Tuesday, January 30, 2007

Revised Asset Allocation for 2007 ,Cow flatulence and "hype"

January 29st 2007

Hello,

Ok so FED Chief Bernanke states what I thought was obvious that the Social Security and Medicare are dire financial straits and he then went on to comment on another obvious notion that Americans don’t save enough money .Apparently many of us are in a serious state of denial judging by today’s market action.

Prince Charles did his best for to stem global warming by canceling his sky trip, yep that right apparently he hadn’t heard that cow “flatulence” are now the largest threat to global weather patterns. Perhaps he should go skiing but stop eating beans.

Is it me or is the “hype” surrounding the current stock almost reaching an insane volume. Apparently many believe that if you repeat something often enough however ridiculous it becomes imbedded in the public consciousness. Or is the agenda driven media trying to cover up its own folly? Too much “everything is wonderful with the market” makes me very uncomfortable and I as you all know are not easily given to bearishness.

So what’s really been bothering me about the stock market is that despite all the hype of setting a new high for the DOW JONES INDUSTRIALS by my calculations the DOW should be somewhere around 13400 if it had just keep pace with inflation since 2000 and if the DOW had gotten its traditional return of say 11% per annum the DOW JONES should be around 26,000.Lets face it had not for almost ZERO interest rates the stock market would have underperformed cash the last 6 years. The issues for me is that despite the dot bomb, 9/11 corporate scandals, real estate crash and a global asymmetrical war the economy has been very resilient. What’s been bothering me for a long time is the extreme underperformance of the stock market given the strong performance of the economy. I can not find another time when the economy was so strong and the stock so bad.


Foreign Large Caps 10.0%
Pollution Control 5%
Alternative energy 0
Large Cap Technology 20%
Networking 25%
Emerging markets 7.5%
Financials 15%
Semi’s/Semi-equipment makers 7 .5%
Short Term Cash 10%

Premises; Some what weaker dollar but no huge fall, more mergers and acquisitions, more energy awareness, however declining energy prices led by disunity in OPEC, no recession in the USA, no slow down in USA consumer spending, larger caps will out perform smaller caps, large cap Tech will resurrect themselves, global socialism continues to creep, bonds will do a whole lot of nothing, rates will remain about the same and inflation will stay in the closet …

So what’s it going to take to make money in 2007? It maybe a year made more notable by avoiding the big losses than hitting a lot of winners .The very uninspired finish to 2006 ,and the mind less unbridled enthusiasm for the current market from Wall Streeter’s leaves me feeling a bit edgy . However I remain very optimistic that this 6 year bear is going into hibernation soon .So here it goes I am looking for a narrow focus in 2007, with large cap technology taking the lead and networking and network related being the prime performance sector, followed by financial related stocks. Oil looks to be heading down, in my view a long way down. For the faint at hart short term rates seem to be giving an almost risk free return and look very appetizing.

Ok so I am beginning to have my doubts about semi’s I’ll admit it so I am revising my asset allocation model once again ,and raising my allocation to foreign large caps and droping alternate energy because oil is just getting too cheap to make alternative energy investment worthy.


James Foytlin
Horwitz and Associates
Toll free 1(866)492-3959

www.jamesfoytlin.com

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