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Strategies & Market Trends : Portfolio Construction

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To: Paul Chiu who wrote (563)	8/22/2007 6:06:37 PM
From: Keith Feral	Read Replies (2) of 1964

I'm back to even with all my closed end bond funds. I was up big earlier in the year, before they collapsed 30%. Stock gains also collapsed from unrealized gains to unrealized losses. Today, they finished almost back near zero. I dumped alot of my safe stocks from asset allocation to really focus on best of breed, big cap names for the rebound. I even dumped 1 gnma bond that I had left to buy some stocks on the cheap. One thing that really struck a chord with me is that the stock market is where all the cash assets are stored at the corporate level. Fixed income deals are much riskier because there is no cash on the balance sheet, especially in mortgage bonds. Every correction in the stock market starts with a meltdown in corporate bond spreads. Just look at the charts of bond funds vs the stock indexes if you don't believe me. I think the FED really messed up by not addressing the meltdown in confidence earlier this year. Raising interest rates won't do a damn thing to slow down global inflation, but it wiped out all of the disposable income of homeowners in the US. The FED will do the right thing for interest rates once the US economy starts to slow down from the completely unimpressive domestic situation that was already in hand. The excitement and success of the stock market is always the best place to outperform inflation. That's why we are here to protect our net worth from the rising costs of inflation. We hardly need 9% mortgage rates on $500,000 jumbo loans that people can't afford to slow down inflation. I trust the correction in real estate is at it's very worst right now. I'm just sick of watching the FED strangle interest rates to wipe out all the competition in the marketplace. The last correction wiped out all the technology companies, now we are wiping out all the financial institutions. It's unbelievable that all the investment banks and banks are combined again. So much for Glass Steagall.

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