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JUNE 2011 NEWSLETTER

The good news is that the future (after we navigate a potentially protracted and painful economic period) is very bright. The pace of technological improvement is accelerating such that my grandchildren will think of our current cell phone technology in the same way my daughter Courtney looked at the rotary dial phone. (Aside: She couldn’t call home because she didn’t know what that wheel of holes was for!) Inefficiencies in our energy policy, healthcare technology, and communication systems will all inevitably be solved. Can you imagine only having to fuel your personal transportation vehicle annually? Can you imagine dying becoming a choice and not a chance? It is likely that this is all coming one day, however it is not coming fast enough to fix the global economic and budget problems we have before us now.

A very short economic history lesson from the book The Age of Deleveraging by Gary Shilling: After the Civil War, from 1869 to 1898, the US economy grew 4.3% per year. From 1982 to 2000, the US economy grew 3.7% per year. Most recently, the US economy grew at an annualized pace of 1.8% per year (source: BEA).

A very short math lesson: One hundred thousand dollars ($100,000) growing for twenty years at 4.3%, 3.7% and 1.8% would be worth dramatically different amounts (Please see table below).

Annual Growth RateYearsDifference
Post Civil War (1869-98)4.30%$100,00020$232,106
Baby Boom and Dot.com (1982-2000)3.70%$100,00020$206,812-11%
Post Great Recession (now)1.80%$100,00020$142,875-38%

Now back to the current situation: The Economic Research Cycle Institute recently shared that their global manufacturing sector (read factories) long leading indicator is turning down. Their spokesman, Lakshman Acuthan, unequivocally communicated that all regions of the world, Europe, Asia ( including China) and North America will slow. (This information was distributed to their corporate subscribers on January 27th. The public got a delayed announcement on May 6th. (source – www.businesscycle.com))

What does this mean for you? Two things. There is a chance that world stock markets will begin to turn down this summer. The economic recovery will potentially be slowed. Another recession does NOT appear evident based on the current data. A very slow healing of our economy, housing sector and overall unemployment is very likely. It will most likely be very painful though, especially as our political leaders face the truth of slow economic growth.

This illustrates that the current economic headwinds can have a tremendous impact and that our future personal financial path may be treacherous. The likelihood of defaults for individuals, corporations and governments is very high if not unavoidable. For some countries, like Japan, Spain and Greece it is a very ugly picture. For the US, there may be dramatic changes in taxes, governmental services and benefit programs. Some of these changes will most likely be borne by future generations. However, some of these will probably affect us over the next decade.

Our immediate expectation is that economic growth and therefore the investment landscape will be much different than that which we grew accustomed to during most of our adult lives. The strategies that worked during the years from 1982-2000 will most likely not be as productive as they once were. Dominion Wealth continues to monitor and attempt to craft safe strategies to preserve and protect and even grow your investments during these difficult economic times.

As always, we look forward to your questions and comments.

Until Next Month,

Your Advisors at Dominion Wealth




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