The Stock & Bond Markets -
The best stock market valuation in over 20 years? There's a "silver lining" theory that may or may not be accurate which predicts the slowing economy and increasing mortgage defaults are creating a unique buying opportunity in the stock market. This theory is based upon on the "Fed Model" which compares corporate earnings growth (6.53%) with the yield on 10-year Treasury bonds (4.65%). The bigger the "spread," the more favorable it is to be invested in stocks and the current spread is the biggest since 1986. Robert Doll, who oversees $1.1 trillion for BlackRock feels "the valuation disparity is big enough [to] make that relative bet." Whether the many experts betting on a resurgent stock market are right remains to be seen. Our clients continue to outperform the market (see the Bottomline column on the right) by diversifying across markets and asset classes.

Bond experts are betting yield curves will return to a positive slope meaning long-term rates will offer higher yields than short-term ones - at least that's the bet Bill Gross (who manages over $668 billion in bonds for PIMCO) is making. He believes short-term rates will fall resulting in a positive sloping yield curve and claims to be positioning his portfolio to be heavily weighted in shorter-term bonds and reducing his exposure to longer-term ones which won't go up in value as much since their rates won't decline as much. We're not (yet) willing to challenge the analysis of the world's most successful bond manager.

CELEBRATING 27 YEARS
Since 1980, I have been providing financial advice to investors and I'm proud to say that our service and performance (see "Bottom Line" section on the right) continue to be superior to the market and our peers. Thanks for your support.

Real Estate Bubble? -
The National Association of Realtors said it expects its measure of home prices to fall this year of the first time in 40 years. The group also cut their expected 2007 sales forecast by 100,000 homes. Slower sales have already produced year-over-year declines in prices in 8 of the past 9 months for existing homes and even bigger slowdowns are expected in the new home market. If you believe, as we do, that people spend based on how wealthy they "feel" rather than how wealthy they are, the erosion in home prices and optimism will impact spending, not just in the real estate industry but across the whole economy.