Periscope: Unrest in Egypt

A & I Financial Services LLC Newsletter

For the Week of

February 1, 2011

Greetings!

Egypt is one of the world's most populous muslim nations. For over 30 years, it has been one of the region's most stable. With the recent uprisings, a lot of money moved to the sidelines and equities declined. Conversely, many US bonds rose in value because of their relative safety.

For our clients, we have a small portion of our money in emerging market bonds that declined during the recent dramatic news events. However, most of the fixed income portfolio has benefited, again on a relative basis, from a flight to safety.

The greater fear for investors is the contagion that Egypt's political unrest could spread to other emerging market countries. We are keeping a careful eye on the markets after the decline on Friday,
January 28, and will act accordingly.

In other news, US Corporations are reporting good profits and revenue growth. As of Friday, 72% of S&P companies have beaten analysts revenue estimates. This is good news for US investors and one of the reasons we believe this could potentially be a good year for equity investors. We hope this translates into more jobs for Americans.(8)

If you are concerned about emerging market risk in your portfolio, please call your advisor. We use many resources and research methods to help us potentially limit this risk.

Economic Briefs

4Q GDP: +3.2%

The preliminary estimate from the Bureau of Economic Analysis certainly beats the +2.6% mark from 3Q 2010. A deeper look into the BEA report reveals both personal consumption and nonresidential fixed investment improving by a healthy 4.4% last quarter; inventory accumulation slowed as well.(1)

JUMP IN NEW HOME SALES

The pace of new home sales improved by 17.5% last month, according to the Census Bureau. In year-over-year terms, sales were down 7.6% while sale prices were 9.1% better. For the record, fewer new homes were built in 2010 than in any year since the government started keeping records in 1963. In other housing news, the National Association of Realtors reported that pending home sales were up for the fifth time in the last six months in December (+2.0%), and Freddie Mac reported that the average interest rate on a 30-year conventional mortgage has risen to 4.80%.(2,3)

While the Conference Board's January poll showed U.S. consumer confidence at an 8-month peak (60.6), the final January Reuters/University of Michigan survey showed a slight decline to 74.2 from 74.5 in December.(4,5)

DURABLE GOODS ORDERS DOWN 2.5%

There was a silver lining in the Commerce Department's December report: with aircraft orders factored out, durable goods orders were up 0.5% last month.(6)

FEARS, EARNINGS REPORTS STAGGER STOCKS

Unrest in Egypt (and subpar 4Q results from Ford, Amazon and Microsoft) led to a lot of selling Friday and took the DJIA, S&P 500 and NASDAQ lower for the week. The Dow's eight-week winning streak was snapped; it did top 12,000 in intraday trading Friday. Weekly performances were as follows: DJIA, -0.41% to 11,823.70; S&P 500, -0.55% to 1,276.34; NASDAQ, -0.10% to 2,686.89. The CBOE VIX gained 8.50% last week.(7)

Market Summary