JANUARY REVIEW AND COMMENTARY

 

I decided to take on a new approach to our communication process

 

Thought that you would be more interested in the recent impact on our portfolio versus a long winded look into history.

 

As the attached spread sheet shows, I will detail what's been beneficial for us in the past month(s) and what needs closer research.

 

The  weightings on the spreadsheet are at the total TCM composite level and will vary by account. We are working to get all accounts closer to the median. Account size will determine how many of the holdings I am listing can be in an individual account ( think Education and smaller IRA accounts ).

 

I receive calls ( and all are welcomed ) asking why we may not have gone up as much at the market. Not many when we go down less than the market.

 

Our 48.3 % cash balance is something that all most every client seems to be comfortable. Our performance on any given day reflects the price movement of investments in  the other 51.7 % of our composite holdings.

 

So, on a nice day where all our holdings were all to go up 10%, the portfolio's valuation would only show a 5 % increase. The same is true on the downfall, where our inner tube keeps the loss at a lesser percent.

 

Now, movements of that magnitude will rarely occur on the upside and but may occur on a volatile down day.

 

I continue to look at avenues to increase the return on the cash side and will have some ideas that we will discuss over the next two months.

 

At this juncture, the bad news heavily outweighs the good. The daily announcement of layoffs are really incredible. The earnings announcements only look good when compared to really lower estimates.

 

The number of companies announcing that they would not release forward estimates on top or bottom line illustrates the poor visibility they have into their customers purchasing decisions.

 

The first half to  three quarters, in my opinion, will be rugged. We will be making more selling decisions than in the past. Meghan's daily tracker highlights any holding that is more than 8 % below it's most recent high. All the holdings are in the report. The ones she wants me to make a decision on are the ones in bold.

 

Now, on to January.

 

As the spread sheet detailed, we had strong performances in the Preferred Stock  and Pipeline Company sectors.

 

There is not much upside some  of the preferreds ( MAA+H, DTE+A FPL+C )

because they have risen to the vicinity of their call value of $ 25.00. We will add to these in volatile down days when they venture south of $ 20.00,

 

The Pipelines had been hit with a sledge hammer in the last half of last year and have adjusted back. Despite their image as a utility, they depend on expansion of their pipelines to insure annual growth in the dividend. All most all have indicated an increase for the first quarter.

 

However, with natural gas down to the $ 5 level from $ 14 last year, the drilling companies have announced pullbacks in their projects because they cannot justify  some of their plans based on these lower selling prices.

 

The slowdown in the drilling has resulted in some of the pipeline companies taking some of their expansion plans off the front burner.

 

The lower price is a boon to the consumer. It is a great noose around the Russian and Venezuelan governments. Long term, natural gas is a pillar of the USA reaching energy independence.

 

Hopefully, DC gets the message and steps in to assist the industry. One potential approach is to just raise the gas tax by 20 % or so. I'll talk more about this as we move into the year. I will probably receive some BOLD messages from Meghan

in the next month or so and I'll give the sector a serious looksee. If we locked in the current return, forgetting any tax implications, we'd have a great 12 month return.

 

Treasuries have taken a hit as the Treasury floods the market with new paper to manage the huge national debt that is coming our way. They are on our watch list for selling.

 

The mutual fund side had pluses for the quarter. The Consumer sector was lousy.

 

Please let me know your thoughts on what's going on.

 

Best regards,

 

Ken                                                                                                     January 2009