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What Goes Down ...
Financial Markets around the world are declining and we believe are now pricing a significant recession into the share price of most companies. In our opinion, this will present tremendous buying opportunities that only come around once every ten years or so. We believe it is possible that this downturn, while never any fun to be a part of, may be laying the ground work for the next big upward leg of global growth which could produce significant gains for certain stock markets in the years ahead.
On a relative basis, we have been rather defensive with our investment choices for the past 9 months and will remain so until we see what we believe are excellent long-term buying opportunities. At such time, we anticipate both increasing our overall allocations to stocks and perhaps investing in new markets that offer attractive valuations.
Economic Overview:
- We are forecasting an additional 1/2% rate cut by Fed in the first quarter, and a further reduction in short-term rates down to about 2.5% by year-end.
- The recession is likely to last 3 quarters, but could be contained due to: 1) aggressive Fed easing, 2) decent chance of fiscal stimulus in the form of temporary tax cuts, and 3) partial trade cushion.
- National homes prices are poised to decline 20-25% peak-to-trough.
2008 Asset Allocation Tactical Themes:
- General Outlook: Bullishness for Stocks and bearishness toward Bonds.
- Stocks: Still prefer large sized companies who receive a large percentage of their earnings from international sales.
- Bonds: Still limiting our exposure to short-term US Treasury bonds in the one to three year maturity range.
Opportunities on the Horizon:
A lot of them! We are now focusing on the rapidly improving valuations of small and mid-sized companies, and developing/emerging market companies.
Please call with any questions or concerns.
If you have any questions regarding your accounts please call us at (858)350-1010.
Sincerely,
Craig P. Kelley Sean P. O'Hara
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* Performance information stated above is for the one year time period, January 1, 2008 through December 31, 2008, from December 31, 2008 through January 31, 2009, and from inception, March 31, 2006 through January 31, 2009, as is indicated. Performance information is for Kelley Investments Managed Accounts Program where client accounts are managed on a discretionary basis. Not all accounts managed by Kelley Investments are part of the discretionary Managed Accounts Program. Performance information stated above does not pertain to any accounts that are not part of the Managed Accounts Program. Performance results for accounts that are not part of the Managed Accounts Program may differ significantly. Performance information quoted above represents past performance and is not a guarantee of future results. Performance information is quoted on a Gross basis and does not include deductions for management fees or trading expenses. If these fees and expenses were taken into account, performance would be lower. The investment return and principal value of investments in the Managed Income & Growth or Managed Growth Portfolios will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.
**For illustrative purposes only. It is not possible to invest directly in an index. Comparisons with the S&P 500® Index are not meant to be indicative of any of Kelley Investments Managed Portfolio strategies, asset composition or volatility. Given the wide scope of securities held by S&P 500, it should be inherently less volatile. Our results may differ markedly from those of the S&P 500 in either up or down market trends. The performance of the S&P 500 is shown with all dividends reinvested into the index and does not reflect any reduction in performance for the effects of transaction cost or management fees.
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Conference Call
To listen to a replay
of our
January 12, 2008 Conference Call, dial (877)471-6587
and enter Program ID 1038358075004#
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Craig P. Kelley offers Investment Advisory Services through Kelley Investments, A Registered Investment Advisor. Client assets are held in custody at Fidelity Investments clearing firm, National Financial Services LLC (NFS).
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