Memorandum-June 2011

Memorandum

To: WLM Client Base

From: William L. Meyer, CLU, ChFC

Re: Your Accounts & Economic/Market Review

YOUR ACCOUNTS

In many of your accounts that I personally manage, cash has been raised to have funds to buy equities

(at what will hopefully be a lower price) later this summer. I still contend we are in a slowdown that is normal for the summer; especially given the uncertainties in the Middle East and the supply disruptions from Japan’s disaster, and I do not expect a double dip recession as some bears are predicting for later this year.

In the accounts I co-manage with Doyle Gustus, there is less money in cash as the “economic margin” in the positions held in your accounts is increasing. Doyle and I have been discussing repositioning some of your accounts, but not going to cash unless the markets continue a downward slide.

According to the Wall Street Journal, the index of leading indicators is still positive (it dropped a bit in April & ticked up a little in May). Too, my base of business owner clients, while still mixed, are by and large positive with some clients having to hire workers. One new manufacturing client, tied to the auto industry that has been suffering for years, is now busy thru yearend and hiring new workers again.

So going forward I believe stocks, over weighted to large-cap dividend paying equities, offer the potential for attractive real returns until the headline CPI inflation exceeds 5 or 6%. As expressed in my April communication, I do not expect this until 2013 or 2014, but still intend to be cautious in 2012 given it is an election year. Furthermore, narrowing spreads have made taxable long term bonds unattractive. Short term bonds pay negative yields inflation adjusted, and even those could suffer real principal losses on paper if the Federal Reserve holds rates below inflation too long. To reduce risk in your portfolios, bonds have been replaced, as you know, with very selected preferred stocks, some emerging market currencies via a Templeton fund, and floating-rate corporate loans, as lower volatility alternatives to traditional fixed income. I believe they will provide better protection from inflation and have less downside risk than long-term investment grade bonds, high yielding bonds, REITS, and MLPs, except for energy MLPs. However, even though I believe these to be better investments over the next couple of years, the day to day volatility will be greater than more traditional shorter maturity investment-grade bonds. A few clients have expressed interest, going forward, in high yield bonds like mortgages, but chasing these high yields again, in my opinion, is not worth the risk.

Lastly, regarding continuing queries about inflation, it is true that commodities have traditionally been the most popular alternative to hedge risk, but my current view is that precious metals and industrial metals have already priced in significant inflation. Energy and agricultural commodities, I believe, are more attraction hedges at the present time.

ECONOMIC REVIEW

The United States and Europe basically are still recovering from a decade of rampant credit growth that has crippled our respective economies; mortgage debt here and sovereign debt in the EU. The goal for here and abroad, of course, is an orderly unwinding of those commitments that doesn’t have much of a real chance of being fulfilled. The EU is still trying to figure out the split of who will bear the losses between taxpayers of wealthier countries and the bondholders. In the US, foreign bondholders are being hurt big time by a weak dollar and domestic bondholders suffer financial repression with shorter-term maturities yielding less than current inflation.

Here in the US, I see households, in general, slowly recovering, and that will support both savings and consumption going forward, albeit erratically, as unemployment remains high. Mortgage debt remains the biggest issue and essentially we, the taxpayers, will likely absorb the cost via Fannie Mae and Freddie Mac. Also, the budget cutting at the Federal level is critical. Our politicians are starting negotiations around 2 trillion over the next decade, and we need more than twice that amount according to the congressional budget office.

World bond markets appear somewhat sanguine about the prospects of US households & corporations, and that many governments will reduce debt to manageable levels, but concerns have really intensified about some EU states like Italy, Spain, and most notably, Greece. It appears, so far, that the EU is muddling through with voluntary rollovers of Greek debt that leaves the Greek taxpayers on the hook. The people of Greece, however, may decide abandoning the euro is preferable to the current depression- like conditions. A total default like that would have ripple effects worldwide, and that would not be good. My guess is the European policymakers know the risk is real, and some type restructuring compromise will be reached—still a default, but a softer kind.

The politics of the burden-sharing will shape the outcome both here and in Europe. The most likely outcome, in my opinion, is for growth to very slowly grind upwards, supporting a better employment picture here, mortgages with home pricing at least stabilizing, and increasing tax receipts at the state and federal levels. Some countries and some municipalities here will require debt restructuring and/or write-down’s to preserve financial systems.

In conclusion, bad loans resulting from irresponsible lending & borrowing and the collapse in trust over the value of underlying collateral and revenue streams continue to plague the developed world. Even after extraordinary measures taken by fiscal and monetary institutions during the depths of the financial crisis, confidence-sapping debt overhangs remain unsolved. While there is little appetite among authorities from destabilizing defaults, neither is there much enthusiasm for taxpayer-funded bailouts or central bank monetization.

Therefore, I continue to believe portfolios should be positioned for slow growth in the developed world, maintaining high dividend paying value stocks; with higher growth to be gleaned from emerging market equities.

Thanks for your continued confidence and business!