Observations

How did I do last year [2004]? My forecasts in the 1-12-04 issue had several themes.

I was correct in anticipating a strong economy because of the need of the manufacturing sector to replenish inventories. Sales were rising rapidly. I also suggested that the economy would slow down again because of “the ominous trends in the dollar and monetary aggregates”. The slowdown did actually take place and we are in the midst of it (see below).

I was correct in suggesting that low real short-term interest rates and a strong economy would result in “sending commodity prices and gold to new highs”. I also wrote that “they are an important investment theme”.

I expected bond yields and inflation to stay “close to current levels”. These forecasts, quite correct in retrospect, allowed me to develop an investment strategy that proved to be very attractive for our clients. Recognizing that credit spreads were still high, I focused on an investment strategy based on commodity driven stocks (various types of energy and real estate) with a considerably high yield. It worked.

This strategy, and a constructive outlook for the market, produced an above average return for our equity clients, a return well above the market (as of early December).

I was right and wrong in saying that “this ideal investment climate will unravel in March-April”. We had a sharp correction in the market in March-May, but our “high dividend paying stocks” kept rising at a nice clip as I anticipated.

I have too much experience to gloat based on what I said and did.

(This Observations appeared in the 12/20/04 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

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