July 2007 Market Timing Update

"If past history was all there was to the game, the richest people would be librarians. "

- Warren Buffet

General Comments

Bob's outlook for the next six months is positive.  He sees no major bear market declines any time soon.  A major bear market decline is defined as one in excess of 20%.

He expects to see new highs going forward and remains fully invested.

Economic Market Indicators

Real GDP will remain with a range of 2 - 2.8%.  This assumes the housing market will remain weak for the rest of the year.  Housing construction and housing related goods account for some 25% of the total U.S. economic activity.

Housing starts fell in May and no end is in sight.  This is the worst housing recession since 1991 (I remember this one - people in SoCal were walking away from their homes in droves).

Some 50 sub-prime lenders have failed to date.  There is a record high inventory of 4.2 million unsold homes.

The monthly average of new jobs is between 100-150k and is likely to remain in that range unless the economy starts stalling.  The fed at that point would more than likely reduce short term rates.

U.S. exports continue to rise at a fairly brisk pace.

Consumers continue to adjust to higher gas prices and no major problems in the economy have occurred because of this.  The coming hurricane season and current problems in Nigeria are something of a wild card.

Investor sentiment is still bearish, with the 60 day put-call ration standing at .96, which Bob considers a contrary indicator.

Portfolios for the year

Bob listed out his portfolio gains from June to June.  I figured the gain for the last six months and came up with this:

Aggressive Growth:      8.51
Long Term Growth:     10.58
Retirement Portfolio:  7.72
My Portfolio:         11.63

I pretty much trounced Bob's portfolios last year.  This year it appears we are running about even.

Portfolio Changes

No portfolio changes at this time.


Bob sees the S&P 500 index moving on to new highs, tacking on at least another
hundred points.  Dollar cost average new investments. He sees no Bear market
in the near future.

Personal Portfolio

Early July is a good time to evaluate how the portfolio is doing and make any necessary adjustments, so this month's blog is about that.
I must say I am somewhat disappointed with the dividend producing mutual fund idea  *AIUIX.   I ended up selling the entire position and replaced it with Janus Research (JAMRX).  I haven't owned any Janus funds since the mutual fund scandals several years ago.  What bothered me about this fund (*AIUIX), was there was no way to track the performance of what was in  the fund.  The fund took several large NAV drops this year with no real explanation as to what caused it - and there was no way to find out.  
I used to wait until the after the first of the new year to make fund switches, but I don't do that anymore if the fund is truly a laggard.  The way I see it, if fund A has returned 5% in the first six months and fund B has returned 10% in the first six months and they are in the same general category, the odds are more than likely that fund B  will continue to perform better. So, if fund B tacks on another 10% in the last  six months and fund A gains another 5% - you will have doubled your gain for that last six months in fund B.  
Compared to their respective indexes, these funds have not done badly at all.  The portfolio is now sitting at about 71%  US  and 29 International.  The clear winners so far are global resources and telecom.  Funds holding positions in transportation stocks are doing quite well too.  Over all, I am up about 11.5  percent for the year.   That is not too bad.  
Looking at those funds and stocks, it is kind of hard to tell what kind of weightings one actually has.  How do I know how much of this is really in the US and how much is international.  Where exactly is the risk in this portfolio.  Am I weighted too much in one area, even though it looks like the portfolio is well diversified?

There is a handy tool Morningstar provides free of charge called Instant X-Ray

It is worth the time to run your funds and stocks through this every so often to see where you are actually at.  I plug in my numbers and lets see what I come up with:
I am a bit surprised at this.  I would have thought my foreign stock position was lower.  This tells me some of the US funds can also invest internationally or I need to read on and get a better definition of 'International'.

I wonder which fund(s) are still holding cash.    I think it is probably the Neuberger funds.  Valuation is where I want it, skewed to Large Growth.
Relative to the S&P 500, I am under weighted in services, overweighted in manufacturing and a bit underweight in IT.

I am ok with that.

You can go into much further detail if you pay for a premium membership.   This is good enough for me, though.  
Relative to the S&P 500,  I am double the amount of cyclical stocks, under weighted in classic growth and a bit overweight in speculative and aggressive growth.        

That is a good reflection of where I want the portfolio for the rest of the year.   The high cyclical exposure will bear some watching.  This isn't a 'put it away and forget it' portfolio.

Fees and expenses look pretty good.  Part of this is due to direct stock ownership through DRIP's, where there are no ongoing expenses.  I am pleased with this.
US / International allocations are now starting to look a bit more like what I had planned.  The US and Canada make up 66% of the portfolio, which is within 5% of the general plan. I can live with that.

 21% in Europe is fine with me and the other allocations I have no problems with.  

I have less than 10% in the more volatile corners of the world, so this looks like a good mix.
The last part of Instant X-Ray shows how the top 10 holdings are doing.  

Funny, I would have thought GE would have got more of the 'Barron's Bounce' after being profiled on the cover of the magazine a couple weeks ago.

Owens Corning is still doing OK.  The price has been affected by the continuing sub-prime woes.  

I wonder how much AAPL  T. Rowe Price Telecom has.  

All in all it hasn't been a bad first half of the year.   Another six months like this and there will be some very happy campers indeed.