vaughnwoods

Part I – Investment Themes

With 2009 all but behind us, it is time to ask ourselves, what might we expect in 2010? As of this writing, we are looking for the S&P to continue rallying through the first half the year, potentially as high as 1220. Such a move represents 11% upside from current levels and would put bring the S&P back to pre-Lehman Brothers valuations. A number of fundamental indicators are back to pre-Lehman levels, which suggests that a fundamental case for a move back to 1220 exists.

Analysts are expecting corporate spending to be a big growth driver in 2010. Currently, US free cash flow as a proportion of GDP is at an all-time high, cash on balance sheets for corporations is high and corporate are underinvested with leverage currently 6% below trend. In other words, corporations have money to spend. Technology is expected to be the major recipient of increased corporate spending. Net tech investment, as a share of GDP is currently below average as is tech investment relative to total investment. Lead indicators of tech spending have also rebounded sharply. On the investment side, technology is considered defensive as the technology sector as the highest net cash position of any sector and has very good control of inventory. Other corporate spending plays which are expected to do well are mergers & acquisitions, hotels and travel.

Gold is another theme to watch in 2010. Although gold is commonly thought of as an inflation hedge, and inflation is not expected to be a problem near-term, Credit Suisse analysts maintain that gold may continue to do well in 2010. Currently, the central banks of Japan and China only hold about 2% of their reserves in gold. In contrast, France and Germany, and the US hold between 70% and 79% of their reserves in gold, respectively. The amount of gold China and Japan would have to buy to increase reserves to just 10% is equal to 2.8x annual gold mine production, representing a potential boon to gold miners and the price of gold. Adjusted for inflation, gold is still 42% below its all-time high of approx $1800, which it attained in the 1980’s.

Part II – Our Website

For 2010 we have given our company website, www.vaughnwoods.com, a major facelift. Our new website features a wealth of information, including a Vaughn Woods Financial Group blog, white paper research, slide presentations, newsletter archive, detailed service offerings, poll questions, and of course, access to view your accounts online. Thank you for your support this last year. I am accepting new clients for 2010, so please feel free to refer me to anyone you know who could benefit from an experienced wealth manager.

Contact Us to learn more about working with Vaughn Woods Financial Group.

Best Regards,

Vaughn L. Woods, CFP®, M.B.A.

*Investors should be aware that there are risks inherent in all investments, such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter may not reflect the views off Delta Equity Services Corp. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0065

*Fee paid to Goldline Research for administrative costs
**Marketedge.com, Pershing NetExchange Pro, Bloomberg, Credit Suisse, Briefing.com

*** Garthwaite,A. et. al, Credit Suisse Global Equity Strategy, December 17, 2009.