It will take a long time for the nuclear sector to react.

However, uranium stocks were oversold. There is a very short window of opportunity to buy uranium stocks that have been sold by funds that did not want them in their portfolios for month end. These stocks will rebound and could make a good 30 to 90 day trade.

Beyond that short-term play, the next decade for uranium stocks is excellent. However, due to the Japanese situation, in the next year or two uranium stocks will fall out of investor favor.

8. Cash flow Real Estate: The affordability index is the highest it has been in years in many US Real Estate Markets. In Las Vegas monthly rents are 2 to 3% of the purchase price. That bodes well for investors especially Canadians whose strong dollar has made US Real Estate even cheaper. If you would like to attend a future Las Vegas Real Estate Tour send an email to education@allianceinvestor.com.

Until next month, I will keep watching to see how geopolitical events sort themselves out and how the outcomes will impact investment opportunities. Meanwhile, discuss the ideas in this report with your financial advisor and consider all the wild cards when making decisions.

grow. protect. invest.

Mike LathigeeBoard Member

Las Vegas Real Estate Club