Werlinich Asset Management, LLC
400 Columbus Ave.
Valhalla, NY 10595

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Market Analysis...A Little More Slippage
What I'm Doing Now...Buying Commodities and Energy
Current Trend...Surging Dollar
Statistics...Look Beyond the Headlines
Monthly Tip...Eldercare
Personal News and Notes

There is always a disposition in people's minds to think that existing conditions will be permanent. When the market is down and dull, it's hard to make people believe that this is the prelude to a period of activity and advance. When prices are up and the country is prosperous, it is always said that while preceding booms have not lasted, there are circumstances connected with this one which make it unlike its predecessors and give assurance of permanency. The one fact pertaining to all conditions is that they will change.  - Charles Dow

Current Market Analysis...A Little More Slippage

The results from March were mixed. The Dow Jones Industrial Average, S&P 500 and Nasdaq indices were all down a little in March. In fact, The Dow and Nasdaq ended the month down fractionally for the year. Yet the Russell 2000, MSCI EAFE and Lehman Bond indices were each up slightly in the month, expanding their gains for the year. What does this tell us? It tells me that there's a lot of indecision in the market, and no clear cut short-term direction. During the first two weeks of April it has been common for the market to be up 100 points one day then down 100 points the next as investors react quickly to any economic, political or global news. I expect this instability and sideways action to continue through the spring and summer and into the fall.

Since the Dow crossed about the 10,000 mark in December, it has managed to stay above that threshold, albeit barely. It has also been unable to cross above the 11,000 barrier. Until it breaks through one of these barriers, and stays there, I expect the Dow to remain in this basic trading range of plus or minus 5%. While I have many reasons to be concerned about the long-term health of the market (review the past few issues), I don't expect any major problems for the next few months. Of course, an event like a new terrorist attack or an escalation in the war in Iraq, could throw all of this analysis right out the window.

Last month I mentioned that interest rates had fallen substantially, virtually erasing inflationary fears. Well, that party appears to be over. In the past week, interest rates have spiked violently, causing the yield on the 10-year Treasury bond to rise almost 60 basis points to about 4.3%. The drop in Treasury prices was due in part to the March jobs release that reported a higher than expected increase in new jobs, prompting concern that the Fed would be forced to raise interest rates sooner than expected. Bond prices fell further when the retail sales figures also came in stronger than expected, adding fuel to the growing inflationary fire.

There have been some immediate casualties from the quick pop in interest rates. Obviously, bonds and bond funds have taken a hit. In addition, homebuilders and REITs have gotten pounded over the past few days, as have precious metals and commodities. Investors are concerned that those sectors will suffer if the Fed is forced to raise short-term interest rates. I still expect the rate on the 10-year Treasury to remain below 4.5% for the first half of the year. I am not convinced that the economy is doing as well as the recent statistics would indicate.






S&P 500




Large-cap stocks

Dow Jones Industrial Average




Large-cap stocks

Nasdaq Composite




Large-cap tech stocks

Russell 1000 Growth




Large-cap growth stocks

Russell 1000 Value




Large-cap value stocks

Russell 2000 Growth




Small-cap growth stocks

Russell 2000 Value




Small-cap value stocks





Europe, Australia, Far East

Lehman Aggregate




US government bonds

Lehman High Yield




High-yield corporate bonds

What I'm Doing Now...Buying Commodities and Energy

Over the past month I have reduced my exposure to the bond market and increased my holdings in the commodities and oil and gas sectors. It appears that, at least in the very short-term, I'm up two and down one on those trades. I decided to reduce my bond exposure because, quite honestly, with 10-year rates below 4%, there wasn't much lower they could go. It seemed like a good time to lighten up. At the same time, I remain very bullish on the prospects for the oil and gas sector, as well as the precious metals and commodities sectors. If you drive a car, you know that gasoline prices have been going up steadily for the past few months. I don't see a return to cheap oil or gas prices any time soon. Similarly, the prices of almost every precious and commodity metal and material have risen considerably for more than a year. I believe that this trend will also continue, notwithstanding the action of the last few days. I believe these sectors are in long-term bullish trends and I like investing in bull markets. Yet no advance, nor any decline, happens in a straight line. The stock market will always test your resolve and your patience.

Trend...Surging Dollar

Riding a wave of strong economic news, the U.S. dollar has made strong gains recently against other major currencies. The Euro fell today to a four-month low against the dollar at around $1.191, compared to $1.285 only three months ago. The dollar is also gaining ground on the Japanese yen and the Swiss franc. In fact, the dollar today climbed against 12 of the 16 major currencies tracked by Bloomberg.

So what does this mean to you? It means that the market thinks the Fed will tighten interest rates sooner than expected, further validating the strength of the economic recovery. If that happens, the national housing market could take a real hit as mortgage rates would rise. That's why the homebuilding stocks are taking a beating right now. This would also negatively impact the banking sector, which is also suffering in the market recently. At the same time, the bond market would drop, hurting fixed income investors. It's also likely that the stock market, at least temporarily, would suffer because the market hates uncertainty, and the future of interest rates is definitely uncertain right now.

I'm going to share a secret with you. I don't think that this rally in the dollar will last very long, for a number of reasons. First of all, I don't believe the employment numbers are as good as the government would have you believe. To begin with, I don't trust the validity of the government statistics. There is just too much room for error and manipulation. That being said, if you look at the reported numbers, almost the entire increase in jobs was in low-paying temporary or part-time jobs. Even with the so-called increase in employment, the unemployment rate still went up. And my "underemployment index" remains over 11%. That is a better barometer for the real job market. Wage growth remains a paltry 0.1% and the average workweek actually fell 0.1 to 33.7 hours, which is near a 40-year low. That doesn't sound like a great employment situation to me. Additionally, the twin deficits are only getting bigger and the quagmire in Iraq is only getting worse. I'm not selling any of my non-dollar positions, even though they are taking a beating this week. In the long run, I'll be happy to have them, and so will my clients.

Statistics to Watch...Look Beyond the Headlines

  • The government was thrilled to announce that total non-farm payroll increased at the fastest pace in nearly four years, as 308,000 jobs were added in March. This figure was bolstered by the end of the California grocery workers' strike and a bounce-back in construction employment due to better weather. More importantly, it appears that the VAST majority of these jobs are temporary or part-time. The government won't be trumpeting that salient fact.

  • Belying the reported job growth was the concurrent announcement that the unemployment rate inched up to 5.7%. Roughly 8.4 million people remain underemployed, while the number of part-time workers who would like full-time jobs increased from 4.4 million to 4.7 million. The number of "marginally attached" workers, who are neither employed nor considered unemployed because they hadn't looked for work recently, totaled 1.6 million. That leaves my total "underemployment" index at about 11.3%.

  • The Consumer Confidence Index remained steady in March at 88.3, down fractionally from a revised 88.5 in February. This index is derived from a survey of 5,000 households and indicates that people remain concerned about the economy.

  • The current national debt is up to $7.1 trillion.

  • The American Association of Individual Investors bullish sentiment fell sharply from 47.8% to 31.5% in the week ended March 26.

  • According to the US Census Bureau, sales of new single family homes in February were at a seasonally adjusted annual rate of 1,163 million, which is a 5.8% increase over January and a 24.4% increase from the February 2003 number. Thanks to very low mortgage rates, my forecast of a strengthening housing market is coming to pass.

  • Industrial production grew a stronger than expected 0.7% in February, which was 0.4% higher than expected, as factories increased their output.

  • The Institute for Supply Management (ISM) index of manufacturing activity rose to 62.5 in March from 61.4 in February, demonstrating an expanding economy.

  • "Core" consumer prices, excluding food and energy, rose 0.2% in February, or at a 1.2% annualized rate. Overall, the CPI rose 0.3%.

  • Margin debt increased to $180.4 billion in February, up from $130.0 billion in September, 2002, which was the bottom of the recent bear cycle. This could be a danger sign as investors are again borrowing heavily to finance their stock purchases.

  • U.S. retail sales climbed 1.8% in March, easily topping the forecast of a 0.6% increase.

  • The dollar has soared, and it now trades at around 1.191 Euro's, up from 1.22 Euro's just a few weeks ago.

So what does all this mean to you? In the short-term, it means more choppiness in the market. If rates continue to rise, the financial and housing sectors will suffer along with the bond market. If the dollar continues to strengthen, the precious metal and commodity sectors will fall. The GDP numbers for the first quarter will be out soon and you can bet that they will be "better than expected", which will likely put added pressure on bonds. All of this will play out alongside corporate earnings releases which will be coming hot and heavy over the next three weeks. How those earnings reports are perceived will drive the equity markets up or down. I will be watching carefully, but I don't think I'll be making any wholesale changes to my portfolios because I'm looking at the big picture, and I haven't seen anything yet that has changed my opinion about the validity of my investment choices.

Monthly Tip - A Look At Eldercare

This month I've asked Loren Gilberg, RN, BSW, MBA to share with you a little of her expertise on the sensitive topic of caring for an aging loved one. Loren is a registered nurse and a well-known expert in the field with more than twenty years of experience in geriatric care.

Anyone who has to care for an aging parent or relative knows the stress and responsibility that this situation produces. So what can you do when illnesses like Alzheimer's, Parkinson's and other diseases of aging begin to compromise the independent living of your elderly loved one?

One solution is to work with a Private Geriatric Care Manager (GCM). A GCM is a skilled healthcare professional who takes charge of all the needs of an aging individual whose loved ones cannot adequately provide the care themselves. The GCM is usually a social worker, but sometimes may be a Registered Nurse.

Most elderly people prefer to remain in their own homes, but there are times when 24-hour skilled nursing-home care or assistated living care is required. GCMs can coordinate those needs as well as handle everything from assuring that the person is eating properly to arranging for legal and financial services. By serving as the family's eyes and ears, a GCM provides peace of mind. Their mission is to help clients maintain their quality of life, independence and personal dignity.

Through their efforts, GCMs can often save thousands of dollars for their clients by providing an alternative to nursing homes or reducing hospitalizations. They can also direct their clients to elder law attorneys and financial specialists who are often able to save them additional money by providing proper estate planning and assistance with optimizing Medicare Medicaid benefits.

Do You Need a Geriatric Care Manager?

  1. Do you often arrive late to work, or miss work entirely, because you're caring for an elderly spouse, parent or loved one?

  2. Do you worry that you will be unable to care for that loved one as their ailments progress?

  3. Are you concerned about depleting their life savings (or yours) to pay for nursing home or other institutional care?

  4. Are you physically and emotionally drained by this process?

  5. Are their frequent hospital stays causing you great distress?

  6. Are you unable to go on vacations, or spend special time away from home, because there is no one available to care for this loved one?

  7. Do you simply need peace of mind and an education about what is happening, and what you should expect going forward?

If you answered yes to any of the proceding questions, you may need the professional services of a Geriatric Care Manager. If you would like more information on GCMs, please visit the website of the National Association of Geriatric care Managers at If you have further questions about eldercare, please call Loren at 914-582-0796. You can also reach her at or visit her website at As always, if I can be of any assistance, don't hesitate to give me a call.

Personal News and Notes

Last week I appeared on "Your World with Neil Cavuto" as well as "Forbes on Fox" with David Asman. Other than David having trouble with my name, both shows went pretty well. If you missed the shows, I will have the videos on my website next month.

Speaking of my website, the design for the new site is well underway. I am really excited about how it's going to look and about the quality of the experience that it will provide for its users. I'm still looking for some volunteers to beta test the site. I want to ensure that it will provide the best possible experience for my readers. Please let me know if you would like to help out.

I continue to make steady progress on the chapter that I'm writing for The Black Book on Personal Finance. The book should be completed and ready for purchase early this summer. I hope to have excerpts of the chapter available on my website. I'll let you know next month.

I'll be competing in the Masters National Swim Championships in Indianapolis beginning April 22nd and ending the 25th. After that meet I'll be taking a much-needed break from training. I will be in California the week of May 16 - 23. If you live in or around LA or San Francisco and would like to schedule a meeting with me during that week, please let me know. I will be happy to work you into my schedule.

As I hope you've noticed, I've redesigned the newsletter this month. I hope you'll agree that the look is a little cleaner and fresher. I've also shortened it a bit, because some of you have told me that you liked it, but that the letter was just too long. Please let me know what you think of the changes, and don't hesitate to suggest any other features or improvements that you would like to see.

As always, I thank you for your interest and consideration, and invite you to write or call me if you have any questions, or if I can be of service to you in any way.

Best regards,

Greg Werlinich

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