WEEKLY NEWSLETTER COMMENTARY November 25, 2008

Economic news:

This week saw a huge drop in the Dow Jones Industrial Average up until Thursday, spurred on by consistently negative news about the world economy. Japan's Real Gross Domestic Product growth went negative for the second quarter as reported this week; officially putting the world's second biggest economy into recession. The Euro-zone is already in recession and the UK is expected to report significantly lower figures when they next report. The UK will have a knock-on effect on what has been a remarkably resilient Canadian economy. The USA reports GDP growth on Tuesday and this is expected to be negative, with a sharp drop predicted for 4th quarter 2008 and 1st quarter 2009. According to Wachovia, Real GDP Growth in the USA should level off in the 2nd Quarter 2009 and move into positive territory in the last two quarters of 2009.

Other news is that inflation is down in the USA, although rumours of deflation kicking in are probably overstated. This means that there should be no impediment to the Fed dropping interest rates.

The appointment of Tim Geithner was welcomed by the markets on Friday, and they recovered to above the 8,000 level.

Currency news:

The Dollar is still strong, representing a safe haven in a sea of uncertainty. It is interesting that foreign investors have been so willing to invest in the Dollar; clearly still the safe haven of choice. However we expect that as the US economy recovers, uncertainty about inflation and tax policies of the new regime may affect investors' willingness to remain invested here, forcing the Dollar down. I would suggest that investors should be open to other denominations at this time.

Markets:

Thursday was a gloomy day and I felt quite desperate, fearing my prediction of some weeks back (that we may slip back to 7200 points on the Dow Jones) may come true. However, the lesson to be learnt is "Don't Panic!". This does not mean you should not act quickly, but only when and if you have thought through what you are going to do before you do it. This is the advantage of our weekly newsletter as it forces that discipline and rationale thinking by analysing our positions weekly, so that we are able to make clear unemotional decisions and avoid the knee jerk reactions that result in losses. Our portfolio at mid-morning on Monday, November 24th does not look great, but some positive signs are ahead:

Ticker	Name	Industry	Opening Price	Closing price	Target price	Movement - past week	Movement - from start	Forecast Dividend yield	Forecase capital gain	Forecast annual return
AEE	Ameren	Electric Utility	28.97	32.62	39.00	-3%	13%	8%	20%	27%
DUK	Duke	Electric Utility	15.53	14.93	16.11	-7%	-4%	6%	8%	14%
BAC	Bank of America	Bank	21.44	12.91	21.00	-25%	-40%	6%	63%	69%
KMP	Kinder Morgan	Natural Gas Utility	52.70	45.90	59.00	-10%	-13%	8%	29%	36%
AA	Alcoa	Aluminium	9.42	8.98	11.01	-18%	-5%	6%	23%	29%
AAPL	Apple	Telecomms	96.44	85.73	137.00	0%	-11%	0%	60%	60%
RIMM	Research in Motion (Blackberry)	Telecomms	43.80	45.83	110.00	0%	5%	0%	140%	140%
FXI	China's Hang Seng	ETF - China	25.50	24.25	24.25	-11%	-5%	0%	0%	0%
ILF	Latin America S&P 400	ETF - Latin America	26.88	22.20	22.20	-16%	-17%	0%	0%	0%
				Average		-10%	-9%	4%	38%	42%
Investors are cautioned that the above portfolio does not provide the ideal investment for all investors and does not guarantee any yield or return. All investors should consider their investment selections carefully, preferably with the assistance of a professional investment advisor, and take into account the risk that they are prepared to accept in the process. Neither the writers, nor Wealth Design International Inc., nor any other related party accept any liability for any investments made based on this newsletter.

Action recommended this week is to sell DUK, AA, and FXI - see below for commentary.

Last week we introduced Apple (AAPL) and Research in Motion (RIMM), the maker of Blackberry as value plays into our portfolio. This is a deviation from the dividend strong policy we have had up to now and reflects a belief that the market is near a bottom and these are great buys. The target price is based on a reasonable valuation of the company's share, and provided the company has some substance to it, it makes sense to expose our portfolio to these stocks on a "little by little" basis. At the same time Alcoa (AA), Duke (DUK), and FXI have lost favour in my books. The first 2 have paid their dividends, are fairly fully priced and offer little upside at this stage. FXI, representing the Hang Seng in China, is starting to worry me. The Chinese economy is a bit of an enigma and although many commentators are very bullish, I am not convinced that China has the socio-political maturity to manage these uncertain economic times, and are too dependant on exports to maintain the growth they have had recently. They will probably still have positive growth in years to come, but I feel more secure in the America's right now.

On my radar is "Green Tech", in particular Solar. It is clear that the Obama presidency will push this technology as we are seeing with the resistance to a bail-out for the US auto industry.

 Comments (0) | Permalink

WEEKLY NEWSLETTER COMMENTARY November 1, 2008

This month saw the Dow Jones Industrial Average (a composite of the 30 biggest stocks of the New York Stock market) drop 14%, and that included a record 10% gain in the last week!

If you have comments, please visit our Blog and let us know your thoughts. We welcome any comments and feedback.

Economic highlights of the week

The Federal Reserve Bank in the USA dropped interest rates by 0.5% this week, much as expected, to a rate of 1%. This went along with a general easing of credit markets as LIBOR seems to be dropping into line with where it is expected to be. It should also be remembered that the Fed started buying commercial debt this week, another step in the HUGE effort they have made to flood the markets with liquidity. Money supply is up 20% since their action began. It would appear that they have been successful in warding off outright depression, and perhaps containing the recession.

Having said that, consumer spending is down and it looks like it will be a gloomy holiday spending season this year. The only light on the horizon is the dramatic drop in gas prices in the USA , in some places even under $2.00 per Gallon (0.52 cents per Litre). In Charlotte we're paying around $2.60 (0.68 cents per litre). In the UK, year on year GDP is down to 0.3%, compared to 0.8% in the USA, (1.4% in the Eurozone and 0.7% in Japan).The Bank of England meets this week and is expected to announce rates on Thursday. They last dropped rates on October 8th to 4.5%, but there does not seem to be consensus on what they will do now.

Currencies

In the currency market the USA remained top dog gaining on the Yen in the last week of the month. The Yen however remains strong compared to the rest of the major currencies. The Peso ( Mexico ), Real ( Brazil ) and Korean won ( South Korea ) all recovered dramatically, thanks to support from the IMF. It would seem the world banking fraternity is taking a lead from the major economies and recognizing that developing economies are important to global growth. The South African Rand traded as low as ZAR11.70 to the US Dollar, but recovered to end the month closer to ZAR9.70.

Commodities

Despite the volatility on the markets, (our theme of the week), Gold is down on the week and down on the year. It traded on Friday at $728 per ounce, some 9% down on the week. Oil and Natural gas were stronger at the end of the week, but this was on the back of a record drop in Oil for the month, probably offsetting some excessive gains earlier this year. Even the cut in supply seemed to have little effect on the Oil price, as consumers in the Northern hemisphere tighten their belts. Does anyone remember the Olympics earlier this year, when  China was the centre of the news, blazing a path ahead and demanding copper and steel like there was not enough in the world? And don't forget the record oil prices! Now we sit only a few months later with Copper at half the price it was last year and oil way off its highs. Steel, it has to be said, it still up 50% on last year, although down for the week.

The Markets

The Dow Jones Industrial Average dropped as low as 7883 intraday? this month, that was October 10th. It tested those levels again this week, dropping to 8144 on October 27th. Notwithstanding, we finished the week with the Dow up at 9325, down 14% for the month, but up 10% on the week. This market is not for the feint hearted! The results of the US election should be out midweek next week, and it is likely that markets will bounce a little on the certainty of a result. It is probable that the likelihood of an Obama win has been factored into the market, so although this usually has a negative effect on the market, I do not expect one this time. The overriding concern remains the economy, so I do not think that this will have a major impact on portfolios over the medium term. Having said that, the race is still very close to call, and it is quite conceivable that McCain could win, in which case his business friendly tax policies may see a more pronounced bounce in the markets - but I would not bet on it.

Investment ideas

For those who looked at my suggestions last week and dipped their toes into the turbulent market, this is what you would have experienced. Considering that you can still expect a dividend of anywhere between 5% and 7% on top of this, and assuming the price does not move from here, you would average a return of around 17%. I would suggest that over the next year the prices should move up some more, so 20% return is not impossible.

Ticker	Name	Industry	Opening Price	Closing price	Movement
AEE	Ameren	Electric Utility	28.97	32.34	12%
DUK	Duke	Electric Utility	15.53	16.35	5%
BAC	Bank of America	Bank	21.44	23.58	10%
KMP	Kinder Morgan	Natural Gas Utility	52..7	55.18	5%
AA	Alcoa	Aluminium	9.42	11..49	22%
				Average	11%

I was looking at diversifying a portfolio for a client this week and found two Exchange Traded Funds of interest, "FXI" and "ILF". ETF's are like mutual funds that you can buy like stocks on the market and they invest in a range of securities thus giving instant diversification. FXI invests in shares that mimic the Hang Seng Index in China , and the ILF represents the S&P Latin America 40 index. ILF showed a 28% growth this week, while FXI showed a more modest 23%.

For further advice, or to open an banking and brokerage account or IRA, please contact us. We provide honest and open advice, work with you on your wealth management and give regular meaningful feedback, all for a fixed annual fee of between 0.5% and 1.75% depending on the level of funds under management. No up-front commissions and no performance fees.

Yours sincerely

Craig Field

 Comments (0) | Permalink

Economic and political upheaval October 19, 2008

The economy is in lock down until after the elections, that's my view.

The choices for the elections are not very inspiring, sort of a Hobson's choice. The forecast Trillion Dollar spender on the one hand, the war and "more-of-the-same" contender on the other. The inspiring charismatic on the one hand, the slow and steady on the other. Wouldn't it be great if you could combine the best of both?

But we you can't! So we'll have to wait until the great democracy works it's magic, again. And thank goodness for this great democracy, because it is the real winner and a safeguard to all in these troubling times.

Once it's all over, in just about two and a half weeks, there will be more certainty. We'll know we're heading for - are in - a recession. We'll know what tact the government will likely take. Then we can get on with our businesses and arrange our affairs to make the most of it.

And I believe that Americans and American businesses will make the most of it, they always have and I believe will do so again.

 Comments (0) | Permalink