CI Outlook - Archives

November 2007

November 5, 2007

As of this morning the market is still firmly in the center of its trading range.  The sharp daily movements up and down are becoming more frequent and more volatile.  Concerns about the extent of damage done by sub-prime mortgages are the apparent cause of this market unease.  In addition, fear levels are heightened as tensions in the Middle East are compounded by threats to Pakistan and problems with Turkey.  Considering the news background the popular question is “what is the market doing up here”. 

We respond with this answer.  In the long run market values are a function of interest rates and corporate earnings.  Currently, the large multinational companies comprising the S&P 500 derive over half of their earnings from overseas.  Presumably, as long as the developing countries want to buy American goods, these companies will continue to prosper.  Therefore the bull market in the large cap indices, Dow Jones and S&P 500, continues.  What is not so apparent is the stealth bear market in smaller stocks.  Under the cover of the rising Dow, the indices which track small securities are not stuck in a trading range, but continue relentlessly lower.  In fact, although the Dow is up 8% so far, the Russell 2000 may soon be negative on the year. 

With this investment background we are avoiding smaller companies and adding more ETF’s containing foreign companies and very large capitalization growth companies.  Two recent additions are the iShares Korea and Goldman Sachs large cap technology index.  And, while there are many large financial companies we are avoiding exposure to those stocks until the situation becomes more transparent.  In addition we are continuing to make late year tax adjustments attempting to minimize your income tax liability.

We appreciate your business.  Please call us with any questions or comments.

CJ Brott                 Karen Burns

 


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