Technically Speaking
Mid-Week Update
Paul T. Carroll, Chief Investment Officer
Brian C. McCracken, Vice President – Portfolio Manager
Wednesday, January 26, 2011

A billion seconds ago Harry Truman was President
 A billion minutes ago was just after the time of Christ
 A billion hours ago man had not yet walked on the earth
 A billion dollars ago was late yesterday at the U.S. Treasury
HT: The Leuthold Group
It doesn’t matter how you try and convey it, one billion is a very large number. In fact, it’s large
enough that it’s very difficult for us to truly envision and comprehend its value. Now try a trillion!
Though we know intellectually that billion and trillion are vastly different, it doesn’t quite sink into
our comprehension. We’re to that point where it all sounds the same.
However, it certainly makes a tremendous amount of difference when you start talking about the
Federal debt. We just crossed over $14,000,000,000,000.00 this month. Obviously it’s become one
of the central issues in the political arena. Each side’s going to take turns letting us know how
they’ll handle reducing this debt and the deficit. The reality is the single biggest impact towards
reducing the debt and deficit is a growing economy. The second biggest impact is an understanding
that this issue must be addressed.
The good news is both of these things seem to be lining up. As we’ve talked about before, we’re
well aware of the headwinds to economic growth facing us. However, we’re seeing the signs of
economic improvement. We believe this will be a much slower recovery than what we’ve grown
accustomed to over the past 30 years, but it will be positive growth.
Whether you liked the election results of this past November or not, we believe it sent a clear
message to the politicians in Washington - the debt and government spending is front and center in
the minds of many voters. It’ll be interesting to see how this plays out over the coming months as
both sides try and position themselves as fiscally responsible – when neither has been up to this
point.
The chart on the next page (provided by www.politicalcalculations.com) shows the starting point
for each side and what actually needs to be done. As with many things, the key is to get started
going in the right direction.
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Who Owns the Debt?
Another often repeated phrase when dealing with the debt is how China “owns us”. As for foreign
ownership of U.S. debt - China, Japan, and the U.K. own the majority of all foreign ownership. But it
might be surprising to see this ownership in the context of all ownership of U.S. debt. The chart on
the following page (again provided by the good folks at www.politicalcalculations.com) provides a
picture of this overall ownership.
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So while China certainly is our largest single foreign owner, the vast majority of U.S. debt is owned
right here. As with most things, the details are usually a little more complex than the sound bites
we’re used to hearing.
How Will the Debt Issue Be Solved?
We don’t have the foggiest idea! There are a number of different ways this could play out over the
coming decade, and they’re not all cataclysmic. In fact, in some form or fashion, the debt issue will
be resolved – the devil is in the details. Some play up the current economic uncertainty and
promote an impending doomsday scenario. Is that possible? Yes. Is that the only possibility? No.
What we do know is there will be global economic change over the coming decade, and probably
from things we don’t even know about yet. Thanks to technology, the pace of change in society and
economics is increasing. Let’s use a current phenomenon as a simple way to illustrate this type of
innovation and change.
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I must confess I’m not a big Facebook user. However, it seems to have been a pretty good idea (can
you say understatement). In fact, I’m pretty sure I know some people who couldn’t live without it
(ok, maybe a slight exaggeration). How many of us envisioned this type of activity and company ten
years ago? And even if you could have envisioned this kind of domestic enterprise, could you have
envisioned this:
This map was produced by Facebook to visually illustrate the cyber “Friendships” they have helped
create between cities. We often talk about globalization, but I don’t know of another illustration
that captures it as easily as this one.
The point is this – we’re in the midst of an economic and structural shift in the way economies and
the world interact with each other. There will be innovation and change over the next decade or
two that will fundamentally change world economies. So while we face many problems that must
be dealt with (such as the debt), there will also be opportunity.
Trend Indicator
The Dow Theory (www.thedowtheory.com)
Composite Indicator
Relative Strength: Market vs. Money Market
1,3,6,12 Monthly Returns: S&P 500 vs. Bonds
Signal
Positive
Positive
Positive
Positive
Paul T. Carroll, Chief Investment Officer * 417-886-6590 * [email protected]
Brian C. McCracken, Vice President – Portfolio Manager, [email protected]
Pinnacle Family Advisors
3010 E. Battlefield, Ste. A, Springfield, MO 65804
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Information provided in this report is for educational and illustrative purposes only and should not be construed as individualized investment
advice. The investment or strategy discussed may not be suitable for all investors. Investors must make their own decisions based on their
specific investment objectives and financial circumstances. Technical analysis is based on the study of historical price movements and past trend
patterns. There are also no assurances that movements or trends can or will be duplicated in the future. The S&P 500 is an unmanaged,
weighted index of 500 stocks providing a broad indicator of price movement. The Dow Jones Industrial Average is a price weighted index of 30
stocks. Individual investors cannot directly purchase an index.
The Dow Theory and Composite Indicator are based on and found at www.thedowtheory.com. The Market Relative Strength vs. Money Market
and all Risk Indicators listed are based on point and figure technical analysis provided by Dorsey Wright and Associates. They may be found at
www.dorseywright.com.
The analysis of Equities, Fixed Income, and Real Assets are based upon technical analysis and does not represent a fundamental research
position on any of the items listed. Technical analysis is based upon the price movement of an asset and not any underlying fundamental
research.
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