July 2007 Market Timing Update
"If past history was all there was to the game, the richest people would be librarians. "
- Warren Buffet
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.
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.
|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.|
|Looking at those funds and
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
is international. Where exactly is the risk in this
Am I weighted too much in one area, even though it looks like
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
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.
|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.|