The Numbers Game

Forecast 2nd half 2008

The consensus effort now to call the bottom in financials and technology, aggressively trade the markets in July, call the top in commodities and materials, and think everything is ok will end up being misplaced by the general market participants. While some industries will try to bottom and others correct...the systemic challenges to the USA markets have not been addressed.

The market is going to have a massive short covering rally led by financials. And the general market is oversold if not materially oversold.

Our concerns remain:
1) The USA is early in its unwinding of abused leverage from the past five years....record debt at individual levels will keep growth in the USA very slow. Derivatives and there abuse continues unchecked. Higher taxes and interest rates (the next bubble to burst) will make these situations worse.
2) Hedge funds continue to under perform, their source of capital is gone through redemption's.
3) Housing could be putting a bottom this year...for the right locations...but is still generally a poor investment.
4) Private equity will still under perform as well as venture capital. The cost of capital is going higher as well as taxes...both negatives.
5) We like BRIC and MENA markets. No debt, lots of cash and bright futures (not in work outs) and very fair valuations....especially after recent corrections much larger than USA's.
6) Continue to avoid Japan and Europe.
7) Peak oil is here..now a mainstream conversation...but without the facts. The USA has no energy policy..this is only going to get a lot worse. It will be harder to make money on this theme...as it corrects short term.
8) The S&P -16% year to date....it continues to be difficult to make money this year....the goal remains to not lose money.

We'll see! But the challenges to the USA are real, not being addressed (pushed out to the next administration) and a continued slow down downs seems to be the right call. Contrarians trying to call bottom and tops in these downward trending markets are those who lose the most amount of money.

Financials we would buy, BAC, IBN, BX and BK
Nat Gas is a Hold

We think once China gets through the Olympics the emerging markets will take off again to the upside.

Barkly seen here was very focused.