Continued:  Economic Commentary

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Another emerging area that could generate enormous revenue growth is the solar industry, which promises to deliver an increasing amount of electric power globally. The federal government provides a 30% tax credit for individuals and businesses who install solar. More importantly, utilities that were not able to utilize this credit in the past, are now able to. Also, $11 billion is available for investing in the electrical grid. Additionally, a $120 million research grant is available for the solar industry, along with $6 billion for investment in renewable power generation. Recently, Wells Fargo announced a collaborative effort with Sunpower Corp to fund $100 million for commercial scale solar projects. The Department of Interior recently announced top priority measures to expedite solar energy projects on federal lands. Nations around the world are busy promoting job creation with solar projects. Solar stocks have been volatile, but grid parity is upon us, whereby it is as economical to generate electricity from solar as it is from coal. This should introduce more confidence, stability and growth to this industry.

 

Another investment strategy that we have employed in many accounts is the use of covered calls. This is a time tested, conservative risk management tool that generates significant income and can add measurably to the market value of an account. Should you have any questions on this strategy please let us know.

 

The nations banking system is being nourished with capital needed for lending, and the unprecedented level of intervention and stimulus funding is improving the function of our financial markets. Further, the Financial Accounting Standards Board agreed to relax some of the mark to market rules with regard to pricing of distressed assets that remain on their books. This should help to further thaw our dysfunctional credit markets, which were frozen over the last 15 to 18 months. The Federal Reserve and Treasury are taking extraordinary actions to support the economy by relieving stress in the banking systems. Nearly 91% of all mortgages are not delinquent, and with current interest levels at historic lows and new home sales increasing, banks should generate solid earnings improvement. We have selectively invested in a handful of bank stocks that appeared to be oversold and we will closely monitor the industry for more bargains. We believe there will be a wave of consolidation in banking as many community and regionals will need more capital.

 

In the realm of fixed income, we have recently added to a select few preferred stocks due to their bargain prices that came about as a result of the financial crisis and credit crunch. Many of these preferred stocks are yielding between 6 ¾ % and 9 ½ %. We have also invested in high grade corporate bonds with short maturities. We use a short to intermediate term maturity range to mitigate the risk of rising yields and eventual inflationary pressures.

 

We believe there should be attractive financial markets ahead of us as institutions and individuals demonstrate a greater measure of responsibility.