January 2007 Market Timing Update

"Wall Street is the only place people ride to in a Rolls Royce to get advice from those who take the subway. "
...Warren Buffet"

2007 is starting out well.  There is still no evidence the secular bull market has matured.  There is little likelihood
a bear market with declines into the 20% range is around the corner either.

My Guru would like to see a health restoring 5-10% correction in the months ahead to assist in furthering the
bullish trend.  Absent that, dollar cost averaging is the best way to invest new money. That, and patience.

Economic Outlook:

    - GDP in a range of 1.5 - 2.5%  is expected  through 2007.
    - New Housing Permits are at a nine year low.  
    - Oil will trade in the 50 - 70 range.

    - No major tax law changes.  Gridlock reigns supreme.
    - US Exports will have another good year as the dollar is still weak against the Euro.
    - Gasoline prices will remain a wild card.

Monetary Policy:

     Inflation remains tame.  Year over year inflation is running around 2.6%
     Fed Rates will probably stay @ 5.25% during early 2006.
     Later on in the year fed rates will be reduced  to a 4.25 - 4.75% range.

Equity Valuation:

     S&P 500 operating earnings will come in @ $88.00  in response to Dollar weakness vs. the Euro.
     A Forward PE of 16 -17 looks likely.  
          PE =  Price of the Stock Divided  by Earnings per Share.
          Forward PE  =   Price of the Stock Divided by Expected Earnings per Share.

     Again, the ideal scenario for the next year would be a health restoring 5-10% correction in the market before
     continuing on to new highs.  Absent that, the model will continue to monitor for signs of deterioration going

      It is my Guru's view that  conditions favorable to a bear market trend are not yet in place.

Investor Sentiment:

    The 60 Day Put- Call ratio remains favorable, although this contrary indicator has eroded somewhat.  
    August of 2006 saw an impressive 1.06, which is very high.  

    The current level of .88 suggests the  extremely deep bearish sentiment seen in mid 2006 has dissipated.
     This indicator bears watching.

    Personally, I think with the Dems in control the bearish sentiment could deepen.
    The threat of raising taxes, minimum wage, class warfare, the nanny state, and Nancy Pulosi could push this
    sentiment back up nicely.

Market Timing Portfolio Changes:

        Fairholme Fund is replacing  Muhlenkamp Fund, thereby eliminating that position.

Portfolio Year End Results.

       Aggressive:  16.5%
       Long Term:  15.4%
       Conservative:  11.1%
       Active / Passive:  16.6%
       Total Market Index:  15.4%

Personal Portfolio:

Portfolio Year End Result:  21.4 %

Well, the last month sure ended up with a bang.  My annualized return of 21.4 %  did quite well against my
guru's 16.5%.  This was in part because of the heavier weightings in the overseas markets, Europe in particular.

Another reason was thatr I sold Muhlenkamp (MUHLX)  and Rydex  OTC (RYOCX)  early last year in favor  of  NBITX, NBISX.

Sector Weightings in Telecom helped out as well.

Last year featured a gradual liquidation of small cap and value funds in favor of dividend producing large cap funds.

This year I am continuing to move away from mid cap value and into mid - large cap growth.  I am of the opinion
that  true value plays are going to be harder to come by in 2007.  There will always be sectors that are in and out of favor
but I think growth will be a good place to be.

I sold a majority of  TAVFX  and bought FAIRX, a mid cap growth oriented fund.

I also sold FWRLX in favor of FSTCX, which I hope performs somewhere around PRMTX catagory.

ACUIX, the fund listed under US Large Cap is not actually the fund I own.  The fund I own is *AIUYX.
This is the same fund as ACUIX without the load.  It is not listed outside of the custodian.  
However, if you are interested in dividend producing funds without a load, this would be a consideration.

So, here is the latest breakdown:

I'll be looking at reducing international exposure later on this year unless of course it continues to run.
I would also be wary of country specific funds, in favor internation funds with a broader approach.

Some folks might look at this list and see a lot of duplication - funds with overlapping styles.
I agree.  However, when you are dealing with several types of retirement funds your choices within
those funds usually tend to be somewhat limited.    

This type of approach spreads the risk, as well as the reward.  Doesn't help reduce paperwork, though.

Special Situation?

Natural Gas

Natural Gas has spent the last year tanking.  We also are having a warm winter. Imagine that.

So, I did some looking at candidates within my price range and came up with NGAS:

This to me looks like a candidate for a few investing $$.  

This is a small player in the Gas Industry and one thing that gives me pause is the PE.

However, the five year average PE on this stock is about 58.

Can it go lower?  Sure.  Will it?  My crystal ball says if it does, not by much.

So, I sold about 2/3's of my DHI stock for a  9.2%  gain and bought this at 6.09.

I think that the way hedge funds and commodity traders bounce these types of stocks
around, this is worth a small bet.