New Reality
Today's Fed meeting and announcement regarding interest rates signals that the end to historically low interest rates is coming. This sent markets down sharply. Our client positions in financials (Washington Mutual, Wells Fargo. and New York Community Banks) took a step backward. This can be frustrating but all of these positions have the management, dividends, and relatively low valuations to weather the coming storm. Indeed, NYB focuses mostly on loans to rental apartment building owners, which should do better as mortgages becomes pricier. WM and WFC also have income streams that do not depend solely on low interest rates. We anticipate holding on to these positions.

An era of higher interest rates also may lead health and energy stocks to continue to be relatively attractive. We are actively searching for some of each that are undiscovered or undervalued. Finally, overvalued tech stocks may slow their run. We have always preferred those companies (tech or otherwise) that have income streams we can put a value on. This will continue to be the case, in fact, even more so.
- posted by Jay @ 4:32 PM

 
Looking for More in 2004
The year's only a week or so old and already we have had plenty of ups and downs. Many of the stocks we have selected for accounts are at or near 52 week highs, including some of the lower P/E tech, energy, small caps, and mortgage REITS. Today, however, was a reminder that unforeseen events can still knock stocks back down. That is what happened today to Royal Dutch (RD), whcih announced lower proven oil reserves. When news like this happens, it pays to reassess and see if the value proposition still holds. It also is worth noting that all accounts still show a profit in RD, since it had run up over 20% since we first established positions. The value investing approach continues to work, but cannot make every position bullet-proof. The market as a whole seems frothy, and today's jobs report put into question the strength of the recovery and consumer spending, in particular. Financials look interesting, as does energy and media. We remain leery about retail, and still like defense (LLL, for example). Small caps poised for growth but at reasonable valuations continues to be a search worth performing as does looking for contrarian picks on out of favor sectors -- some of which will develop in the week's ahead.
- posted by Jay @ 6:45 PM