Southwest Ranch Financial, LLC
January 2008 Update
The S&P500 is at 1468 on 31-December-2007

This page can be linked to at   ( www.swranch.net/emails/2008-01.htm ).

The Southwest Ranch Financial Market Alert Timing Model is in the stock market.  Since the last buy signal in February 2003, the S&P has risen 77%.

Year to date, the S&P500 index is up 5.4% and the SWR Balanced Portfolio is up 5.2% (with half the stock market risk.)

Here’s the year to date performance of the SWR Balanced Portfolio by asset class.

As of 12/31/07

Market Alert Model
The SWR core model is used to time large cap stocks. It’s currently IN the stock market.  Stay invested with conservative diversification.

Year Ahead Timing Model
The YAT model is used to indicate periods of buy opportunities within the Market Alert Model’s timing cycle. The SWR Market Alert Model always trumps the YAT model. The YAT model is positive.

Interest Rate Model
The SWR Interest Rate model is negative on interest rates and long bonds.  

Gold Model
The SWR Gold Model is positive on gold.

Market Commentary
The year 2008 starts amid a growing problem with mortgages that threatens to infect prime borrowers and the credit card industry. To prevent a further infection, the federal government is pulling out the stops to save the major banks. After the November election, someone will have to pay for all the deficits and cash spent to prop up Wall Street. The plan is to present the bill to the middle class as a holiday present in late 2008 in the form of higher taxes and reduced benefits for the future elderly. This is baked in the cake already. As investors, we need to realistically assess the risks now and take actions to preserve capital over the next two decades.

Over the last several months I've expressed my views about the growing US deficits, reckless spending and the general incompetence of our elected leaders. The political climate in a nation is not immaterial to investors and that's why I comment on it. Foolish policies set a trend that usually continues. Will congress have the stomach to hold the line on spending when the Fed is forced to raise interest rates and people start howling? We'll see.

The US has temporarily lost its focus on good governance and drifted into a cesspool of serving the greediest in society at the expense of the public. We have people from Goldman Sachs running the Treasury while the same company hands out an average bonus to its 30,000 employees of $600,000 per person - huge gains were made allegedly betting against subprime while our Treasury Department encouraged these lending practices. The ineptitude of the Federal Reserve and other regulators is mind-boggling. Government policy is now predictable to Wall Street and this makes it easy for them to game the system. I'm sure Wall Street is two steps ahead of the Fed right now and they will profit immensely next year too. As the financial situation continues to unravel, the risks increase. Professor Robert Shiller at Yale warns that it will only take a slight shift in public and business confidence to set a recession in motion. He's the co-developer of the Case-Shiller Housing Index. This past week he stated that house prices may not bottom for five years.

I read Alan Greenspan's book Age of Turbulence. He continually speaks with admiration for the "creative destruction" concept of pure capitalism and applauds his personal role in spreading the free market ideal across the world. That's fine - I love free markets too. But, what is going on when he and his former Treasury Secretary pal Larry Summers recommend giving cash payouts to people who can't make their mortgage payments? Alan was clearly warned about subprime loans, but wouldn't act preferring to trust the "invisible hand of the market" rather than use his power over banks to protect the public interest. Well, folks, that's the invisible hand of the Fed in the pockets of American taxpayers bailing out the banks. This has nothing to do with helping the public, but is 100% about spending taxpayer money to save Wall Street and to cover up their frauds and stupidity. It amazes me that amidst all the misrepresentation and doctored loan applications involved with these lending practices (see San Francisco Chronicle article) that the public should have to pick up the tab while these "free market" guys let the perpetrators and the incompetents skate on their transgressions. I don't heap excessive scorn on Greenspan because he really had no control over the Treasury department or the politicians and had to deal with issues real-time. The Fed has to manage monetary policy to fulfill its twin mandates - full employment and stable prices. He was successful in that sense. His guilt lies in his over confidence in libertarian ideology and the belief that free markets would solve all problems.

The failure to rein in abusive and excessive lending practices is the direct result of ideology trumping the traditional role of government. That is, the federal government's prime job under the constitution is to defend the public and not just from foreign armies. They failed. Our nation's leadership is polarized between the Loony-Left-PC-Free-Lunch bunch and the Righteous-Right-I've-Got-a-Hotline-To-Heaven crowd. The vast middle ground of common sense folks in America don't have a voice with the political parties. Bad judgment and greed have brought an economic calamity upon us. The crackpots on both extremes are like terrorist moles undermining our institutions with imbecilic ideas. Now, they say the financial risks are so great that we must ignore the moral hazard of providing bailouts. I strongly disagree.

The major banks were bailed out before in 1991 when they were careless on international loans. The current lending problems are even bigger. They survived only to fail again and now expect another handout.

It should be quite evident that the role of government is not aligned with the interests of the public and we have to pay attention to that fact. As the central bank prints more and more money, our financial security becomes more precarious. All it will take is one ambitious and populist presidential contender to start pointing out the truth to the American voter to start a cascade of trouble.

President Bush has a reputation for being obstinate, but also as a firm believer in free markets. Will he continue to play along in hopes the inevitable financial blowback will drift into the next president's term or does he believe it can go on forever? The latest list of economic debacles is reaching its crescendo on his shift. He fired Treasury secretary Paul O'Neil who wouldn't play ball with Wall Street and then hired Goldman's Henry Paulson. Will blind loyalty ever succumb to whatever integrity he possesses?

On the other side of the page, I don't believe the lefty extremists who say we have 10% inflation and the government is lying about everything. That's not true. The inflation outlook is currently stable. Ominously though, the leading indicators of economic growth continue to fall while the leading index of house prices is now falling at a faster rate (www.businesscycle.com). The Treasury will likely keep short rates low encouraging speculation while pumping the economy with cash. But, if business confidence drops, no amount of spending or interest rate stimulus will prevent the mother of all recessions. We're not there yet, but the risks are increasing. Meanwhile, I again urge caution with your investments. Cash is not a bad thing if better opportunities lie ahead.

Because of market risk, starting in 2008, I am placing more focus in these eletters on stock investing with capital preservation and reasonable growth as a key directive. I still believe passive index investing will preserve capital, but feel that risk can be further reduced by shifting some allocation of S&P500 and Small Cap stock assets into conservative dividend paying stocks. For reasons to be further explained, the stars are aligning to bring dividend stocks back into vogue. I think this additional strategy will serve a broader range of site subscribers who wish to take more control of their portfolios.

Why Dividends and Why Now?
John Templeton predicted in 2003 that the years ahead would be ones of stagflation - higher inflation and high interest rates. Alan Greenspan predicts much the same in Age of Turbulence and that's only if the Fed is allowed to do its job. Otherwise, it will be worse. A subscriber sent me an email and asked how my balanced portfolios would perform during a period of stagflation. So, I decided to do some fact checking.

The classic years for stagflation in the US were 1966 to 1981 when the nominal level of the S&P500 was flat. The index started 1966 at a level of 66 and ended 1981 at 68. Yearly inflation averaged over 6% so inflation-adjusted real returns on the S&P500 stock index were miserable. You'd have done much better in cash. Gold went from $44 to $425 over the same period. I don't have the detailed data, but I know small cap stocks did much better than large caps. Real estate doubled.

Greenspan says (pg. 484) inflation could average 4.5% over the next 25 years and that's if the nation's finances are managed well. He says the 10 year treasury bond will rise to 8% (at least) and perhaps higher. Again, that's if things are done right. If Congress and the president screw things up, then short term rates could easily go to low double digits and it's any guess on long term bond rates. He insists that proper monetary management by the Fed can duplicate the control of a gold standard, but the politicans must cooperate with the Fed. He says it will be bad for stocks and inflation if they don't. In any event, the US economy is destined to become much larger with a continued focus on intellectual property and advances in technology.

The future will not evolve as in the past, but it would be stupid to ignore the lessons of history. I decided to see how a mix of dividend paying stocks and bonds would hold up. To that end, I contacted Vanguard and asked for data on their Wellington fund which is invested 65% in dividend paying stocks and 35% in bonds. Below are the returns for the Consumer Price Index (CPI), a cash money market fund, the S&P500 and Wellington Fund (vwelx).

From 1966 to 1981, the 10 year tbond averaged 7.8% which is about what Greenspan predicts for the next 25 years out to 2030. So, what can we expect from that sort of environment? The S&P500 did terrible over those 16 years whereas Wellington held its own. The 1973-74 recession years were very bad for stocks. The PE ratio of the S&P500 fell from 18 in 1972 to 7.5 in 1974. It then stayed mostly below 10 through 1981. The dividend yield rose from under 3% in 1966 to 6% in 1977. PE ratios fall because the market discounts all assets relative to interest rates.

Wellington Fund was hit hard during 1969 and 1973-74 as CPI inflation went much higher than average dividend yields. During a period of high inflation, the protection of the dividend tends to break down. Bonds lose badly. A dividend stock portfolio must be managed to ride the yield wave and not stay with low yield issues. Once PE ratios dropped below 10 in 1975, dividend stocks were powered up and beat the S&P by 3% per year.

From the above chart it's clear that in times of rising inflation matching the returns of the S&P500 is a ticket to the poor house. John Templeton said it best, "inflation is hell on equities". Sitting in cash will match inflation, but provide no ability to grow inflation adjusted capital. We need a strategy that works in good times and bad. Successful investors will need to be more involved in their investing.

Don't think that dividend-focused Wellington is just for old folks. It's up 8.3% for 2007 vs. 5.4% for VFINX( SP500 index fund). Over 10 years, it beat the index 10.1% vs. 9.3%.

The future investing environment will be different from the 1970s and in ways I can't predict. The US is no longer a manufacturing economy - that's a big change. Houses prices are falling, not rising. I suspect small cap stocks will struggle. With dividend yields currently so low at 1.80%, I just don't see much value in many stocks. That's the lowest yield in 130 years. The average US dividend yield since 1929 was 4.0%.

Bush and congress spent $5 trillion to prevent the stock market from falling after 2001 and this distortion is showing up in earnings and yields. I think the market has unfinished business to take care off. The US government's rate of debt expansion has to drop thus removing a key prop under segments of the stock market. Consumer spending will be affected by declining house prices. In addition, demograhpics are a factor with the aging boomer population having to save more rather than spend. Corporate profit margins are at historical peaks. The forces coordinated against the stock market are formidable.

Over the next several years, we may see some really good stocks get hammered as the debt bandwagon breaks down and stocks eventually weaken and offer better values. Fortunately, many quality firms are in a very good cash position and can continue to pay dividends through the tough times. Firms are increasing dividend payouts at the fastest rate in 30 years. Also, coming within two years is a good chance of a reduced corporate income tax rate and that is a big positive for encouraging dividend disbursements. US policy will begin to favor savers over consumers. There are always opposing forces though rippling through the economy. In the years ahead, periods of rising interest rates will serve to hold back stock price appreciation. On the other hand, entitlement reform, private accounts for social security and purchases of US shares by foreign sovereign wealth funds could help support the stock market. Dividend stocks are not immune to being buffeted by these forces, but are much more resilient than firms that don't pay a dividend.

Higher interest rates and higher inflation will be very tough on firms that don't pay a dividend and on firms that are low growers. This means a broad indexing strategy of stock investment will produce returns below a bifurcated strategy split between high growth/technology and dividend stocks. In short, investors may wish to avoid the mediocre middle of the stock market. That said, it's near impossible to beat the indexes with large growth stocks so I'd go with a mix of blue chip and smaller cap dividend payers. Dividend stocks minus bonds should return more than inflation. Rising interest rates are tough on bonds and, here too, dividend stocks can be of great benefit. Dividend stocks have essentially a fixed coupon plus some growth and are a good replacement for part of the indexed bond portion of a portfolio.

Dividend paying stocks have been largely out of favor for 25 years while the economy grew rapidly partly due to government deficit spending. The tide is going out on this period and, as those oceans of dollars recede and costs and rates rise, some firms will falter badly.

We have an advantage over Wellington fund because we can buy smaller dividend paying firms and move more quickly. There are a few caveats to playing this dividend idea. First and primary - the dividend must be secure. That means we buy stocks where it is unlikely that the dividend will be cut. Second, we must pick firms that are capable of growing the dividend. Third, we must buy the stocks close to their nadir of bad news to get the best yield and gain some appreciation on the stock price.

Starting in early 2008, I intend to post a list of dividend paying stocks and various other income ideas and continually update them on the web site so site users can evaluate the prospects. My objective is steady income and a significant real return over inflation. The goal is not to beat any particular stock index.

My dividend/income list will usually be rather skinny because I intend to be very picky and place an emphasis on safety. Other than Reits and partnerships, firms that pay an oversized dividend usually have a problem that has derailed their business - usually temporarily. US corporations are very reluctant to cut the dividend because that will torpedo the stock. The management of a strong but troubled firm will often raise the dividend to announce confidence in its ability to turn things around or to assure investors there's plenty of cash flow available.

Invest in winners with a long history of dividend payouts and excellent management. Firms like 3M and other blue chips have no control over government policy, but they are worldwide firms with earnings power. The important thing is to buy them at the right price and with an attractive dividend. If Greenspan and Templeton are right about inflation, and I believe they are, and considering what happens to stocks during inflation, I believe we should be looking now at stocks with yields in the +4% area.

A good source for dividend stock information is page 38 of the index section of the Value Line Investment Survey. If you have good income/dividend ideas, please send me an email with your analysis. I'll pass on the information to other subscribers if my analysis agrees. For the record, my web site never tracks users or shares names or email addresses with anyone - period.

An example of an income play is APU.
AmeriGas Partners (APU). Yield 6.9%, Indicated Yearly Dividend $2.44, maybe higher, Price @ 12/21/07 = $35.50, Expected dividend growth rate = +3%
Rated an A for financial strength and a 1 for safety by Value Line and with 12 years of rising dividends. AmeriGas Partners is one of the nation's largest retail propane delivery firms with 1.3 million customers. This is a steady, slow growth business in a very fragmented market and it beats holding a treasury bond. There's the potential here for growth by acquisition or being acquired. The return on shareholder equity has averaged 25%. Cash flow is $2.88 per share. Partnerships are required to pay out most earnings as dividends and a portion of payouts may be taxed as regular income (perhaps best held in an IRA) . The yield on this stock was over 10% in the past and has declined as the share price rose reflecting increasing investor confidence in the company.
Recent price trend:
30 days (+2.6%), 90 days (+1.9%), 180 days (-2.8%)

Banking
I'd stay away from the general banking sector for now as it's ground zero for financial problems. The mortgage problems could spread to prime housing borrowers and credit cards. Once home values drop below the buyer's equity position, some will just walk away from them. Even some prime borrowers will walk. Most banking stocks are in a downtrend already due to subprime. When the prime borrowers start handing back the keys, then even the most diligent banks will be affected. The big banks are the most at risk. For example, Bank of America has a great yield at 6.2%, but hasn't come clean on its subprime exposure. The last time banks were in this type of trouble was around 1990 when the problem was international loans. Bank of America (BAC), Citi, and others went to single digit prices and had huge yields. The government eventually bailed the banks out. In 2007 the US government is essentially taking bad loans as collateral and giving the banks cash. Meanwhile, there's no transparency on loan portfolios and most banks won't mark their assets to market. The "too big to fail" may become the "too bad to bail". At some point the big banks will be a buy, but I'd like to see some positive price momentum first over at least three months. USB and some regional banks looks like good prospects and the prices are in an up trend. Another shoe may yet drop on portions of their loan portfolios. Don't rush to buy.

The Big Markdown
Last month I said we were in the Big Markdown - a decline in speculative asset prices. I clip news articles about people I respect. Listen to what John Templeton said in 2003 (Sarasota Herald article). He said the dollar would lose 40% of its value, housing would collapse and rising interest rates for weak borrowers would crush the residential construction industry. He said stocks would stall out and the US standard of living would decline. (He was 92 at the time and was dismissed by some as slipping into dementia). Templeton's prediction is happening right before our eyes. The government should have taken the hit in 2002 and let the excesses clean themselves out. Regrettably, the government couldn't take the heat. They spent us out of the slump by doubling the national debt to $10 trillion. This brought on more years of speculation thus greatly compounding the problems. Now we have surging credit card defaults, a falling housing market and $90 oil to contend with too. I'd like to sound more optimistic, but am doubtful they can spend us into prosperity again. The debt will be paid off with inflation. Maybe it's time to fix our problems and not add more debt burden to the next generation.

What Could Derail The Coordinated Inflation of Central Banks
A contrary argument to my Big Markdown idea is that the world's central banks will continue to liquify the world economies and prevent a stock market downturn. In fact, some say that nominal stock prices will continue to rise because in a fiat money world the central banks can print as much money as needed. There's truth to that story to a point. We certainly are seeing that in action now as the central banks "provide liquidity" and almost give away money to their major banks. Greenspan even recommends giving money away to mortgage strapped borrowers. At some point though the printing press money will seep into prices and people on fixed incomes and bond holders will be hurt. It can't go on forever for the simple reason that owners of real assets like commodities will refuse to sell if what they get in return loses purchasing power.

The other major problem with the endless liquification idea is that the excess cash tends to get concentrated in few hands. It doesn't go to the middle class, but ends up in the hands of Goldman Sachs employees, retired congressmen working as lobbyists, hedge funds and others close to the money wheelbarrow.

Be Cautious
In 2008 the central banks will pump liquidity into the financial system on a global basis. This is an attempt to save the major banks. I can't predict how long the central bank liquification process can continue. The economy is now weakening despite consumer spending looking stable. Employment is a key factor in consumer spending and we're starting to see layoffs. The leading indicators of economic growth are the lowest since 2001 and falling. Housing is in a nose dive. Forward earnings estimates were just reduced by 7% for 2008. There are no bright spots. The Fed has room to lower rates while inflation is still contained, but after years of speculative excess, I wonder if much can be done to expand the economy via Fed rate cuts. This will only serve to suck middle class cash into risky investments because they can't earn much on their certificates of deposit. The Fed is looking out for Wall Street at the expense of savers and middle America.

The stock market has discounted most of the bad data. Inflation pressures aren't very strong yet. If long interest rates start going up, the market will have trouble making any headway.

I think it's best to be cautious until we see good values. The average investor should try to own their home free and clear and clean up their personal balance sheet. They should avoid wild currency speculations and own some gold and commodities as a hedge. And, they should own some dividend stocks within a balanced portfolio. If financial assets do get into trouble, I believe the stocks of good companies that pay dividends 50% higher than the CPI inflation rate will be safe.

Foreign Stocks as a Shelter?
If the US economy declines, so will Europe. Asia will get banged up too. There will be no decoupling. This puts Americans in a tough spot because the falling dollar has made foreign stocks seem like an attractive hedge. I don't think that play will work out. I'd separate stocks and inflation and focus investment dollars on each issue independently. I believe high quality stocks that pay dividends and that have average earnings growth will be a good inflation hedge. If the CPI rises then so will the prices of products they sell and their nominal earnings.

A Variation on a Good Portfolio
If you are paralyzed with fear about investing, don't feel ashamed. It's ok to be fearful. Here's the antidote. In the 1970's a fellow named Harry Browne was a popular financial author and later a Libertarian candidate for president. He was a very smart man. He came up with the idea of a Permanent Portfolio and Speculative Portfolio. The PP is your core and money you absolutely can not afford to lose. The SP is for money to take risks with. The PP consists of:

25% Equity
25% Income
25% cash
25% gold

Browne understood that he couldn't accurately predict the long term course of events so he hedged his bets. I backtested the PP over 25 years with a mix of US/Foreign stocks/bonds/gold/commodities and found it returned an average return just under 8% yearly with fair consistency and with only two small losing years. The largest loss was -2.8% in 2001. Importantly, these 25 years included the very worst decades for gold. The world is a more international place now and we can invest easily in world markets unlike the 70's. I'd suggest the following variation on Browne's invention.

25% Equity: Index Funds or dividend paying US and foreign stocks or Wellington Fund and a foreign stock index fund
25% Income: other income vehicles including smaller dividend domestic issues, reits, exchange partnership shares, and foreign dividend utlities
25% cash in CDs, Short term government bonds (VBISX), and perhaps up to 1/2 of cash in a mix of foreign currency etf funds (fxc, fxe, fxa, fxy)
25% gold (coins or GLD) and commodity index funds (PCRIX or RJI)

The Permanent Portfolio is an excellent way to invest. Holding only cash and seeking perfect safety will not be successful over long periods. On the other hand, it's not necessary to be 75% in stocks to get inflation beating returns.

The US is headed for a Japanese style real estate deflation, but that's as far as the comparison with 1980's Japan goes. Unlike 1980s Japan, America has exported much of its bad real estate loans and credit card receivables and debt to other nations while importing foreign consumer goods. (I'm not sure who's the greater fool). Japan had a huge trade surplus and deficits, but could easily fund it internally from their enormous savings rate. They didn't need to sell bonds to foreigners. This was also more true of the US during the 70's stagflation. However, since the Reagan years, the US now has a gigantic trade deficit, fiscal deficit, and no savings rate. Home prices will fall in terms of dollars, but the government will print money to pay off the banks and for unemployment insurance and other payouts. Japan and Europe may have large structural deficits, but they do save and export relatively more than we do. John Templeton predicted the US standard of living was destined to decline. For the populace as a whole, that's a prediction you can bank on. It doesn't have to apply to you! Holding dollars in a bank account isn't the answer now and wasn't 30 years ago and won't be in the future. The dollars should be in commodities, gold, dividend paying US multinationals that earn revenue across the globe, and income paying firms in industries as mundane as propane delivery. Your income assets must have the ability to grow with inflation. Cash needs to be invested in assets that move up as the dollar is debased. Spread your assets around. Exactly how things will unfold is beyond my ability to forecast.

2008 and Forward
I've been asked why I publish this web site. What's in it for you, people ask. I'm in my mid 50s and have been retired for several years. I have degrees in finance and information systems and have owned several businesses over the years. I've been a systems analyst, real estate appraiser, bullion dealer and a few more. I depend on my investments. I offer this service free because I want to provide information without a profit motive. Everything I propose in these eltters I'm doing myself. I use the pseudonymous ThomasNogales web site as a means to think through and document my ideas. Putting it in print holds me accountable.You can disagree with my ideas and world views, but you can't say I'm out for personal gain at someone else's expense.

On the political side, I'm very middle of the road. I lived through the inflationary 1960-70s and was amazed even then at the actions of Lyndon Johnson. He printed money to fund his well intentioned social programs and duplicitous Vietnam war. I was in the military in 1970 and remember protestors outside the gates. They shut down the university I attended with bomb scares, took over the lecture halls and taunted the police in the streets. Johnson was a guy with a big ego. He had some good intentions and worked for social improvement, but his war and more extreme policies destroyed America's inner cities. Many urban areas never recovered. Afterwards, we suffered through 16 years of stagflation.

Then George Bush came along with his band of retarded conservative ideologues. This crew is the polar opposite of my youth and thought they could Reaganize and Christianize American institutions. That worked out well. They too were well intentioned, but their misunderstanding of the consequences of debt will bring tears to this country. The debt unwinding process has just begun and will roll into property tax deficiencies and pension fund failures. Our cities are now threatened by debt induced foreclosures of homes and the nation is demoralized by an Iraq war nobody can explain. It's very possible America could slip into a deep recession.

Johnson and Bush were elected to act as stewards of the nation's military and its finances and to protect the people. Their failures could be blamed on ideological mistakes or one could view their unwillingness to listen to good sense as incompetence or, considering all the lies, a severe critic could see it as closer to treason. I opt for incompetence.

As the saying goes, the road to hell is paved with good intentions. It truly all came full circle - an incompetent liberal and an incompetent conservative. America's problems have nothing to do with Republican vs Democrat. The country just became too prosperous and complex and it was easy to pad it, expand it and cheat it. We'll be lucky to get away with just paying higher interest rates on our debt. I suspect the actual outcomes will be much more severe. US military and cultural dominance will recede.We will go through a long period of adjustment and our standard of living will decline while the rest of the world rises until the imbalances are resolved.

If we enter a period of rising interest rates, it will be tough for a buy and hold strategy. Most investors could lose very badly over the next 20 years and at exactly the time that my age group needs to have a secure source of income. In addition, we are facing rising taxes and the phase out of too expensive social welfare programs. Increased costs will be thrust upon the younger generation of investors. They need to ramp up quickly on saving, but will be fighting strong headwinds trying to be successful at investing.

Growing your capital could be a real challenge in the years ahead. We can't invest exactly like Warren Buffett and buy major stakes in companies, but we can invest in firms that show good management, historical success and that pay us to hold their stock. We can invest in debt/equity hybrids that aren't buffeted by interest rates. Based on my experience, education and analysis, I believe a conservative non-tbond income strategy can serve to stabilize a portfolio. If the stock market stalls out, this strategy can support a portfolio. Unfortunately, the mechanical process used by most dividend funds and etf's focuses on high yield rather than a more flexible strategy of dividend history, recent relative price strength and insisting on yield and growth of yield. Most investors should stay with one of my index fund portfolios. (All made money in 2007). Dividend funds became popular in 2007 and most have performed very poorly (DES, PID PEY SDY FDGFX). The best mutual out there is probably VWELX.

I believe the US economy will deteriorate throughout 2008. It will be masked by huge infusions of cash, bailouts and perhaps checks mailed to every household by the government. The politicians are attempting to prop things up until they can get re-elected and President Bush wants any recession to be officially declared on the next president's term. (Yes, these are your leaders.) At present, US interest rates are too low to provide any competition for stocks, but if things take the course I expect and earnings decline, rates increase, unemployment rises and the consumer and business pulls back it will just be too much. It will impact other countries. For this reason and $100 oil, I don't believe the rest of the world will decouple from the US.

Get ready for some difficult times. I'd advise people to hire a competent, non-commission financial advisor to get some good advice. My web site proposes ideas, but they need to be aligned with your financial objectives and timeline. There's no shame holding more cash for a year to see how things unfold. America remains the most creative nation on earth so I wouldn't sell it short. Events can often surprise us.

Best Regards,
Southwest Ranch Financial, LLC    (www.swranch.net)
Tom Gleason, Manager & Researcher

Author of: How To Invest If You Can't Afford To Lose

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