Markets continued their positive start for 2012 as investors were encouraged by successful bond auctions in Europe, continued positive economic data here in the US, and raising expectations that China will continue to be an economic engine for growth around the world. The markets are clearly in a "risk on" mode to start the year.

For the week, the Dow Jones Industrial Average (DJIA) gained 298 points (2.4%) and is now up a respectable 4.1% for the year. The S&P 500 increased 2.0% for the week and is up 4.6% for the year. The Russell 2000, a general measure of smaller and thus riskier companies, was up 2.7% and is now up 5.9%. The NASDAQ index, representing the largest technology companies here, leads all major US indexes with a 7.0% increase in 2012. Google's pullback on Friday in the wake of a negative 4th quarter earnings report has been one of the few dark clouds in the technology sector recently.

Technology, Energy, and Real Estate were the top performing sectors last week while Utilities, Telecom, and Consumer Staples were the weakest. Utilities remains the only sector with a negative return in 2012. Investors have been shifting away from defensive sectors favoring those that are consistent with the "risk on" theme.

Early European sovereign debt auctions in Italy and Spain continue to go well as the European Central Bank (ECB) floods European banks with cheap cash (think QE II by the US Federal Reserve) pushing international stocks strongly positive. The MSCI EAFE index gained just over 4% last week and is now up 4.2% for the year. The emerging market sector leads all others with a gain of 9.1% in 2012 followed by the Asia-Pacific region at 6.0%.

Commodities remain in neutral for the year. Last week the broad basket Dow Jones Commodity Index was up 0.5% and is now up 0.4% for 2012. The exception has been gold which remained strong adding another $33 per ounce (2.0%) to close Friday at $1664.00. Gold is now up 6.2% for the year. WTI oil continued to fall as the price per barrel dropped marginally last week (-0.2%) and is now down 0.4% for the year. Oil prices reflect investor sentiment about the prospects of unrest in the Middle East, currency fluctuations, and demand expectations.

The Euro posted its first gain in seven weeks adding two-and-a-half cents to close at $1.293. Euro investors were encouraged by the general drop in interest rates for Spain and Italy following their successful bond auctions. The Indian Rupee and Brazilian Real remain the best performing currencies in 2012. As with stocks, it appears that riskier currencies are in demand for now.

Most bonds had a flat to negative week with the exception of the international, preferreds, and high yield sectors. The Barclays Aggregate US Bond Index fell 0.5% for the week and is now down 0.1% for the year. The 10-year and 30-year US Treasuries both lost value pushing the 10-year rate above 2% and the 30-year rate above 3% and making long-term US Treasuries the worst performing bond sector for the week and the year.

THE CERTAINTY OF UNCERTAINTY

As an avid reader of history all of my life, one of the important lessons (of many) I have learned is that our ancestors lived their lives in periods of great fear and uncertainty. Try for a moment to put yourself in George Washington's shoes at Valley Forge that terrible winter of 1777-1778, or Abraham Lincoln as he sat in his office learning of the terrible carnage that had just taken place at Antietam in the fall of 1862, or of the average American living during the great depression, or what it must have been like listening to the radio and learning of the bombing at Pearl Harbor. Those were uncertain times. Outcomes were in doubt. Yet looking back today, we do not feel that uncertainty because we know that each of those challenging periods of our history were met successfully by the men and women of our collective past. Today is no different from yesterday. Yesterday is no different from last year, and last year no different from last century. The nature of today's challenges are different, but the uncertainty is the same.

I believe the greatest challenge facing the United States, Europe, and the rest of the developed world today is the ever-increasing mountain of debt we are incurring. The numbers are staggering. The United States owes $15 trillion, Japan owes $13 trillion, and Europe owes some $12 trillion. These numbers reflect just what is currently on the books, not future obligations that by some estimates can be four or five times larger than the current balances.

As bad as the current debt levels are, more troublesome is the inability of governments to slow down the yearly growth of debt. The United States will add another $1 trillion plus in new debt in 2012 and the rest of the developed world will follow suit. The rate of increase in new debt is greater than the growth rate of economic output. If the US adds only $1 trillion of new debt this year on a base of $15 trillion, it will represent an annual increase of 6.67% in new debt. Most economists believe the increase in the gross domestic product (GDP) this year may reach 2% or 2.5%. Debt is growing faster than growth and no nation can sustain their economy for long with this imbalance.

The uncertainty we face today is trying to figure out how to deal with the explosion of debt globally. This debt problem is at the heart of the European crisis, it is responsible for the gridlock in Washington, and it is damaging to emerging market economies as they struggle with hot money induced inflation (foreign investors throwing money at a country). The challenges are daunting. For starters, every solution will involve some sort of pain and sacrifice. We have a history in this country of enduring terrible pain and suffering and emerging stronger and more resilient than before. During the Civil War, the Union and Confederacy lost an estimated 625,000 killed. This terrible number represented about 2% of our nation's population in 1860. In today's numbers, this would correspond to over 6.2 million American soldiers killed. Thankfully, this is not the nature of sacrifice we must make, but the threat to our economic way of life is just as real, and all will feel the economic pain. Other challenges include the length this period of sacrifice is likely to entail. It could take a decade or more to get this right. Then there are the politicians who, up until now, have lacked the moral courage to make hard decisions, and a populace who may tire of sacrifice because they do not understand the gravity of the threat. Failure to act now will only make matters worse in the years to come.

We must approach this problem just as our forefathers did-with grit and determination. Step one is to reduce and stop the rate of increase in new debt. This is precisely what many European countries are attempting to do with their austerity measures. Unfortunately, austerity measures in countries dominated by government spending results in economic slowdown, which in turn exacerbates their deficit problems as tax revenues prove inadequate to finance current fiscal commitments. Political leaders must adopt measures to foster economic growth so the current debt can actually be reduced. This means finding a delicate balance between cutting spending, raising enough revenue to pay for current obligations, not shocking the economy into another recession, and convincing the public that today's sacrifices will help all of us in the long-term. None of this will be easy, but big challenges never have been before and I do not see why this time should be any different.

As investors navigate this challenging time, it will be difficult to determine if we are on the true road to recovery or heading down a path of false hope and loss. Headlines may say one thing and the markets another. This is why I believe so strongly in listening to what the markets are telling us. Collectively the millions of decisions made each day by you, me, and others around the globe represent our cumulative votes in the verdict of right or wrong. These votes reveal themselves in relative strength analysis, and I believe there is opportunity for investors who can "listen" to the markets. So let's work together, listen to the markets, and make smart investment decisions based upon the information available. Finally, we must remain diligent. Changes in relative strength will happen and as circumstances warrant, we must be ready to change as well.

LOOKING AHEAD

The ECB's Long-Term Refinancing Option (LTRO) has fixed the EU's liquidity problem for now buying yet more time for Europe's political leaders to address the debt crisis. Think of it this way, liquidity is like oxygen to the body-without it, you cannot survive for long. Other issues such as fiscal policy reform and treaty reorganization are like food-a person can last quite a long time without eating or in Europe's case, implementing real reform. Reform must be accomplished or the EU will slowly starve to death. Now that the EU is breathing again, investors are turning their attention to the actual efforts to achieve long-term solutions. The EU summit on January 30th will be scrutinized to see if policy address the big issues facing the EU-holding the EU together, protecting the Euro, true financial unification, and permanent debt restructuring.

There is one other immediate problem that must be addressed, however, and that is the restructuring of Greek debt. There are negotiations currently taking place between the government of Greece and private bondholders. Getting the private bondholders to take a "voluntary" write down on their Greek bonds is an essential step for Greece to receive the next tranche of aid from the EU/International Monetary Fund. The Greeks must rollover €14.4 billion ($18.6 billion) of existing debt on March 30th and they cannot meet that obligation without the bailout. Should the talks fail and an agreement not reached, some investors feel this will dangerously destabilize the fragile EU situation.

I continue to remain cautious about the markets due to the uncertainty and risk in the world. It is in everyone's self-interest to reach agreement about Greece and solving the EU's long-term problems. The road to a satisfactory ending is going to be a rocky one and the potential for volatility remains. If your risk tolerance permits taking a position in international equities, I believe you can do so. The recent strength in emerging markets is encouraging, but any investment here must be undertaken with a clear understanding of the risks involved.

US equities continue to be the strongest asset category of the five I follow and I favor investment in high quality, dividend-paying investments. I also favor some investment in riskier assets such as small and mid-capitalization stocks; however, I suggest under-weighting these investments within your equity allocation. From a technical perspective, US stocks have shown very solid performance so far in January and this bodes well for 2012. Quietly Financials, small capitalization stocks, Industrials, and Biotech stocks have shown the most technical improvement over the past few months and momentum is carrying these sectors higher. Commodities and longer-term bonds have shown the greatest weakness.

The bond market remains attractive and my recommendations for this asset category include international bonds, inflation-protection bonds, and a mix of high-yield and high-quality bonds. I am also watching senior bank loan bonds and am considering these as part of my bond portfolio recommendation. The recent drop in US Treasury prices (increasing interest rates) has caused this sector to weaken materially. Should the crisis worsen in Europe I would anticipate this trend to reverse. If your portfolio includes longer-term bonds be very sensitive to what is happening in Europe and interest rates here. I favor the short and intermediate maturity bonds because they potentially have less volatility to interest rate moves.

The first report of the 4th quarter GDP will be announced on Friday and will be watched very closely. Consensus is for GDP to have grown to 3.1% compared to 1.8% for the previous quarter. This will be a very important announcement and could likely be a market mover. Besides the GDP report, Jobless Claims and New Home Sales will be released on Thursday. New home sales is an important indicator of recovery for this vital economic sector.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

As expected, Standard & Poor's (S&P) Rating Services cut the sovereign debt ratings of nine European countries including France, whose AAA rating was cut one notch to AA+, Friday evening after US markets closed. Word that an S&P announcement would be made on Friday did not surprise markets and the French finance minister went on live television in France before the announcement in

the US to assure the French people that the downgrade was not "catastrophic" and that, "it is not the ratings agencies that dictate the policies of France." Besides France, Austria's AAA rating was cut one notch, while Italy, Spain, and Portugal were each cut by two notches. Portugal's debt rating is now BB meaning its debt is now junk status and considered speculative.

Global traders were aware of the pending downgrades during most of the European and US trading sessions Friday pushing markets lower, but not significantly so.

The Dow Jones Industrial Average (DJIA) fell 49 points (-0.39%) Friday but closed the week up 62 points (+0.50%). The S&P 500 added 11 points (0.88%) for the week, and the Russell 2000 posted a strong 1.93% gain indicating that investor tolerance for riskier assets is increasing for now. Two weeks into the year the DJIA is up 1.67%, the S&P 500 is up 2.50%, and the Russell 2000 is up 3.14%.

Materials, Financials, and Industrials were the top three performing sectors this past week while Energy, Utilities, and Consumer Staples were the weakest. For the year only Utilities and Consumer Staples have a negative return.

The on-going troubles in Europe have hurt that region. The Euro-centric MSCI EAFE index posted a 0.60% gain last week and is up just 0.19% for the year. Looking around the world, emerging markets have led all international sectors posting a 2.94% gain last week with most of that strength coming from the Asia-Pacific region. For the year, emerging markets are up a collective 4.5% while developed markets are up 1.76%. Two weeks does not make a trend, but it will be important to see if this relationship of out-performance is maintained or expanded.

For the week the broad basket Dow Jones Commodity Index was down 1.43% and pulled the index into negative territory (-0.12%) for 2012. Gold added $14 (0.87%) an ounce closing Friday at $1630.80 and is now up $64.00 (4.08%) an ounce for the year. WTI oil fell $2.86 (-2.82%) to close the week at $98.70. Oil prices were hurt by the continuing weakness of the Euro and expectations of weakening demand from a slumping European economy.

The Euro continued to struggle this past week following a trend that has been in place since early September 2011. For the week the Euro lost 2 ½ cents to the US dollar to close at $1.268 its lowest level since September 2010. The threat (and realization) of a sovereign debt downgrade and an overall slump in economic growth has pushed investors away from the Euro and into the US dollar and Japanese Yen. For the week the Brazilian Real and Indian Rupee showed the greatest strength, but it should be noted that both of these currencies are coming off significant lows. Two weeks does not make a trend, and I will monitor this development as well.

Bonds have carried on their strength from 2011 into 2012. The Barclays Aggregate US bond index posted a 0.57% gain for the week and is now up 0.42% for the year. The US 10-year yield dropped to 1.868% from the previous week's close of 1.957%. The US 30-year yield fell to 2.913%. Low US Treasury rates are attributable to the Federal Reserve's stated policy of keeping all rates at very low levels and the Federal Reserve's Open Market Committee's action of purchasing longer dated bonds in the open market-a ready buyer keeps rates down. For the week, long Treasuries benefited and was the best performing sector within the bond category. Municipal bonds also did well. Emerging market debt was the weakest performing sector, however, its performance was only slightly negative.

THE EUROPEAN DOWNGRADE VS. THE REAL PROBLEM

The well-telegraphed downgrade finally hit Europe Friday evening. The Euro fell a bit. Stock markets fell a bit, and US Treasury yields fell a bit. But in the end, not much really happened. Nothing happened because the downgrade is not really the story. First, Standard & Poor's responsibly gave the markets plenty of warning that they were going to downgrade many European countries. Second, whether France is AAA or AA+ really doesn't matter. Just look at how the US Treasury prices and yields reacted to our downgrade. Third, the real issue is not about downgrades but rather how the European Union continues to deal with their multi-year debt crisis. The downgrade was an important reminder to European politicians that they must move decisively to resolve the crisis, but ultimately what matters is still being debated in Brussels and Greece.

The most important story from Europe this past month has been the move by the European Central Bank (ECB) to significantly increase liquidity within the financial system much like the US Federal Reserve did during the height of the 2008 financial crisis. The ECB introduced the Long Term Refinancing Operation (LTRO) in which banks can borrow funds for three years at very low interest rates. Banks need only to put up average quality bonds in order to access this nearly unlimited supply of money. The ECB's expectation is that bankers will borrow heavily at 1% and reinvest into sovereign debt from countries like Italy and Spain in order to make significant profits on the higher yielding sovereign debt. Based upon the results of early bond auctions in those countries, the strategy is working as good demand has pushed yields down sharply from earlier highs. This takes considerable pressure off the political class and continues to buy them time to do whatever they are doing. The dark lining to this silver cloud is the ECB is loading up on riskier assets that could blow up their balance sheet if demand does not keep up with the large amount of debt that must be rolled over. Additionally, this policy only addresses the liquidity part of Europe's problems and much work remains to deal with countries that are hopelessly in debt.

In the meantime, Greece is teetering on bankruptcy as negotiations between private bondholders and banks stall. A key qualification for the payment of the next bailout from the Europeans and International Monetary Fund is the willingness of private lenders to agree to a 50% reduction in the value of their investments. This voluntary "haircut" is critical to avoid an uncontrolled meltdown of Greece and the possibility of a panic extending into the other weak, but sizeable, countries like Spain and Italy. Talks are expected to re-start this week, but there is a lot of uncertainty about a successful outcome.

So we find ourselves in limbo watching and waiting for the next European summit (January 30, 2012) and some breakthrough from the political class-a wait that has occurred numerous times before in the past year or so. I sincerely hope the Europeans find a way out of their crisis because the ramifications of failure extend globally. A successful outcome remains very much in doubt.

LOOKING AHEAD

The markets will certainly be watching the developments in Europe this week, but some focus will return to the US. Fourth quarter 2011 earnings announcements have begun and will continue for the next several weeks. JP Morgan's quarterly earnings announced last week were indifferent at best and are raising concerns about the overall prospects of the US banking industry. Investors will be looking for confirmation of growth that some of the early governmental statistics have signaled across the major economic sectors. Putting a twist to President Regan's famous view of the former Soviet Union I suggest investors will trust the government's data but will verify with corporate profit announcements.

I remain cautious about the markets due to the uncertainty and risk in the world. The Europeans may well find a way to continue kicking the can down the road, however, I do not have much confidence in the Euro Zone's economic prospects for the next few months. The recent jump in emerging markets is worth noting, but I am not prepared to recommend buying emerging markets at this time.

US equities continue to be the strongest markets and I do favor investment in high quality, dividend-paying investments. I also favor some investment in riskier assets such as small and mid-capitalization stocks, however, I suggest under-weighting these investments within your equity allocation. Balance and quality should characterize equity investments today.

I believe that the current global slowdown, which is underway, coupled with the strengthening US dollar, makes commodities less attractive at this time; and I am recommending a reduction in broad commodity investments.

The bond market remains attractive and my recommendations for this asset category include international bonds, inflation-protection bonds, and a mix of high-yield and high-quality bonds. I am also watching senior bank loan bonds and am considering these as part of my bond portfolio recommendation.

There are a large number of government economic reports coming this week. The Producer Price Index and Industrial Production data will be released on Wednesday. Thursday brings Jobless Claims, Consumer Price Index, Housing Starts, and the Philadelphia Fed Survey. The week closes on Friday with Existing Home Sales. Investors will be looking for signs of economic strength in terms of better production numbers, homes sales, or a continued falling of unemployment. Nervous markets, like the one we have today, seek validation in every headline and economic report. We are just continuing the theme of late 2011 into 2012.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Happy New Year! I hope that each of you had a wonderful holiday season and had the opportunity to spend time with your families and friends.

2011 Review

If someone was looking at the annual return data for 2011 some 10 or 15 years from now, they could easily reach the conclusion that 2011 was a quiet year. The Dow Jones Industrial Average (DJIA) was up a modest 5.53%. The broader S&P 500 index ended just four-hundredths of a point lower than where it started, while the Russell 2000 gave back 5.45%. However, for those of us who experienced 2011 it was anything but quiet. The year will go down as one with periods of extreme volatility and where the terms "risk on" and "risk off" became part of our daily conversation. The US economy continued to struggle with minimal economic growth despite the Federal Reserve's ultra-low interest rate policy. High unemployment, a depression-like housing market, and the continual overhang of the European debt crisis all contributed to a volatile but lackluster year.

Gains within the US equity markets were found in several major economic sectors. The Utilities sector led all sectors with a gain of 14%. The Consumer Staples and Health sectors also exceeded the DJIA return for 2011. At the other end, Financials remained in last place losing over 14% for the year. Materials, Telecom, and Industrials round out the bottom four performing economic sectors losing between 11% and 4%.

International markets all had sizeable setbacks. The European debt crisis was the dominant economic story both here and abroad. The European-heavy MSCI EAFE index fell 14.82% and emerging markets did even worse. The four countries that make up the largest part of the emerging markets group, Brazil, Russia, India, and China were down 24%, 21%, 39%, and 20% respectively.

Commodities were mixed in 2011. Gold, even with its December pull back, posted a $147 per ounce gain (10.4%) for the year and WTI Oil added $7.61 per barrel (8.3%) while most other commodities were down. Natural gas was the biggest loser posting over a 50% drop followed by cocoa and most of the base metals (i.e. tin, copper, and nickel). The DJ UBS Commodity index, which measures the performance of a broad basket of currencies, was down 13.4% for the year.

Currencies made a lot of noise last year but there were no significant moves among the big three-US Dollar, Japanese Yen, and European Euro. The Yen was the strongest currency gaining about 5% while the Euro lost just over 3%. The Indian Rupee was one of the worst performing currencies losing about 24% for the year.

The strongest performing major asset category in 2011 was bonds. The sharp drop in US Treasury yields made long-term US Treasuries the best performing sector along with Treasury Inflation Protection Notes (TIPS). Most other bond sectors also performed well with gains between about 2% and 10%. Only the preferred sector posted a small loss among the bond sectors.

2012 Begins

The first week of 2012 kicked off with another 2011-like choppy performance. The DJIA opened the week strong followed by somewhat indifferent trading. For the week, the DJIA posted a 1.2% gain. The S&P 500 added 1.6%, and the Russell 2000 gained 1.2%.

Sector performance saw the recent ranking of the major economic sectors more or less reverse. Materials, Financials, and Consumer Discretionary were the best performing sectors while Utilities, Telecom, and Consumer Staples were the worst.

The MSCI EAFE posted a 0.4% loss while the emerging market sector posted a nice 1.5% gain. As the European equity markets continued to weaken so did the Euro closing at $1.27 a 15-month low to the US Dollar.

Commodities were also up with the DJ UBS Commodities index gaining 1.3%. Gold saw a strong gain of $50 an ounce to close at $1616.80 (3.2%) and WTI Oil added $2.73 per barrel to close Friday at $101.56 (2.8%).

The Barclays Aggregate Bond index fell 0.15% with long-duration US Treasuries pulling back as interest rates edged upwards slightly. The 10-year US Treasury yield closed Friday at 1.957% up from the previous week's close of 1.871%. The best performing sectors within the bond category were Preferreds, High Yield, and TIPs while long-duration US Treasuries, International, and Emerging Market bonds were the weakest.

LOOKING TOWARDS 2012

Trying to predict the future is a futile effort at best. I happen to like the way Scott Adams, the author of the Dilbert comic strip puts it: "There are many ways of predicting the future. For example, you can read horoscopes, tea leaves, tarot cards, or crystal balls. Collectively, these methods are known as "nutty methods." Or you can put well-researched facts into sophisticated computer models, more commonly referred to "as a complete waste of time." As funny and on target I happen to believe Mr. Adams' observation is, there still must be an effort to recognize what potential challenges lie ahead and make smart investment decisions now and then adapt as the future comes closer to the present.

I see three major themes that will challenge and influence investors for 2012:

1) The European debt crisis will remain front and center in the news and will exert enormous influence over the global economy. Europe is likely to move into a recession if it is not there already. 2) US political gridlock will confound investors as businesses and individuals try to determine which direction major economic policies will move. The specter of the presidential election in November will preoccupy Washington. Additionally, the growing US debt is becoming increasingly troublesome. 3) Geopolitical risks abound. The greatest threat emanates from Iran and the threat the pose to regional instability and oil supply interruption.

The impact of these challenges, in my opinion, will be to subdue economic growth. One of the smartest money managers, Bill Gross of PIMCO Funds, wrote this week that in 2012 "investors must lower their return expectations. 2-5% for stocks." In addition to a lower market return expectation, unemployment will continue to be abnormally high, households and countries will continue to deleverage, and interest rates will be historically low for the next few years.

So what is an investor to do? I will be emphasizing the following themes in my investment decision making:

1) Focus on companies and countries with strong balance sheets. This means that I am continuing to avoid most international investments for now. I do like global infrastructure investments and will certainly consider selective investments abroad. 2) Favor high yielding stocks and bonds. If the overall expected return of stock markets is going to be between 2% and 5% stocks with an equivalent dividend yields become more attractive. Selective municipal bonds appear attractive from a yield perspective. 3) Consider alternative investments. Please contact me if you have questions about what types of investments fall within this category. 4) Maintain flexibility. Buying and forgetting is not an investment strategy. There is too much risk for the markets to go off the rails or surge, so investors must stay focused on their portfolios.

LOOKING AHEAD

The economy is improving, but not nearly as fast as people would like. Consumer sentiment rose for the fourth month in a row in December. Initial unemployment claims have started to fall off rapidly and the unemployment rate is starting to decline. However, there are still many obstacles to growth that are preventing us from seeing a better business environment.

A broad review of US markets today is that they are just slightly over-valued. While consumer sentiment may be improving, investor sentiment remains poor. This translates into volatile markets because investors lack the confidence to hold their investments on negative news. When trends begin they are quickly squashed by a new headline. Therefore, it is very difficult to pick winners or losers so I am suggesting a more balanced approach to "risk on" and "risk off" assets. While my relative strength analysis still favors mid-capitalization growth stocks, large cap stocks have shown the strongest near-term momentum. I believe that you should consider building a fairly broad allocation of US stocks within your targeted allocation for stocks.

I continue to suggest significantly underweighting international stocks for now. The Euro's weakness has created strong headwinds for commodities as the strength of the US dollar curbs international demand. I have favored commodities for most of 2011, however, I believe that commodity positions should be scrutinized and possibly trimmed moving into 2012.

Within the bond category I favor TIPS and international bonds. I also like exposure to high yield, floating rates, and quality corporates.

Again I want to wish all of you a very Happy and Prosperous New Year!

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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