Analysts, Gurus &amp; Pundits

Top 578. Nov 12, 2005 5:30 AM

» SteveT - Coming: a New Nifty Fifty

Interview with Joseph McNay, Chairman,
Essex Investment Management
By SANDRA WARD

ASTONISHING. THAT'S ABOUT THE BEST WAY to describe the performance of this legendary growth-stock investor's picks in the 16 months since they appeared in these pages, on July 19, 2004. (See tables, McNay's Current Picks and Past Selections1.) But such performance should come as no surprise. As founder and chairman of Boston-based Essex Investment Management, with $4.4 billion under management, McNay has made it a practice to astonish on the investment front. By making big bets on emerging businesses and investment themes and getting them right, he's delivered outsized returns for close to two decades. Now he sees a shift in the investment scene that should favor growth stocks over value and dares to suggest we're in a new "Nifty-Fifty" environment. We have found it pays to listen.

Barron's: Are you optimistic about the economy?

McNay: The economy is doing better than many had thought it would. We are going to have earnings gains for the Standard & Poor's 500 in the area of 15%, which is a good year. Business has continued to do well, even though there are pockets of problems, such as the automotive sector.

Why are many people's perceptions of the economy so different from the reality?

Our political scene has been a little confusing. And the General Motors and Delphi problems probably are a bit unsettling. High energy prices, of course, have been tough on what I'm going to call the mid-to-lower segment of the economy. I don't think the upper-middle-to-high segments have really been affected by higher energy prices.

Any concerns?

I still have long-term concerns about the lack of savings in the U.S., our international trade deficit and the government budget deficit. We are, as a country, spending on the edge of a trillion dollars more than we produce. In the long term, we are deflating the value of our money and causing a monetary problem. The Asians, as an example, want to do business with us in a major way and we are one of their major markets. They take our currency, and they reinvest it in our government bonds and support our deficits. And as long as that goes on, we're OK, but it can't go on forever. That remains my bigger concern. On the other hand, it means more money in the system, and money must be invested someplace -- and a certain portion of that is going into the U.S. market.

What about valuations in the stock market?

Valuations, on balance, are OK. Stocks aren't cheap, but they are not expensive. We are not in a bubble the way we were in 1997 and '98 and '99. In fact, I would call those years a double bubble. We are not at those levels now. The market is, on average, average. On the other hand, businesses are seeing a high level of return as corporate profit margins have risen and costs have been cut dramatically. We are late in that game, and we are not going to see the kind of earnings gains overall we've seen the past three years.

Growth stocks have been out of favor. What's your outlook for growth?

Growth has been out of favor since 2000, but it is changing, and the change is going on as we talk. In the past few weeks, money has been moving toward really dynamic growth companies, one-decision growth stocks. I see it in specific stocks. A wide variety of growth stocks, some known, some unknown. Google [ticker: GOOG] is an example. Biotechnology stocks are a perfect example; they are hitting new highs. There are lots of mid-sized and smaller growth stocks that have real dynamic growth.

So is this a revival of growth in general or just certain sectors and certain stocks?

It is stock-specific, but it's occurring where people are discovering new growth. The Internet is a good example of a strong growth area. It flunked out in 2000 and '01, but is strong now. The Internet leaders are doing wonderfully. New biotechnology companies are showing strong growth. One must be very specific in the medical area, but you have some new, outstanding young companies evolving, such as Intuitive Surgical [ISRG], which does robotic surgery.

Let's start with the Internet, since you were one of the earliest investors to see the potential there.

I'm interested in those companies that are capitalizing on their domination in the sector and getting the growth. Google is the epitome. It is the leader. It is dynamic. It is creating a market. It is offering services to people that they feel they must have and want. Google is able to parlay that into a wide variety of services. The biggest thing going for them is their advertising capability. Advertising is unquestionably going toward the Internet, and it is making sites such as Google, Yahoo! and eBay great collectors of advertising, and it is a great income source. On the other hand, it is making it extremely difficult for the printed media. Reading that the New York Times and Wall Street Journal want to cut the size of their papers reflects the new competition.

Talk about Google's valuation.

From my point of view, it is reasonably valued. At some point, it won't be. But if it maintains its current growth rate, it is reasonable. It has very strong revenue growth. It has a very strong advertising component and could earn $8 or $10 a share. That's cheap, and it makes me want to continue to own the stock, which I am doing. Its full capitalization is over $100 billion. Its revenue growth has been running 95% to 100% every quarter for the last number of quarters. The consensus earnings estimate for next year is about $8.50, and my guess is that is understated. Earnings could be $9 or $10 a share. At 35 or 40 times earnings, for a company growing at this rate and No. 1 in its sector, Google, frankly, is cheap. I watched IBM, growing at 15% a year, sell at 20 times earnings at the bottom of markets and 60 times at the top of markets for many years in the 1960s, just to give this a frame of reference.

Any other historical parallels to Google?

Xerox sold at 50 to 100 times earnings for many years and dominated its market. Polaroid sold at 30 to 75 times earnings for long periods. Apple is another great case in point, and you could even add Wal-Mart, which didn't have that fast a growth rate but had a very consistent 25% to 30% growth rate and sold at 30 to 40 times earnings for a very long time. In other words, if a company is so dominant and has all the right characteristics, a multiple of 30 to 50 times earnings is absolutely common. One period we could be emulating, to a small degree, would be the one-decision growth-stock era.

Back to the Nifty Fifty?

From 1971 to 1973 was the Nifty-Fifty era. That's when Digital Equipment, Kodak and Polaroid and all the drug stocks and even International Flavors & Fragrances had absolute sure growth rates of 15% to 20% a year and sold at 50 times earnings. It followed the topping out of the small-cap stocks in 1969, when the market zeroed in on the very best of breed, the very best growth stocks and put prices on them way beyond anything anyone could have imagined.

This market looks a little bit as if that may be starting right now. Let me tell you why we are early in it. Most of the young people in the business -- the research analysts and the portfolio managers -- who entered the business in the late 'Nineties are now scared to death of multiples and valuations because they saw everything get cremated and "value" become the place to be. Well, the value market is played out, and the value stocks and the growth stocks are priced, in many cases, not far from each other. Now you are beginning to see the earnings come through in a lot of these outstanding growth stocks, and these young people are going to have to shift as they see that Apple, for instance, or some of the biotechnology companies are continuing to grow. People will start to pay for these stocks.

Give us some names.

Intuitive Surgical, a one-of-a-kind medical growth stock, which owns the rights for robotic surgery. It is a business that is coming into its own right now and it is dynamic and fast-growing.

Is robotic surgery in widespread use?

No, but it is becoming more common. Right now, it is used for prostate surgery, and it is used in a smaller way for cardiac surgery. It is getting very good reviews and getting more and more acceptance. The da Vinci surgical system was developed in Europe, and Intuitive effectively owns all the intellectual property in this area.

Another area where companies are dominant and delivering strong growth is in electronic transactions. This showed up first with Chicago Mercantile Exchange, but recently the Chicago Board of Trade came public and it represents the same kind of opportunity: More and more of the investment business is being done electronically, and it is terrific for execution and it has created a whole new business.

This is a great growth area. All the volume goes through the electronic vendors, and there are no costs. You don't have a salesman sitting there on a telephone getting half of the revenue and commissions of 5 or 10 cents a share. Electronic trading is a huge, great business and that is why Archipelago is merging with the New York Stock Exchange, hopefully. I own CBOT Holdings [BOT] and previously owned the Chicago Mercantile Exchange.

Any others along these lines?

We talked about the Internet, and there are companies that facilitate advertising business for the Internet. One is aQuantive [AQNT], an advertising-servicing company for corporations using the Internet. They evaluate and appraise Web advertising and services. It is a terrific business. It is a growth area that didn't exist earlier but developed and is expanding because of the growth of the Internet.

What do you make of the convergence of the Internet and phone services?

It is a huge deal, and the process is just starting to evolve. Hurricane Katrina, for instance, has added to the desire of people in that area to go away from phone lines. This will help accelerate Voice over Internet Protocol. Then, too, 3G [third- generation wireless] is a big deal, and that's starting to get built out and should benefit Qualcomm [QCOM] with its CDMA switching capability. Openwave [OPWV], which develops software for 3G and mobile phones, should also benefit.

How about a few more one-decision growth stocks?

XM Satellite Radio [XMSR] and Sirius Satellite Radio [SIRI] are in the early phase of what should be good long-term growth. They are not earning money yet, but they are getting business at a very good rate. It is a good long-term area. Howard Stern [the shock jock who is moving his show to satellite] is giving a bit of current interest to Sirius. XM has had a nice consolidation from the high 30s down to 27 or 28, and is getting rebought right in here. The only negative I see is that a lot of new cars deploy satellite radio, and car sales are not exactly robust.

What about the huge amount of money they seem to lose?

They have raised enough money to be able to handle that. In some ways, satellite radio reminds me a great deal of the cable industry in the 'Sixties and 'Seventies. Once you have the customer, the business becomes an enormous cash machine, and it doesn't require much expense at all. XM is by far the leader, and when it was trading at $10 or less, we built a strong position and later added to it. Later, we bought some Sirius because it lagged so much, but when it made its first move to around $7 or $8 a share, we considered it overpriced and sold it all, but we kept our XM.

What about biotech?

I still love Genentech [DNA], Gilead [GILD] and Genzyme [GENZ]. Amgen [AMGN] has lagged and is going to start catching up. Celgene's [CELG] Revlimid oral cancer treatment is coming along for multiple myeloma. It should have very strong earnings for the next three years. Another company with great possibilities is Amylin Pharmaceuticals [AMLN], which has a new diabetic drug that's going to get much more market share than many expect. But my most interesting aggressive investment is Vertex [VRTX], which has a hepatitis-C drug going though the FDA [Food and Drug Administration]. It is in the early-to-mid-phase of the approval process. To date, all the information has been unusually positive.

Unusual in what way?

In effectiveness treating hepatitis-C, on the one hand, and lack of side effects on the other. To the degree I can get any information, it appears so far that hepatitis-C is not able to defeat this drug. The market for this would be in the billions. The demand for it is enormous, should it make it. There isn't anything else that's been successful. There are a few other drugs in the pipeline, but none of them appear to have the degree of positive effects and lack of side effects, and no successful mutation by the hepatitis-C against the drug. The demand for it is so high that there could be increasing pressure a year and a half from now on the FDA to move faster to approve it. China would certainly want to accelerate the approval process because hepatitis-C is such an enormous disease there.

Energy was a big bet for you last year.

I still like energy a lot, and the oil services I love. Schlumberger [SLB] is No. 1, but then Weatherford [WFT], BJ Services [BJS], Smith International [SII] and Nabors [NBR] are all in very good shape. Demand for their services keeps growing, and availability of equipment is still not great. They have pricing flexibility, and that is wonderful.

One area of energy that doesn't get much attention is alternative energy. It certainly has to get developed and get more attention. My favorite area there is solar, and there is a company called Evergreen Solar [ESLR], which supplies the glass for the collection of the energy, which I think is a wonderful long-term investment. Cypress Semiconductor [CY] is spinning out its division that makes chips for solar, probably sometime next month, and so there is more recognition of this area. Evergreen is a pure play and does very well. There is more demand for solar energy, and solar is also subsidized by local governments. Evergreen is in a very good position.

Any other areas?

In the medical area, there is Syneron Medical [ELOS], which makes treatments for hair removal and wrinkles.

Ah, an age play!

Yes. It is growing very nicely at 45% to 50% a year. I love companies that improve the appearance of people.

Do the systems work? Are you noticing people looking better these days?

It is successful where it is used. Another on-the-come area is nanotechnology. One of the most interesting ways to play it is through Harris & Harris [TINY], a New York venture-capital company run by two MIT graduates. They specialize in private investments in nanotechnology. They have one company that has gone public -- NeuroMetrix [NURO] -- and Harris & Harris owns 10% of it. Harris & Harris' stock in NeuroMetrix, which is trading around 36, is 20%, or one-fifth, of the entire value of Harris & Harris. NeuroMetrix develops systems to diagnose neuropathies and is a small favorite of ours. Harris & Harris has another 17 or 18 holdings, of which three or four could go public over the next year or 18 months. It is a great way to capitalize on that industry.

Are you talked out? Any other ideas?

Some of the low-cost airlines are beginning to look interesting. AirTran [AAI] is the one I would own. The whole industry has cut back and now operates at a higher load factor. There is less competition. These companies that already had lower cost structures, such as AirTran, are in a very good position.

Isn't that an unusual investment for you?

Yes it is, but it's because airlines are coming off a bottom after the collapse of the industry, in which many of the major carriers went bankrupt.

Thanks, Joe.

E-mail comments to editors@barrons.com

URL for this article:
http://online.barrons.com/article/SB1131...

-- posted by SteveT

<img align="left" src="http://images.amazon.com/images/P/0743228383.01._PIdp-schmooS,TopRight,7,-26_SCMZZZZZZZ_.jpg" border="0"> Unconventional Success : A Fundamental Approach to Personal Investment

Top 579. Nov 13, 2005 12:47 PM

» Normxxx - Keep It Simple!

Yale's Money Whiz Says Keep It Simple

By JOHN KIMELMAN | 13 November 2005

Investment Philosophy
David Swensen, YALE UNIVERSITY'S CHIEF INVESTMENT OFFICER, recommends that investors get their exposure to both U.S. and foreign stocks and even real estate by investing in low-cost and tax-efficient index funds. He recommends both regular and inflation-protected Treasuries as the best way to invest in bonds. (By contrast, he advises against corporate and even municipal bonds, arguing that call features, credit risk, and trading costs generally make them less appealing than Treasuries.)

Finally, he says that investors need to rebalance their portfolios a few times a year in order to maintain their asset-allocation targets.

David Swensen has compiled a 17.4% annualized return for his school's endowment fund over the past decade, easily making him one of America's most successful investors.

And he's done it by limiting his exposure to U.S. stocks to less than a fifth of the portfolio's assets. (See table at end.)

Conversely, he's loaded up on a wide range of more exotic investments such as private investments in timber and, of course, hedge funds. (Yale's endowment fund was valued at $15.2 billion as of June 30.)

Swensen, who earned his doctorate in economics from Yale, has written a book,

— to help individual investors achieve better results. His advice: Don't try this at home.

He argues that most individual investors, including many wealthy people, are better off with a plain-vanilla portfolio of regular and inflation-protected Treasury bonds and low-cost index funds tied to U.S. and foreign equities, as well as real-estate stocks.

"If you're an individual investor who at most is going to spend a few hours a week looking at your investments, there's no way you can identify active management opportunities reliably," he says.

Barron's Online: In your book, you suggest a model portfolio built around stocks, bonds and real estate in order to give an individual investor proper diversity. But don't investors such as yourself invest in hedge funds with short positions to achieve even greater diversity?

Swensen: What I'm suggesting here is much better diversification than most individuals currently have. For example, many investors have a 50% weighting in U.S. stocks. (Editor's note: Swensen's model portfolio for individual investors calls for a 30% weighting in U.S. stocks.)

If you look at relative valuations today, the U.S. market is expensive, developed foreign markets are better valued but still reasonably expensive and emerging markets, albeit risky, are the cheapest of the three. Somebody like Jeremy Grantham, who is incredibly smart about these things, would say that emerging markets represent the best marketable equity investment opportunity.

Q: In an effort to achieve even greater diversification, what about buying gold or gold stocks, or even passively managed "bear" funds that buy put options on indexes to counteract the effects of a down stock market?
A: Gold and other commodities over long periods of time essentially track inflation. I think the notion that the best that you can expect to do is to keep pace with inflation is too large a price to pay.

I had once suspected that the gold bugs had historical returns in their favor, but they don't. Over long periods of time, their returns have been miserable.

Q: What about bear funds?
A: The problem there is that you've got the wind in your face. I might not be expecting extraordinarily high returns from equity markets going forward, but over a long sweep of time I think they are a good thing to own.

Q: What's the best index for getting exposure to U.S. stocks, the S&P 500?
A: No, the Wilshire 5000. It is supposed to represent every marketable security out there, whereas the S&P 500 is a large-cap index. For individual investors, broader is better.

Q: Many investors are now using exchange-traded funds that track individual sectors such as technology, pharmaceuticals or financial services. What do you think of this approach?
A: You've got a couple of problems. One is that you'll get the representation piecemeal as opposed to just getting it in one fell swoop. And those sector funds tend to have higher expenses than the broader market indexes. And when investors start doing some weighting of their own, [that's market timing] they end up hurting themselves.

Q: How should investors gain exposure to non-U.S. stocks?
A: Well, Morgan Stanley has an index called EAFE and that covers all the developed economies. Then there's another Morgan Stanley emerging markets index. There are funds that play these indexes.

Q: It's pretty well known that most of the variance in investment performance— 90% or more— can be explained by basically broad asset allocation decisions rather than by individual stock and bond selection. Why is it, then, that so many investors still focus on picking the right stocks and bonds?
A: Because it's fun. Individuals systematically get it wrong and whether it's because it's exciting to pick individual stocks or try and find a hot mutual fund or because they are conditioned to do that, who knows?

Q: You are a strong opponent of the actively managed mutual-fund industry, arguing that most funds don't outperform the market index funds. But aren't there any active fund managers that you think are doing a good job?
A: One of the groups that I write about is Southeastern Asset Management, marketers of Longleaf Partners funds. These guys at Longleaf manage concentrated portfolios, they limit assets under management and they have a long-term orientation. They also don't use 12b-1 fees. (Editor's note: These controversial fees, which are paid by the fund out of fund assets, cover marketing and even shareholder service expenses.)

Well before [New York Attorney General Eliot] Spitzer got up on his soapbox about the fund industry, Longleaf went through their list of shareholders, and they kicked out people who were trading aggressively.

Q: Though you invest in hedge funds for Yale, you are very tough on most hedge funds, as well as funds of funds, that are available to individual investors. You basically argue that the ones available to most investors lack the lockup periods and the quality of management necessary to beat the market net of fees. Can you elaborate?
A: My thinking about the role of active management in individual portfolios has evolved. When I started writing the book, I thought I was going to write a slimmed-down version of what it is that we do at Yale. But I looked around, and I saw that actively managed alternatives available to individuals are pretty dismal.

I mean, if the individual knows enough to select hedge funds, then they are in a position to engage a fund of funds manager intelligently. But if they don't know enough about the underlying investments, then it's just a crap shoot if they go to a fund of funds because they don't know how to evaluate the fund of funds manager.

[Normxxx Here: Presumably, that's what John Mauldin does: provide advice on the good hedge funds. ]

Many hedge funds and funds of funds also promise unreasonable liquidity to their investors.

At Yale, we're perfectly happy if we're working with a hedge-fund manager to lock up our capital for three years or four years or five years.

Q: In other words, a one-year lockup, which is fairly common, isn't enough time to provide the necessary environment to manage money effectively and to attract the best managers?
A: No, because most interesting investment opportunities require a time horizon that is longer that that. And if the manager loses his capital at a low point, which is when investors want their money back, then you just lock in the losses.

So, when we work with fund managers, we'll try and make sure that they've got lockups that spread out over a five-year period so they don't end up being exposed to losing any more than 20% of their capital in a given year.

But if they operate with a one-year lockup or even quarterly liquidity, then they are operating with liquidity that's inconsistent with the underlying investments and that's a recipe for disaster.

Q: Thanks for your time.

While David Swensen has devised a fairly sophisticated asset-allocation model for Yale's endowment, he thinks individuals should take a simpler approach to investing their dollars.

Swensen's Targets for Swensen's Targets for
Yale's Asset-Allocation Individuals' Asset-Allocation
(Don't Try This At Home)

U.S. stocks 14% U.S. stocks 30%
Foreign stocks 14% Foreign stocks (developed) 15%
Hedge funds 25% Foreign stocks (emerging) 5%
Fixed income 5% Real estate 20%
Private equity 17% U.S. Treasury bonds 15%
Real assets 25% Inflation-protected Treasuries 15%

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

http://www.schwab.com/public/schwab/mark...

Top 580. Nov 19, 2005 6:51 AM

» SteveT - Big Time: Large-Cap Growth's Resurgence?

Liz Ann offers a weekly audio commentary at the web site and it includes a printed script along with charts tables etc.
http://www.schwab.com/public/schwab/mark...

=================================================

by Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., Inc.
November 14, 2005

See the last page of the article for regulation analyst certification and how to obtain important research disclosures.

* Understanding the difference between "growth" and "value."
* Small-caps have outperformed for an abnormally lengthy 6½ + years.
* Even the biggest of the big look reasonably valued.
* Large-cap growth finally takes the top of the leader board.

We've long expressed our view that there’s a difference between the fundamentals of growth and value, and the index definitions and constituents of growth and value. A descriptive example: Just because a stock’s expensive based on traditional valuation metrics doesn’t mean it’s a growth company.

I know that sounds intuitive, but think of it in the context of the construction methodologies for many of the more popular style indices. The only deciding factor for the Barra Growth and Barra Value indices is price-to-book: the highest 50% (based on market capitalization) of price-to-book stocks in the S&P 500® are automatically classified as Barra Growth stocks; the lowest 50% as Barra Value stocks.

Okay, this is somewhat legitimate for the value universe, as “cheap” stocks are indeed value stocks. But just because a stock has a high price-to-book, does it mean it’s a growth company? Not necessarily. Take a couple of sector examples: technology companies, many with the highest earnings growth, became value stocks at the end of the bear market because they’d taken the biggest drubbing in price and became “cheap.” Energy stocks, up until last month, were the darlings of the market since the bottom in early 2003. They lead the market largely as a result of soaring earnings growth (thanks to soaring energy commodity prices). Indeed, they had the strongest earnings growth and earnings revision trends (by far) of all 10 S&P sectors. However, they’re represented twice as significantly in the value indices versus the growth indices.

Growth can have value and vice versa
We prefer to use the Russell indices for style benchmarks as, in addition to valuation metrics, they utilize earnings growth metrics to classify companies into their Russell Growth and Russell Value indices. In fact, Russell “allows” companies to overlap and sit in both their growth and value indices—very legitimate given that there are always some growth companies that are also value stocks.

Large-cap growth ... in two steps
The capitalization differentiation is much more clear-cut: big companies are large-cap stocks and small companies are small-cap stocks. Our current emphasis within our neutral domestic equity recommendation remains toward large-cap growth stocks. The move to a large-cap bias was the first in a two-step move (mid-April), with the shift toward growth coming second (mid-May); and largely driven by our sector overweights (technology and health care) being dominant in the growth indices. Let’s focus on the likely trends that should drive outperformance of large-cap growth stocks into the near- and medium-term future.

When being bigger is better
We believe small-cap’s leadership is coming to a close as its duration is getting more extended (even if not yet unprecedented): Over the past 45 years, the median small-cap leadership period lasted about 4¾ years, including a mega leadership period from the mid-1970s through the mid-1980s. The current small-cap leadership period is now more than 6½ years long (in the tooth?), as you can see in the chart below.

Large underperforming small for over 6½ years

As of October 2005. Source: Frank Russell Company.

Small-cap valuations are also stretched with the Russell 1000 Index® (large cap) currently trading at under 17 times next year’s earnings versus 28 times for the Russell 2000 Index® (smal cap). Honing in on the "E" part of the P/E equation, small-cap earnings momentum is fading and is no longer superior to large-cap in historical and relative terms.

One reason for this is the increasing pressure rising interest rates are having on smaller companies, as larger companies tend to be more interest-rate insensitive. Technical conditions still show a prejudice toward small-caps during up-moves in the market overall, but we think we’ve reached the turning point where large-caps will show more life, even during rising market periods. Even the biggest of the big look reasonably valued currently:

Today's Market > Recent Commentary

Big Time: Large-Cap Growth's Resurgence?
Print

by Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co., Inc.
November 14, 2005

See the last page of the article for regulation analyst certification and how to obtain important research disclosures.

Large underperforming small for over 6½ years

As of October 2005. Source: Frank Russell Company.

S&P 500 forward P/E by cap quintiles

Cap P/E EPS'05 Y/Y
Quintile 1 $128B 16.2% 32.5%
Quintile 2 19 17.6 24.3
Quintile 3 11 16.8 22.4
Quintile 4 7 19.1 12.7
Quintile 5 3 20.3 16.0

Source: ISI Group.

Being growthy doesn’t hurt, either
In fact, the relatively better performance by both large-cap and growth stocks recently has put the Russell 1000® Growth Index in the number-one spot for performance year-to-date (excluding dividends):

Index YTD
S&P 500 1.9%
Russell 1000 Growth 3.1%
Russell 1000 Value 2.9%
Russell 2000 Growth 1.7%
Russell 2000 Value 1.7%

You can see this improved performance in the chart below, which tracks the performance of large-cap growth versus large-cap value stocks over the past 27 years. We think this flatter trend will soon turn up, at which point large-cap growth stocks will be the definitive style leader.

Always relying on trusty Schwab Equity Ratings®, here’s the current top-10 composite list of the most highly rated stocks within the large-cap growth universe. Note that fully half (five of 10) are technology or health care stocks, our two favored sectors.

Schwab large-cap growth stock list

Ticker Company SER* Price* P/E ratio (last 12 months) Market cap Sector
AXP American Express Co A 50.45 16.33 62.64B Financials
BAX Baxter International Inc A 38.65 31.42 24.10B Health care
BDX Becton Dickinson & Co A 58.48 21.11 14.62B Health care
BA Boeing Co A 65.35 23.17 52.75B Industrials
BRCM Broadcom Corp Cl A A 45.35 56.69 15.61B Information technology
EMR Emerson Electric Co A 71.55 21.04 29.56B Industrials
BEN Franklin Resources Inc A 95.00 23.40 24.01B Financials
INTC Intel Corp B 25.13 18.75 151.51B Information technology
NTRS Northern Trust Corp A 53.35 20.76 11.64B Financials
TXN Texas Instruments Inc A 31.12 24.50 50.35B Information technology
*As of Nov. 11, 2005. Source: Charles Schwab.

Regulation analyst certification
As to each company and security covered in these materials, the named analyst certifies that the views expressed in these materials accurately reflect the analyst's personal views about the applicable subject securities and issuers and that no part of the analyst's compensation was, is or will be related to the specific recommendations or views contained in these materials.

The views expressed in these materials that relate to Schwab Equity Ratings® accurately reflect Schwab's quantitative research model, and no part of Schwab's compensation was, is or will be, directly or indirectly, related to the specific recommendations or views disclosed in the research report.

Important research disclosures
To obtain a copy of applicable research disclosures on the companies named in this article, please write to 101 Montgomery Street, SF120KNY-27-210, San Francisco, CA, 94104.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.

-- posted by SteveT

Top 581. Nov 21, 2005 9:21 AM

» Normxxx - Permanent Tourist

Permanent Tourist (PT)

By Harry Schultz | 21 November 2005

PT
A wise old PT hand sent me this valid comment: "All countries are unfree in different ways. So a PT will pick a place that is easy on his/her proclivities & harsh on things they don't care about. Depending on your lifestyle, there are probably many places far freer for most people than the leading Anglo Saxon democracies. U just have to look around & test the waters before settling in for a few years of good fishing."

••••• It gets ever harder to write PT copy, especially as Anglo Saxon nations follow like cowardly sheep behind Washington's neo cons, who continue to delete individual freedoms & impose ever more restrictions. Yet, on a trip to Switzerland 3wks ago I found free-spirited people are fighting back, but with more subtle approaches. Freedom is hard to smother to death. This requires U read between the lines, from now on. E.g., new types of credit cards are available that don't have your name or address & not your bank (but some bank). If U surf the Net U may find them, or via some small Swiss banks which now offer them to clients (only).

We entered a new slave age in about 1970, which escalated sharply in the 80's, 90's & went ballistic since 2000. Our political masters want us to have zero liberty, privacy, choice. That is not conjecture. They require that in order to control us, which may be a subliminal need for some of them. They've achieved much of this aim. U have to think further out of the box now. Becoming a free man/woman (PT) via "Permanent Tourist" was always the best route, however U implement it. Some leave their country & return later to a different location to make a fresh start with no ties to the former city. Some leave & only return for short visits. Some never return. Many change (or set in motion to change) citizenships, though that's optional, except for Americans, Filipinos & some Scandinavians.

PT is a broad category that U may wish to employ only in regard to sending funds abroad so it's out of reach of where U live. History says that's prime wisdom. Some employ certain PT tactics just to be low profile, & stay put. Some prepare a nest abroad just in case, & prepare to leave on 1-day notice. Some keep citizenship but prefer to live abroad in a safer or freer environment. Etc.

•••Using E-mail to communicate sensitive, private subjects is very non-PT. It ranges between stupid & ridiculous + lazy— even if encoded— in fact, coding can attract attention. Snailmail (post) is most private. Faxing is a compromise, as is courier.

Sending funds offshore, wherever U live, is now not optional. It's now essential— to preserve your buying power, safety & accessibility. And, whereas before that was just with a nestegg sum, now it should be the majority of liquid assets. Feel free to ignore this counsel; it's your life! U want to start all over again? U feel snug as a bug in a rug? Bugs get vacuumed.

Since creating the PT concept decades ago, it has spread far & wide. Many young Turks have taken up the reins from me, retired from the field. I get a chuckle when I see my prior copy coming back on the Net from young bucks. One such is David MacGregor, Sovereign Life Enterprises, 126 Aldersgate St, London, EC1 A4JQ, UK. I don't know him, but he writes interesting copy. Here is one such bit, regurgitated: "This strategy is often known as being a 'PT'— which means Perpetual Traveller. It can also mean: Permanent Tourist; Prior Taxpayer; Possibility Thinker; Post Tyranny; Privacy Tactician, & any other positive label U can think of that spells 'PT'."

•••• If U want legal/structural advice from a real PT lawyer/advisor, in Channel Isles, contact Hslm Stefan Gomoll at SG@SGLAW.CO.UK. Fax +44 1481 832802.

•••• I hear that an ultimate PT book by 'grandpa' will be out by Xmas. Will try to get details for next HSL.

••••Meantime, be a Positive Thinker to be a Prosperous Trader or Timetraveler. .

PT #2
Rare coins solve some PT problems for US readers says US coin dealer Hslm Ed Lee. He says "U can privatize a big % of your assets via collectibles like rare US coins. Why? No gov reports needed on buy or sell so it's private, & portable (unlike heavy bullion coins). Not subject to confiscation. US gov values rare coins at face value upon US exit (vs bullion coins at mkt value). Rare nickel just sold for $4.15 mil; can take in carry-on luggage, & 100% legal. Rare coins also offer legal tax-deferred/tax-free trading for other rare coins, as with real estate, except property trades require a gov report. A rare privacy opportunity. Only buy rare coins from reputable dealers w/low overhead, & all must be lab-graded by NGC or PCGS. When sold, $ can be wired to any nation U choose for PT life. Some feel US gov will move against non-rare gold as terrorists can use. For more info contact me (47 yrs coin experience). Free consult re the above. OK mention hsl. Edlee2001@aol.com. Tel 603-429-0869/ 800-836-6000; fax: 603-429-2095."

[Normxxx Here: If you are not prepared to take up numismatism, avoid rare coins! It is not a market for amateurs (if any are). ]

Uncle Harry D (for Demystifying) Schultz

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 582. Dec 7, 2005 6:28 AM

» Kirk - Guitar Signed By Financial Titans Up On eBay

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From http://www.luxist.com/entry/123400055307...

Guitar Signed By Financial Titans Up On eBay

Posted Dec 7, 2005, 8:01 AM ET by Deidre Woollard

Guitar signed by rock stars aren’t anything new but how about a Fender Stratocaster signed by some of the world’s most noted financial gurus. Minyanville Publishing is auctioning off a white Fender signed by George Soros, Warren Buffett, Peter Lynch, Bill Gross, Jim Rogers and others to benefit the Ruby Peck Foundation, a non-profit organization dedicated to a broad base of children’s educational programs.The auction starts on today and ends on December 16. It’s especially a deal if your name is Todd since the guitar was presented to hedge fund manager Todd Harrison, founder of Minyanville and nearly all the signatures start with “To Todd.”

Coming Auction - December 7^th - 5pm EST

One-of-a-kind Fender Stratocaster signed by Warren Buffett, George Soros, Peter Lynch, Bill Gross, Jim Rogers and Others

The Official Story

A group of special Minyans have transformed this electric guitar into a unique showpiece and collector’s item. This white Fender Stratocaster guitar has been signed and dedicated with personal messages to Todd Harrison and Minyanville by the country’s biggest and most respected names in finance.

After the guitar crisscrossed the country for two months being signed by people including Warren Buffett, Peter Lynch and Bill Gross, the Minyans presented the guitar to hedge fund manager Todd Harrison, founder of Minyanville, to be auctioned for charity.

Those who were instrumental in the autograph-fest chose a new, white Fender Stratocaster guitar as the vehicle because hedge-fund manager and financial commentator Doug Kass publicly nicknamed Harrison as "Hendrix", after the guitar-playing legend, Jimi Hendrix.

Now that it has been signed by a list of financial luminaries (please see beloe), one manager described it as the Wall Street equivalent of a baseball bat autographed by the 1927 Yankees.

Special thanks to DHL which donated door-to-door service for the guitar as it traveled the country.

Minyanville is a leading contributor to the Ruby Peck Foundation for Children's Education. Harrison created the foundation in honor of his grandfather, Ruby Peck, as a non-profit organization dedicated to a broad base of children’s educational programs.

A group of special Minyans have transformed an electric guitar into a unique showpiece and collector’s item. This white Fender Stratocaster guitar has been signed and dedicated with personal messages to Todd Harrison and Minyanville by the country’s biggest and most respected names in finance.

Now that it has been signed by a list of financial luminaries, one manager described it as the Wall Street equivalent of a baseball bat autographed by the 1927 Yankees.

The date for the event is December 7, 2005. Until then, the guitar is being housed in a vault at a Fleet Bank branch in New York City. Special thanks to
DHL which donated door-to-door service for the guitar as it traveled the country.

The guitar bears the signatures of these influential financial gurus

Warren Buffett, Chief Executive Officer of Berkshire Hathaway Inc.
George Soros, Chairman of Soros Fund Management LCC
Peter Lynch, investment guru and former manager of Fidelity’s Magellan Fund
Bill Gross, Founder and CIO of Pacific Investment Management Co.
William Fleckenstein, President of Fleckenstein Capital
John Roque, Senior Vice President of Natexis Bleichroeder
Leon Cooperman, Founder and Principal of Omega Advisors
Paul Tudor Jones, Founder and Principal of Tudor Investment
Mario Gabelli, Chairman, CEO, and CIO of Gabelli Asset Management
Seth Tobias, Founder of Circle T Partners
Jim Grant, Editor of Grant's Interest Rate Observer
Jim Chanos, President of Kynikos Associates
Jerry Jordan, President of Hellman, Jordan Management Co.
Tony Dwyer, Equity Market Strategist of FTN Midwest Research
Douglas Kass, General Partner of Seabreeze Partners and Kass Partners
Jim Rogers, Co-Founder of the Quantum Fund and author of the Adventure Capitalist and Investment Biker
Jeffrey Saut, Chief Investment Strategist, Raymond James.
Steve Galbraith, former Chief US Strategist at Morgan Stanley, Principal at Maverick Capital.
Todd Harrison, former President of Cramer Berkowitz, Founder & CEO of Minyanville Publishing & Multimedia, LLC.

sniff... sniff... they didn't ask me to sign it. sad

Maybe someday. smile

I heard a few others asked to sign it but they were given white ink. smile

As of 12/4/05 the Total Return for "Kirk's Newsletter Portfolio" since 12/31/98 is Up 194% while the S&P500 only up 13%!!! & NASDAQ only up 4%!!! (my portfolio beta is roughly equal to that of QQQQ.)

For 2005, Kirk’s Newsletter Portfolio is Up 13.1% YTD vs. QQQQ up 5.5% YTD vs. DJIA UP 0.9% YTD vs. S&P500 Up 6.1% YTD

-- posted by Kirk

Top 583. Jan 8, 2006 2:33 PM

» Kirk - Dudack predicts S&P 1450 for 2006

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The Coming Week
Coming Week: Ready for Takeoff
By Nat Worden
TheStreet.com Staff Reporter
1/7/2006 1:02 PM EST
URL: http://www.thestreet.com/markets/thecomi...

After the market ended 2005 sourly, it began the new year with trumpets sounding. Traders in the coming week will look to add to those high notes.

Stocks vaulted last week, with the S&P 500 climbing 2.7% to a four-and-a-half year high. Even with the mild returns logged in the U.S. equity markets last year, traders are excited about finally crossing a big technical milestone. The Dow Jones Industrial Average, which rose 2.2% on the week, ended at its best level since mid-2001, while the Nasdaq Composite climbed 4.5%, also reaching a four-and-a-half-year high.

"If you break out tech stocks, the broader stock market hasn't done much of anything since 1998, so I think we're getting ready for a move here," says Bill Rhodes, chief investment strategist with Rhodes Analytics. "It doesn't look like interest rates are going a lot higher."

Interest rates appear to be the key for traders, judging by the market's reaction to Friday's lackluster jobs report. The government said the economy added 108,000 jobs in December, about half of what Wall Street was expecting. November's figure was revised up to a robust 305,000 from the previously reported 215,000, but traders latched on to December's tepid pace as a sign the Fed could ease up on monetary policy soon.

On Friday, the S&P 500 rose 12 points, or 0.9%, to 1285.45; the Dow closed up 77 points, or 0.7%, to 10,959; and the Nasdaq surged 29 points, or 1.3%, to 2306.

"A typical economic recovery will see job growth north of 220,000 new jobs a month," says Gail Dudack, chief investment strategist with SunGard Institutional Brokerage. "And we've had very few months above that level. So, this job market looks stable, but not robust, and that is what will put restraint on the Fed in 2006."

Even with less-than-remarkable growth in the job market, Dudack predicts the S&P will run up to 1450 this year (which would yield an overall return of about 13%, not including dividends), and 2006 will be a year of unwinding fears about energy prices and inflation in the stock market.

"A lackluster job market means the Fed will have to be a lot more careful about how much they can raise rates before hurting the economy," she says.

The Fed has now raised the target for its overnight lending rate for 13 months in a row, bringing it to 4.25% after years of record-low rates. After the data hit, fed funds futures put the odds of another quarter-point hike to 90% for January and 50% for March, according to Miller Tabak. The odds for a hike after that went from next-to-nothing to nothing.

Meanwhile, there are other factors in the inflation game outside the jobs market. Oil prices have persisted at the once unthinkable $60-a-barrel level, and they were a major factor in pushing up the headline number on the government's consumer price index last year.

After crude hit $70 in the wake of Hurricane Katrina, the energy market began to show signs that it had hit its threshold. Oil companies unveiled plans to step up spending on exploration and development, and consumers showed more inclinations toward fuel economy than they did in recent years. Some observers believe such factors will bring about the eventual downfall of crude prices in 2006.

Others aren't so sure.

"Oil prices are the fly in the ointment these days as far as the economy is concerned, and until things calm down politically around the world, it's tough to say where they'll be headed," Rhodes says.

Gas prices have been a drag on consumers, probably playing a role in disappointing holiday sales results at Wal-Mart (WMT:NYSE) . This coming Friday, the market will get a look at broader retail results for December. The government is expected to report that sales rose 0.8% for the month, up from 0.3% recorded for November.

Also Friday, the Labor Department releases the producer price index, a measure of wholesale price pressures, for December. Economists predict the PPI added 0.4%.

For another closely watched inflation reading, the government on Thursday will report December's moves in import and export prices.

As for economic fundamentals, prognosticators are expecting sharp reminders of pitfalls that loom for the economy on Thursday, when investors will get an update on the so-called twin deficits.

Back in October, the U.S. trade deficit ballooned by $3 billion to a record $68.9 billion, confounding forecasters who were expecting a decline. They're predicting a drop again for November, with the total deficit expected to drop to $65.9 billion -- still a level that has been called unsustainable over the long run.

Its twin, the federal budget deficit, posted a year-over-year gain of 43% to $83.06 billion in November. That figure is expected to decline by $2.8 billion for December.

Neither twin provides a bright spot, but investors have their eyes on the punch bowl, betting that strong profits and increased business spending will keep the market going higher.

" [Price-to-earnings multiples on U.S. equities] contracted last year because corporate profits grew faster than expected while the market was locked down by inflation fears," Dudack says. "Those fears should abate as the Fed eases off, and we should see valuations expand."

The earnings schedule for the week is light, but on Monday industrial stalwart Alcoa (AA:NYSE) is set to release its fourth-quarter results. Analysts polled by Thomson First Call are expecting the Dow component to report fourth-quarter earnings of 37 cents a share, down from the 39 cents a share recorded a year earlier. Alcoa's report usually marks the unofficial start to the earnings season, which will pick up steam after this week.

-- posted by Kirk

Top 584. Feb 11, 2006 9:24 AM

» SteveT - Former Analyst 'Fesses Up

Former Analyst 'Fesses Up by Howard R. Gold

A new memoir by a former top telecom analyst (no, not Jack Grubman) recalls a dishonest decade on Wall Street -- and suggests why many individuals wisely stay away.

THE SCANDALS THAT ROCKED WALL STREET a few years ago have faded and the world has moved on.

Some corporate malefactors, like Tyco International's Dennis Kozlowski and Bernie Ebbers of MCI WorldCom, face long prison terms.

Meanwhile, Enron's Kenneth Lay and Jeffrey Skilling await their day in court.

But only a few executives from the big Wall Street firms that helped those companies defraud investors will actually go to jail. And despite billions of dollars of settlements and penalties shelled out by firms like Merrill Lynch and Citigroup for their roles in various scandals, many Wall Street firms earned record profits in 2005 and they're paying out all-time-high bonuses of $21.5 billion.

And what about the analysts, who sold much of the investing public on dicey or fraudulent ideas to boost their firms' investment banking business?

Well, only two that I can think of -- Henry Blodget of Merrill and Jack Grubman of Citigroup -- have had to pay fines and leave the securities business. Not a single one went to jail.

I don't know whether any of them technically broke the law. But what too many of them did sure was a crime against investors, in my view (see Fighting the Tape, "Be Very Afraid, Sandy1," Oct. 10, 2002).

Now along comes a former member of that sadly debased profession to tell what it was like on the inside during that time.

Dan Reingold was a leading telecommunications analyst at Morgan Stanley, Merrill and Credit Suisse First Boston from 1989 through 2003, when he left the profession. He was a good source in the early to mid-1990s when I wrote a lot about telecom for Barron's, including an extended Q&A with him in 1995.

With his niece, Jennifer, a writer for Fast Company, he now has written a book, Confessions of a Wall Street Analyst. It covers his years on Wall Street, from his naïve beginnings to his sadder-but-wiser retirement at age 50. The book, published by Collins, goes on sale Feb. 7.

Although not quite a tell-all (Reingold managed to steer clear of personal involvement in the scandals), it is at times a fascinating glimpse at the insular, rarefied world these elite analysts inhabited during one of the biggest stock-market booms the world has ever seen. From flights on private jets to brushes with celebrities to multimillion-dollar pay packages that didn't cause the bosses to blink, their world was as remote from that of the average investor as Pluto is from Earth.

And Reingold's tenure coincided with dramatic changes in the analyst's role. "I'd experienced firsthand the transformation of the stock analyst from a backroom number-cruncher to a rainmaker whose recommendations were followed breathlessly and who often determined whether an investment bank won or lost multibillion-dollar deals," he writes.

He also covered a sector that had once been full of dull-as-dust utilities but now was at the vortex of Wall Street's deal-making machine. Indeed, he thinks investors lost far more money from telecom disasters like WorldCom and Global Crossing than from Internet jokes like Pets.com

But beneath the veneer of glamour was the stench of corruption. He describes Wall Street as "a jungle of greed and ego in which ethical standards had fallen so low that not only was it difficult to do the right thing, but often it was difficult to even discern the line between right and wrong."

From the very beginning of his stint as an analyst (he joined Morgan Stanley from the investor relations department of MCI), Reingold noticed that the biggest players got the best information first -- and acted on it -- and that investment bankers were seriously encroaching on the independence of research departments.

"We do not make negative or controversial comments about our clients as a matter of sound business practice," read a notorious 1992 memo from a top Morgan Stanley investment banker.

As the decade rolled on and the money got bigger, the conflicts of interest only grew worse.

Jack Grubman, Salomon Smith Barney's top telecom analyst and Reingold's bitter rival, personified them.

Grubman, a key figure in Charles Gasparino's Blood on the Street, plays the villain in this morality tale.

"Brash, arrogant, reckless, and -- literally -- daring," in Reingold's words, Grubman was Wall Street's Prince of Darkness, both in his fatal friendship with Ebbers and in his eagerness to go "over the wall" -- the so-called Chinese wall that separated investment banking from investment research.

In the 1990s, of course, that wall held about as well as the levees in New Orleans did when Hurricane Katrina struck.

"'The role of the sell-side has changed so dramatically,'" Grubman told Institutional Investor in 1999. "'You try to do your best to stay objective, but it's becoming an increasingly difficult challenge.'"

In many ways, though, Grubman understood the essence of the Street better than the more staid Reingold did. He also was more in tune with the times -- "a low, dishonest decade," as W.H. Auden once described the 1930s.

How did Reingold resist the temptations? First, as a top analyst he had clout and an ironclad employment contract. "You have the power to say 'no,'" he told me this week in a phone interview.

But he also had a firm moral compass.

When faced with the choice between a standard seven-figure-salary plus bonus at CSFB and a contract that offered him a cut of any fees on telecom deals he brought in, Reingold did not go through an agonizing Anakin Skywalker stay-a-Jedi-knight or become-Darth-Vader decision.

"I didn't for a second plan to take that," he told me. "I thought these guys had so lost their bearings of right or wrong."

Having made "far more money than I had ever yearned for or deserved," Reingold now teaches at Columbia's Graduate School of Business, does charitable work, takes film classes and spends time with his family. I caught up with him when he was on the slopes in Utah. Nice work if you can get it.

His conclusions?

"Crime pays," he says, since so few analysts or Wall Street executives were penalized for their role in fleecing investors (see Fighting the Tape, "Wall Street May Get Away With It2," July 10, 2003). He also sees the recent reforms as incomplete, since they didn't clear up the "inherent, underlying conflict" that undermines analysts' independence.

As an outsider, I see Wall Street as a different place these days. It's much harder to pick up the phone and chat with analysts like Reingold, the way I did a decade ago. Now, you have to get "clearance" from PR and legal departments, work through more disclaimers than you face when you lease a car and even then, many analysts are more circumspect than they were.

Also, people don't hang on every word of Wall Street axes like Reingold and Grubman anymore. As individual investors left the scene (see Fighting the Tape, "R.I.P. Individual Investor3?," June 9, 2005), the investing world has become increasingly dominated by hedge funds, private-equity investors, university endowments, what have you. If not irrelevant, analysts have certainly been marginalized.

In many ways, though, Wall Street hasn't changed: "It all comes down to money," Reingold says. Individual investors learned that the hard way, and they're wisely staying away. Reingold's memoir is a sad reminder of why.

Reading it, I was reminded of what Harry Truman once said about Washington: If you want a friend on Wall Street, get a dog.

E-mail comments to online.editors@barrons.com

Howard R. Gold is editor of Barron's Online. Fighting the Tape appears twice a month.

URL for this article:
http://online.barrons.com/article/SB1137...

-- posted by SteveT

Top 585. Feb 19, 2006 7:57 PM

» Normxxx - Grantham: Forecast for 2006

Forecast for 2006

By Jeremy Grantham | 19 February 2006

2006 is the second year of the Presidential Cycle, which has typically been a weak year for stocks. The average real return for year 2s of the election cycle since 1932 has been +3.2%, with a little more than half of the years having a negative real return. Now, the +3.2% real return points to a weak year for the market, but it fails to pick up on something very interesting that happens within the course of the average year 2. As it turns out, the “year 2 effect” only lasts through the first 3 quarters of the year, at which point, year 3 begins. (The third year of the Presidential Cycle is the strongest of the 4 years, with no down years since 1950.)

Take a look at the following table:


Year 2     Jan - Sep     Oct - Dec
Return         -4.1%          7.6%
% up years       44%           83%

As you can tell from the average returns and hit rates above, the last quarter of year 2 is a much better time to be in the market than the first 3 quarters. If that’s not enough data mining for you, let’s split the January – September portion of the second years into cheap and expensive halves based on value. Slicing the data in this manner, 2006 ends up in the expensive half of year 2s where only 1 of the 9 years being studied ended in positive territory, and had an average real return of -14%.

Given that most of our sample lies in the pre-Greenspan and Helicopter Ben era, where there was a lot less moral hazard flowing around the markets, let’s settle for a -8% return for the first 3 quarters of 2006. Recommendations for (the first 9 months of) 2006 Cash and more cash! Better yet, good cash substitutes like a conservative mix of hedge funds. We would suggest holding as much cash as your career risk will allow you to, which usually is not very much. We run a variety of asset allocation products with varying degrees of aggressiveness. The absolute return accounts where we manage portfolios to make real money, i.e., beat inflation by the widest margin possible, are moving towards a 50% total weight in hedge funds and cash plus strategies. Within equities, emerging is still our favorite asset class, followed by high quality U.S. stocks, which are starting to look pretty exciting on a relative basis following another year of poor performance.

Actually, avoiding stocks of junky U.S. companies, or shorting them where possible, is probably an even better bet than buying U.S. high quality stocks. At the high quality end, our interest is substantial, but our enthusiasm is moderated by the large element of specific risk: the stocks are so large, and industry concentration so high, that there is substantial risk for something going badly wrong with, say, a large drug company or the drug industry itself. The junky portfolio, in contrast, is made up of smaller and more diversified bets. Within fixed income, our second favorite category after cash is the 10 year TIPS with a real yield of 2%. All in all, we are cutting risk across our portfolios and concentrating most of the available risk units on emerging equities.

Taking as little risk as possible and living to fight another day seems to be the mantra for at least the next 9 months.

______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx