January 2008 Market Timing Update

"The market rose 300 tenths of a percent in early morning trading..."

~ Perky financial reporter on Bloomberg earlier last month.

A brief respite from the Yukon.

Market Timing - the Professional Perspective Bob starts out the new year with a review and notes that the possibility of a recession where declines in excess of 20% are possible, is not likely any time soon. The S&P 500 index, including dividends, has risen 91% since his buy signal in March of 1993. For index investing, this is not bad at all. Bob notes again that stock prices do not move straight up.  There are pullbacks along the way.  There have been five pullbacks of 7% or more since 2003, and two occurred in 2007.  Every time the market corrected, the media produced dire prognostications about an imminent recession and those who listened to the siren's call sold out at the wrong time. People who viewed these corrections as buying opportunities did quite well for themselves. Economic Outlook Real GDP for 2007 - 2008 is still estimated to come within the range of 1.7 - 2.7% .  Bob estimates a couple points lower.  The first three quarters of 2007 saw growth of around 3.1%.  If the 4th quarter numbers come in lower than that, then that will set the tone for lowered estimates into 2008. One key to economic growth is how much the new jobs numbers continue to increase. U.S. Exports increased to 19.1% in the third quarter of 2007, which provided incentives for adding new jobs to the payrolls.  The weak dollar continues to make U.S. exports very attractive and multinational companies are benefiting (as an aside, I am making a bit of a change to fund allocations further on down). Headline inflation is 4.3% as a result of high energy prices.  CPI core inflation is modest at 2.3% year over year.  The personal expenditure index is up 2.2%, which is quite low considering the run-up in energy prices.  The consumer is learning to deal with the higher cost of energy. Monetary Policy Bob thinks another  reduction of 25 basis points is in the cards for January and that the Fed will make any further rate moves well in advance of the general election.  Recent Fed reductions are of course in response to the Sub-Prime melt down and the accompanying problems with liquidity. Equity Valuation The current S&P 500 index PE is 15.1% .  Projections for 2008 are 16 - 17 times earnings with a low rate of growth and low core inflation. Sentiment High readings of the 60 day put-call readings place this contrary indicator solidly in positive territory for the stock market investor. Summary Buy on weakness in the mid 1400's range. Dollar cost average otherwise.   Stay fully invested.  Be happy. Personal Portfolio Well well,  the personal portfolio did pretty well all things considered this year.  I beat Bob's Long Term Growth portfolio by about 3% without taking a whole lot of risk and most all of it is tax deferred so I am quite pleased. I think the main difference is Bob is using more index funds, whereas I stay away from indexing and also use sector funds. Here are the broad numbers: My Portfolio - Stocks & Funds My Portfolio - Funds Only Total YOY Bob's   Aggressive Growth Bob's Long Term Growth Bob's Retirement Portfolio 14.47% 16.43% 17.85% 13.57% 11.05% 8.51% Here are the fund particulars: A number of the Fidelity funds, Hodges and Neuberger Berman got hit particularly hard during that last correction and that was disappointing.  Had some nice winners though. FLPSX is going to be drastically reduced going forward and the balance is going into FDSVX FDVLX - I am not sure what is up with that.  Going to have to do some more research.  This was a good performer. NBISX and NBITX  I am keeping - might lighten up a little on NBITX though. HDPMX  - Holding.  I think this one will perform better in 2008. PISRX and FAIRX I am eliminating and going to do a little gambling on a new fund I think is worth some speculation in. And that new fund is......pause for drum roll........ MGLBX I like the Marsico funds, just don't own any of them and this new offering looks tempting.   This goes against several well established mantras for investing like: Don't invest in a fund that has no track record. Don't invest in a fund whose manager  has no track record. Don't invest in a fund which doesn't have much in the way of assets (liquidity problems). However,  nothing ventured - nothing gained.  Or lost. Besides, have a look at the expenses which are waived until the fund gets enough assets. And FWIW,  Morningstar likes the fund. Anyway,  I thought a large cap fund with global exposure would be beneficial.   I don't think bloat will be a problem anytime in the near future. Lets see....... anything else worth mentioning....... Have a look at RNIN.  Word is, some new clients are signing up. Not worth betting the farm on but a little icing on the cake?  Maybe. A little more information about RNIN. Some time in the relatively near future I will have a few pages out detailing my first ever non-military cruise, and some of the do's and don'ts associated with same. Have a hapy and profitable New Year.