2007? Not Much To Recommend It

It was no fun in the financial markets where volatility returned to levels not seen in years. Two-hundred-point gains and losses were not unusual. The bursting of the housing bubble, a credit crunch, $100 oil, $850 gold, and a new Federal Reserve chairman have made the year a challenge.

We “took to the mattresses” before midyear to preserve our clients’ capital. We raised our cash (money market funds) to the highest level in memory and wrote covered calls against almost all of our holdings. These steps have limited our upside but have kept our assets whole.

We expect the fallout from housing to continue for most of 2008 and that it will include an old-fashioned recession. As I write this missive, the Dow is down over 200 points to start the year and down 4% in the last four days. (The Dow Theory gurus tell us that recent market action confirms that we have officially entered a bear market which portends a drop of at least 20% from the peaks of last July).

We, therefore, choose to err on the side of safety and will continue our conservative stance. Recessions and bear markets pass in time and provide opportunities to acquire assets at attractive levels.

To get a more upbeat view of the future, I recommend reading “Bulls Don’t Blush, Bears Don’t Die” by Barry Asmus, which provides a longer perspective on economic prospects.

Please remember to call us first when you have financial issues. We can’t help you if you have already signed on the dotted line. And, it’s time to start gathering data for tax return preparation.

May you all prosper in 2008.

Very truly yours,

Michael F. Cantlon