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I have attached 2 pieces of info that I hope you find useful.

The PDF is the most recent Investor Sentiment poll taken by Ned Davis Research. The top chart is the S&P 500 while the lower is investor sentiment. Pick any peak in the S&P (or any low) and you will see a stunning correlation with sentiment, getting back to my contention that the “crowd” usually “feels” wrong at inflection points of the market.

The article below comes from MarketWatch.com. I did not include the entire article, but cut and pasted sentences that I thought relevant. Earnings have been above expectations, with much of the improvement coming from cost cutting, inventory rebuilding, currency conversion, and productivity gains, but what seems to be missing is DEMAND. I love the phrase “admittedly low expectations.” Analyst were reducing estimates hand over fist 7-8 months ago, and now they can’t raise them fast enough. I wish there was a sentiment poll for analysts! The really good news is this market just keeps going up and wealth is being rebuilt, but I still continue to believe there is a great deal of risk in the market and now is not the time to make a big bet that it will continue to go straight up. If you haven’t rebalanced your portfolio this year, now is a really good time to do so. We have rebalanced twice this year- once in mid March and again at the end of September. Accounts that began the year with an asset allocation of 60% equity/40% fixed income and rebalanced have outperformed the buy and hold 60/40 portfolio by almost 400 basis points year to date.

Below is the article with my bolds and underlines:

SAN FRANCISCO (MarketWatch) — Just a week into third-quarter earnings, initial results have far outpaced analysts’ admittedly low expectations, handing bulls a fistful of upbeat data while shoving the stock market back to highs not seen for a year. “The results so far have been unambiguously good,” said Russ Koesterich, head of investment strategies at Barclays Global Investors. “It shows the economy is bouncing back much stronger than expected.”

Much of the improvement stems from efforts to rebuild depleted inventories, a trend especially helpful to Alcoa and others in metals and basic-materials sectors. A weaker dollar is also benefiting many of these companies, bumping up the value of overseas sales when converted into U.S. coin.

Deutsche Bank’s Chadha warned that at some point, likely during the final three months of the year, analysts’ predictions eventually will catch up with the good news and bake it into their forecasts. In other words, the market runs the risk of becoming jaded.

“It usually takes, on average, six weeks for analysts to absorb positive data surprises. It’s now been seven months. This follows an unprecedented downside, and so far the recovery has surprised us because expectations have been so low. But at some point you’ve got to catch up. This can’t go on forever,” he cautioned.

Since the March 6 lows we have had an incredible 56% rally in the S&P 500 with only a brief 7% pullback, driven primarily (I believe) by 3 factors:

The perception that “things are not getting worse”
Stabilization of the financial system
Gigantic amounts of liquidity flooding the equity market. Money market yields of close to zero aren’t very attractive.

Based on consensus earnings estimates for the S&P 500, the market is trading at 19 tines 2009 estimates and a tad over 14 times 2010 estimates. The valuations are reasonable enough to support current market levels assuming the estimates are close to accurate. Experience tells me that earnings estimates are far too pessimistic at market bottoms and too optimistic at market tops, so only time will tell how good current estimates are. Over the next few weeks there will be a TON of earnings reports and these reports will greatly influence whether the market can sustain current valuations- or not. In the 2nd quarter, 75% of companies reported earnings that were better than expectations, but at the same time 70% missed their top line revenue estimates. Obviously, the strong earnings gains came from downsizing, rigorous cost controls, productivity enhancements, and while these measures are impressive and necessary, there is a limit as to how much a company can cut before impairing operations.

I am paying very close to the revenue number of the upcoming earnings reports. If revenues continue to be weak, even in the face of strong reported bottom line earnings due to cost controls, etc, this market rally may prove to be nothing more than a liquidity driven bear market rally. There still is a near record amount of cash sitting in money markets that can continue to fuel the markets surge in the near term, but eventually things have to “get better” as opposed to “not getting worse” in order to maintain current market levels. The upcoming earnings reports will give us a really good idea if things are , in fact, getting better. Buckle up and stay tuned.

I’d love to hear your opinion.

CNBC.com writer Paul Toscano recently wrote, “In a global economy that has been plagued by troubles in the world’s financial systems, the word ’safe’ and ‘bank’ are rarely put together.”

I was particularly pleased to see BNY Mellon rated as the safest bank in the United States by Global Finance magazine, which has published its “World’s 50 Safest Banks” list for the past 18 years. Global Finance began with the 500 largest banks by asset size, then whittled the list to the top 50 using a comparison of long-term credit ratings and an analysis of total assets owned.

Our CEO, Bob Kelly, has spoken on many occasions to the financial press and to legislators in Washington about the state of banking today, and we are proud of the recognition our company’s integrity and compelling credentials have earned — qualities that have made us the oldest, safest and most admired bank in the nation. Please let me know if you have any questions or comments. I can be reached at 404-353-1589 or forrest.simmons@bnymellon.com. The information contained in this e-mail, and any attachment, is confidential and is intended solely for the use of the intended recipient. Access, copying or re-use of the e-mail or any attachment, or any information contained therein, by any other person is not authorized. If you are not the intended recipient please return the e-mail to the sender and delete it from your computer. Although we attempt to sweep e-mail and attachments for viruses, we do not guarantee that either are virus-free and accept no liability for any damage sustained as a result of viruses.

The Nation’s Safest Bank
BNY Mellon was recently named the safest U.S. bank by Global Finance magazine in the
publication’s 18th annual “World’s 50 Safest Banks 2009” list. BNY Mellon was one of only
six U.S. banks to make the annual list and was ranked #32 overall out of an initial fi eld of 500
banks worldwide. The ranking underscores our industry leading credit ratings and strong
capital position and builds on other demonstrations of our stability and strength.
BNY Mellon Capital and Credit Ratings
• Assets under management1
– $926 billion
• Assets under custody and administration
– $29.7 trillion
• Tier 1 capital ratio1
– 12.5%
• Long-term credit ratings2
– Standard & Poor’s: AA–
Moody’s: Aa2
– Fitch: AAU.
S. Treasury Stress Test
• May 7, 2009 results announced
• BNY Mellon’s results among the best in the industry
– Debt rating among the highest of all major U.S. banks
• Highest rating from Moody’s, second highest from Standard & Poor’s
– Tier 1 capital ratio among the highest of all major U.S. banks
• Large percentage is common equity
– Large proportion of very liquid assets
• Refl ected in our risk-weighted assets, further highlighting our capital position strength
Fortune Magazine’s Most Admired Super-regional Bank3
• 2nd consecutive year
• BNY Mellon achieved top scores across four key attributes of reputation
– Global competitiveness
– Quality of products and services
– Innovation
– Long-term investment
1 As of 6/30/09
2As of 9/18/09
3Fortune Magazine, March 16, 2009

On March 6, I sent an email entitled “Investor Sentiment Signaling a Bottom?”. As it turned out, March 6 was the absolute bottom of the market, and I attribute my email to luck and not any ability to divine the market. I do think that paying close attention to prevailing sentiment can be helpful in identifying major turns in the market. Investor Sentiment is a funny thing in that people have a tendency to be most bearish at market bottoms- when they should be bullish- and most bullish when the market is screaming- exactly the opposite of how they should be “feeling.” The investment business is one of the few businesses in which people are hesitant to buy when the merchandise is on sale (market bottoms), but are happy to pay full retail when merchandise is fully priced (market tops).

So, how are people feeling right now? Click on the link below or cut and paste it into your browser.
http://www.marketwatch.com/story/investor-sentiment-index-reaches-late-07-levels-2009-08-26?siteid=yhoof

So how does one use Investor Sentiment readings? An  investor’s asset allocation, as defined by his or her Investment Policy Statement (you do have one, don’t you?) is the investment “road map.” Indicators such as Investor Sentiment should be viewed as the accelerator pedal of the automobile- when sentiment is extremely bullish, it may be a good time to ease off the accelerator: i.e. raise a bit of cash, and move towards the more conservative constraints of the Investment Policy Statement- without making major “bets” or entirely throwing away the road map.Because of the huge rally we have enjoyed since the March lows, many portfolios are now overweighted in equities relative to the stated objectives of the Investment Policy Statement. Investor Sentiment readings are saying now may be a good time to be a bit more conservative and be very protective of the down side.

The information contained in this e-mail, and any attachment, is confidential and is intended solely for the use of the intended recipient. Access, copying or re-use of the e-mail or any attachment, or any information contained therein, by any other person is not authorized. If you are not the intended recipient please return the e-mail to the sender and delete it from your computer. Although we attempt to sweep e-mail and attachments for viruses, we do not guarantee that either are virus-free and accept no liability for any damage sustained as a result of viruses.

Please refer to http://disclaimer.bnymellon.com/eu.htm for certain disclosures relating to European legal entities.

This from Global Finance Magazine’s annual list of the world’s safest
banks.The link is at the bottom.

The Bank of New York Mellon (#32 Worldwide)

Banking Industry Stats*
Size: $11.12 trillion
Key Interest Rate: 0%-0.25%
Total Commercial Banks: 1,750**

In the Global Finance ranking of the world’s safest banks, the US banking
industry only has 6 of the top 50. Bank of NY Mellon is the most
highly-ranked American bank, but only finds itself at #32 overall, with a
market cap of $34.8 billion. JPMorgan is listed at #39, while Wells Fargo
(#42), US Bancorp (#47), and Northern Trust (#49) are the only other US
banks on the list.

* US Federal Reserve data as of 3/31/09
** Insured US-Chartered Commercial Banks that have consolidated assets of
$300 million or more

http://www.cnbc.com/id/32537102?slide=7

Dave Lamere, CEO of BNY Mellon Wealth Management, recently appeared in a television interview with New England Cable News on their “CEO Corner” program. In the interview Dave addresses our parent company’s Q2 earnings report; our outlook for the economy; the need or “for more regulation, but not more regulators”; and the future of the wealth management business. While the video is about 8 minutes in length and well worth watching, I know you are busy, so I’ll provide the executive summary:

1. Second Quarter Earnings: Down 46% from the second quarter of last year, but the comparables are very difficult. We had a very strong second quarter last year-  just before things began to fall apart in the third quarter- so the recent quarter looked weak as a comparison to last year. What is very important to note is that the firm’s financial strength, capital base, and liquidity have all improved over the last year.

2. Our economists expect to see growth resume in the 4th quarter, albeit from a very low starting point. This year’s 4th quarter will look great compared to last year’s, primarily because last year was so terrible. Kind of the inverse of our 2nd quarter earnings report.

3. BNY Mellon Wealth Management’s Family Office Services Group, which serves families with net worth exceeding $100 million, grew revenues by 20% over the past year as high net worth individuals sought safety and stability in their wealth management services provider.

4. Our Wealth Management Group enjoyed strong growth in market share. Dave specifically mentioned Atlanta as one of the strong growth markets. Another sign of health, he said, is that the firm continues to hire client-facing professionals across the U.S.

5. Asked what investors should do going forward, Dave’s answer was simple: “Know what you are investing in. Know your company. It’s back to basics.” A company’s reputation for integrity is what’s important to anxious investors, he said.

To view the interview, please follow the link below.
http://www.necn.com/Boston/Business/2009/07/27/BNY-Mellon-CEO-on-lessons-of/1248741368.html

Lastly, if you know of someone that is not completely satisfied with the wealth management services they are receiving, we would be thrilled to meet with them as part of their due diligence process.

Here is a conversation that I have a practically a daily basis:

1. The fed is printing money like it’s going out of style.
2. The dollar is going to get crushed.
3. The result will be third world-like hyper inflation.

While I do believe that we will have higher than baseline inflation at
some point in time, the $64,000 question is, “When?” The gurus at BNY
Mellon (and other really smart people like Jim Rogers and Marc Faber)
think that it may be 2-3 years before inflation rears its ugly head due to
the following:

1. Unemployment is still increasing and will continue to do so. Wages and
benefits account for 2/3 of the rate of inflation.
2. Factory utilization is at an all time low of 65%. By the way, 85% is
considered “full capacity” due to plants being taken off-line for repairs
and maintenance.
3. Both consumers and corporations are still in the de-leveraging, debt
reduction mode, resulting in a low demand for money.

So there is still a great deal of slack in the economy, but preparing for
inflation is like buying life insurance: the best time to do so is when
you don’t need it and can afford it. Just after the first of the year, in
an effort to anticipate future inflation, we added TIPS, commodities, and
increased our weighting of emerging markets in clients’ portfolios,
knowing full well that we are early. Given the uncertain market
environment I continue to believe that getting as much return up front as
possible in the form of dividends and interest makes a lot of sense. In
the meantime, make sure you understand what you own, why you own it, and
how much risk you are really assuming in your portfolio structure.  If you
would like BNY Mellon to give you a second opinion on your portfolio, let
me know.

Health insurance has been in the spotlight recently as the debate for a nationalized health care system ensues. What is often overlooked is the quality of healthcare in the United States. Forrest Simmons, had a right hip replacement at Piedmont Hospital in Atlanta and says exactly two weeks after the operation : “I am, sitting at my desk at work, only having to use a cane to get around, and it reinforces my belief that we have the most incredible health care and technology systems in the world”.
 
The debate on health care reform impacts every one of us and when you think about it, this may be the one piece of legislation that touches all of us in the most direct, intimate fashion. What’s more personal than your health? Whether you agree with some type of government provided health care or not, this is too big of an issue for us not to reflect our views to our elected representatives.
 
With that in mind I have attached a link that will help you contact your representatives in Congress and let them know your opinion. Here is the link to copy into your browser:
 
http://www.house.gov/zip/ZIP2Rep.html
 

Type in your zip code, and when the name of your Representative shows up, click on “Contact” in the upper right hand corner. Let him/her know your thoughts.

This brief blurb appeared in the AP yesterday. Gee, maybe this means we can return the TARP money that we didn’t want to “accept” anyway.

WASHINGTON (AP) – Leaked results of the government’s stress tests of 19 large banks are boosting investor confidence in the financial sector. American Express Co. (AXP) (AXP), JPMorgan Chase & Co. (JPM) and Bank of New York Mellon Corp. (BK) will not be asked to raise more capital when federal officials announce the test results Thursday afternoon, but Regions Financial Corp. (RF) will need to bolster its reserves, according to people briefed on the results. The people requested anonymity because they were not authorized to discuss the results.

Forrest Simmons | Senior Director
BNY Mellon

The job of the market is to frustrate the majority.
-Benjamin Graham, Value Investor and Warren Buffett’s mentor

I have attached the email that I sent you on March 9, 2009 The Dow Jones was at 6500, and Investor Sentiment registered the highest level of investor negativity in history- right at the market bottom. Come on now, we are all friends here. How many of us sold everything, a lot of what we had, or at least thought of selling when the market first dipped below 7,000? Why is it that when the market hits it’s lows, we all want to sell because the world is coming to an end, but when it is at all time highs we buy stocks on tips, take on far more risk than we should, and basically abandon prudent investment principles? The culprit is emotion, and it will devastate all but those who have a disciplined (written) investment plan that deals with these contingencies.

So what is Investor Sentiment telling us now? I have attached an excerpt from CBS MarketWatch that I came across this morning.

As contrarians remind us, bull markets like to climb a wall of worry. And the wall of worry that existed in early March appears to be quickly disintegrating.
A similar pattern shows up in the weekly sentiment survey conducted by Investors Intelligence, edited by John Gray and Michael Burke. They noted earlier this week that “the bulls now outnumber the bears for the first time in twelve weeks,” and that the “sentiment readings are now going in the wrong direction.”
They continue: “Over the past year, the bulls have outnumbered the bears for only three periods. There were more bulls for eight weeks in a row from April 18 to June 6 [of last year], for one week [in mid August 2008] and for three weeks from January 2 to January 16 [of this year]. Each of those periods occurred near the peak of a bear market rally and they proved to be great times to sell.”
Earlier this week, Richard Russell, editor of Dow Theory Letters, had this to say about the increasing bullishness among many advisers: “The market is now about one month off its March 9 low. Yet already the mood has changed, public sentiment is turning almost rosy, and analysts are openly urging people to buy stocks. … It seems to me that this is awfully fast for the business news to turn rosy. … Bear market bottoms don’t tend to work that way. After a true bear market bottom, it often requires many months before the crowd and the media turn bullish.”

The majority is bullish again, but what exactly has changed from a fundamental standpoint since March 9? Has the stimulus package miraculously started to work? Have the banks started to lend again? Has the consumer suddenly delevered their balance sheets and headed back in the stores? The only thing that has changed is that we have had a VERY nice rally from oversold conditions and we FEEL a lot better. Next thing you know we all might start looking at our monthly statements again! Are the emotions that urged you to sell at 6500 now telling you not to miss this rally. Are you tempted to “throw” some more money at equities?

So what do you do when your emotional thermostat registers either too hot or too cold? 4 things:

1. Count to 10 and do NOTHING for a period of time.Warren Buffett said, “One of my best investment traits is sloth.”

2. Read your investment plan. Hopefully, the plan was constructed in a period of calm and rational thinking, and will prevent you from acting emotionally and against your financial best interests.

3. If you don’t have a written plan, GET ONE.

or

4. Act emotionally and get hammered.

Please let me know if I can ever help.