|
|
We continue to believe that the US economy is in recession as recent data show signs that the US consumer is retrenching on a broad front.
The pace of decline may be modest due to: 1) structural changes in inventory and payroll management, 2) the weak dollar and improvement in foreign trade, and 3) fiscal and monetary policy that have already responded aggressively. However, the economy is likely to stay weak until housing prices bottom, which many are now forecasting won't happen until the second half of 2009. The reason is supply vs. demand. Until the excess supply shrinks substantially, home prices are likely to keep falling and many housing experts are now looking for an additional 10% price correction in 2008 and perhaps another 5% in 2009.
Further headwinds for the economy could come as an estimated $460 billion of losses related to home price and credit declines may be disclosed by US financial institutions (of which only 25% has been announced so far).
So, while we believe the recession should end in the middle of 2008, the negative multiplier effect of this event (lack of available credit) will likely continue to cause problems for consumption and employment.
The bottom line: a relatively mild recession in 2008, and a weak economic recovery lasting well into 2009.
Our Strategy: to stay defensive as downside risks continue in the months ahead. Picking the markets "bottom" is next to impossible. We will look for evidence of consumer stability before we begin increasing our allocation to stocks again.
We remain confident that our fluid approach will continue to serve you well moving forward and encourage you to call us at 858-350-1010 if you have any questions or concerns about your investments.
Sincerely,
Craig P. Kelley Sean P. O'Hara
|
* 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.
 |
|
|
|
|
Conference Call
To listen to a replay
of our
January 12, 2008 Conference Call, dial (877)471-6587
and enter Program ID 1038358075004#
|
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).
|
|
