“Breakeven” is Not a Four Letter Word

It is very distressing for us to see our hard-won gains of the first four months largely disappear in May and June. The market turned on us like a tsunami hits the beaches. We, in turn, have taken you to the high ground in fear of further waves.

We have raised cash in most accounts to 15-25% and may go further in our quest for your safety. The cash, in money market form, pays about 4.5% which is attractive compared to the recent past.

Foremost among our concerns is the rapid weakening we observe in the real estate industry. This industry has been a major factor in our recent prosperity, bringing jobs, wealth-effect psychology, equity loans for consumers and, finally speculative expansion. Higher interest rates and adjusting mortgages are shutting out buyers and speculators and beginning foreclosures. When a boom cycle ends, it is not possible to predict how deep or how long the reversal will last.

We fear that the downtrend may be extensive and impact our economy by breaking the back of our over-extended consumer who represents two-thirds of our gross domestic product. He is already suffering from high energy costs and rising inflation. Should he buckle under the stress, our whole economy and, of course, the stock market could suffer mightily.

Rest assured that we are vigilant and striving to keep you “ahead of the curve.” We expect the cash we raise now will be deployed when stocks and bonds present a cheaper and happier face. Dividends and premiums for writing call options add to your safety.

Please call Tom or me anytime to discuss our strategies or with questions.

Very truly yours,

Michael F. Cantlon