May 2007 Market Timing Update

"In the short run, the market is a voting machine but in the long run it is a weighing machine. "
-Warren Buffett

Market Valuation

This month Bob looks at overall market valuation and he believes it is reasonable  because of the modest
rate of stock market appreciation  and increasing corporate earnings. 

Year      Yearend     Reported   P/E      Operating   
              Close         Earnings                 Earnings         P/E

1987      247.09       $17.50      14.1     $19.91            12.4
1988      277.72       $23.75      11.7     $24.12            11.5
1989      353.40       $22.87      15.5     $24.32            14.5
1990      330.22       $21.34      15.5     $22.65            14.6
1991      417.09       $15.97      26.2     $19.30            21.6
1992      435.71       $19.09      22.8     $20.87            20.9
1993      466.45       $21.89      21.3     $26.90            17.3
1994      459.27       $30.60     15.0      $31.75            14.5
1995      615.93       $33.96     18.1      $37.70            16.3
1996      740.74       $38.73     19.1      $40.63            18.2
1997      970.43       $39.72     24.4      $44.01            22.1
1998    1229.23      $37.71      32.6      $44.27            27.8
1999    1469.25      $48.17      30.5      $51.68            28.4
2000    1320.28      $50.00      26.4      $56.13            23.5
2001    1148.08      $24.69      46.5      $38.85            29.6
2002      879.82       $27.59      31.9     $46.04            19.1
2003    1111.92      $48.74      22.8      $54.69            20.3
2004    1211.92      $58.55      20.7      $67.68            17.9
2005    1248.29      $69.93      17.9      $76.45            16.3
2006    1418.30      $81.51      17.4      $87.72            16.2
2007    1482.37      $87.00      17.0       $92.00           16.1 *
* closing price on April 30, 2007.

He is comfortable with a Forward PE ratio going forward of 16 - 17 as an estimate.

Low core inflation is expected to remain low.

The economy will continue to grow at a rate below trend and Bernake will probably be called on the carpet because
of it.  It seems only the Fed sees inflation gremlins lurking in every corner. 

Consumers are continuing to spend at a moderate pace and they are learning to deal with higher gas prices.

The 60 day Put-Call ratio, a contrary indicator  remains very high.  Lots of bearish sentiment.

New investors are encouraged to buy on weakness and dollar cost average their way into the market.

Bob believes the S&P 500 index is getting ready to break the previous record high of 1527.46 and if
it does,  there will be new recovery highs.

Fed Policy

The fed funds rate of 5.25% will remain unchanged,  given below-trend economic growth of the economy of
2-2.8%.  The long term range is typically 3-3.5%

No changes to Fed policy.

Market Timer Portfolios

No changes to Portfolios

 Personal Portfolio

Level 3 Communications (LVLT)

Once again Level 3 fails to disappoint.  I sold the position and bought back into DR Horton (DHI) in the
high 22's.   Looked like a pretty good buy-in point.  Last time  I sold @ 30 so perhaps this one will run
again as housing starts to improve. There is a nice, healthy dividend to look forward to in the interim.

Owens Corning (OC)

Boy, there were lots of people sweating over Owens Corning's first quarter earnings release. 
Lots of selling going on prior to the announcement:


NEW YORK (MarketWatch) -- Owens Corning (OC) Wednesday reported first-quarter earnings of
$1 million, or a penny per share.

In the same period a year earlier, the company's predecessor operations prior to its emergence
from bankruptcy protection, the company earned $63 million, or $1.05 a share.

The company said its adjusted earnings, excluding items, were $61 million, or 14 cents a share,
for the latest quarter.

Sales fell 17% in the three-month period to $1.32 billion from $1.6 billion in the same period
a year earlier.

The average estimate of analysts polled by Thomson Financial was for a profit of 20 cents a
share in the March period.

The Toledo, Ohio-based building materials company said it expects its insulating systems business
to continue to be impacted by the slowdown in U.S. housing starts that's expected to extend well
into 2007 by the National Association of Home Builders.

It backed a projection that earnings before interest and taxes, or EBIT, should exceed $415
million in 2007, excluding the impact of its proposed joint venture with Vetrotex or other strategic
organizational changes.

The stock closed Tuesday at $31.78, up 3.7%. 

A recording of the conference call is availible for playback or download here:

My opinion: Long Term Hold.  Buy on weakness.  I'd say a range of 28-32 is an attractive buy range.

This Stuff Just Continues to Amaze

Masco,  one of my DRIP's also reported earnings:

Masco Corp. (MAS 30.15 +2.94) reported a 30% drop in quarterly net income,
as a decline in new home construction and a moderation in consumer spending
crimped demand for its home improvement products. 

However, the results surpassed analysts' expectations, and shares of the Taylor,
Mich.-based company gained as much as 16% during the regular trading session. 

That huge spike is after reported earnings. 

The thing is they did badly, but not as badly as everyone expected.

Kind of goes to show - if you believe the company is a quality holding, don't sweat the short term stuff. 

Fund YTD Performance

This is kind of interesting in that performance by fund type is all over the map. 
I was surprised Fidelity Dividend Growth is lagging as much as it is so I am moving about half
of FDGFX into Fidelity Value  (FDVLX).  That should pan out a little better.

I think I will also take PSPFX from 3.2%  to 5% by  trading out some of the Fairholme fund.
Global Resources as a sector for about 5% is probably a good place to be. 
Just look at gas and other commodity prices.

I originally thought PSPFX would be a short term play but anymore it seems like a good sector holding.

Monthly Rant, Sermon or Whatever........

None this month.  If there is a topic you are interested in and it happens to be something I know something

about, let me know.