NEWS AND VIEWS

Werlinich Asset Management, LLC
400 Columbus Ave.
Valhalla, NY 10595
914-741-6839
800-746-6926
Email: greg@waminvest.com
URL: www.waminvest.com

August 2003 Comments   |   Refer A Friend   |   Sign Me Up   


Welcome to WAM's inaugural monthly newsletter. I intend to use this letter to keep my clients, prospective clients, friends and associates informed of what is happening in the economy and the stock market, provide tips and suggestions that will enable my readers to better execute on their LifePlan and give readers my impression of the state of the stock market. I expect to have regular features like Market Update, Market Analysis and Current Trends, as well as some irregular items like Poll Questions and Tax/Legal Tips. I hope you find this newsletter interesting and informative. Please let me know what you think.

Market Update...It's Safe (For Now) To Open Your Statements

Let's take a look at how the market has done so far this year. I must admit to being pleasantly surprised by the performance so far this year.

Index

July 2003

QTD

YTD

Description

S&P 500

1.62

1.62

12.56

Large-cap stocks

Dow Jones Industrial Average

2.65

2.65

10.58

Large-cap stocks

Nasdaq Composite

6.91

6.91

29.91

Large-cap tech stocks

Russell 1000 Growth

2.49

2.49

15.90

Large-cap growth stocks

Russell 1000 Value

1.49

1.49

13.23

Large-cap value stocks

Russell 2000 Growth

7.56

7.56

28.35

Small-cap growth stocks

Russell 2000 Value

4.99

4.99

22.30

Small-cap value stocks

MSCI EAFE

2.16

2.16

12.07

Europe, Australia, Far East

Lehman Aggregate

-3.36

-3.36

00.43

US government bonds

Lehman High Yield

-1.10

-1.10

17.18

High-yield corporate bonds

Simply stated, these numbers mean that for the first time since 1999, your stock portfolio is again making money. So go ahead, open those 401(k) and brokerage statements and enjoy the prosperity for as long as it lasts.

Market Analysis...What Does The Recent Market Upswing Mean For You?

There are a few numbers you should watch closely as you observe the market. According to Richard Russell, who writes a newsletter called "The Dow Theory Letters", the midpoint of the bear market decline in the Dow Jones Industrial Average from its high around 11,700 in March of 2000 to its low of 7,286 set last October is 9,504. The recent high in the Dow was set this past June 17 at 9,323. The midpoint of the entire 20-year bull market is 6,240. What does all of this mean to you? If the Dow can surpass 9,323 we could rally to test the 9,504 level. If it were to surpass 9,504, we could have an extended bull rally. Conversely, if the Dow is unable to surpass 9,323, we could stay in a trading range, or ultimately test the October lows. If the Dow were to sink below 7,286, the next support level would be 6,240. If the Dow were to violate that level, then we are in real trouble. In the shorter run, if the Dow were to drop below 9,000, it could be dangerous. For the near term, we appear to be in a positive trading range.

Important Trends...Have You Refinanced Yet?

The technology and growth sectors have led the market so far this year, far outpacing the Dow and S&P. Bonds have gotten trounced due to the recent rise in rates. The 10-year Treasury bond hit a low yield of 3.07% on June 13. By August 1, that yield had exploded to 4.40%. The rate is now holding around 4.50%. This has caused massive short-term losses to bond investors and has slowed the mortgage refinance boom. If rates continue to rise, it could put a real dent in the housing market, which by extension, would be a very bad thing for consumers. So congratulations if you have already refinanced. If you haven't, watch these rates very carefully. If rates again fall below 4%, don't hesitate to lock in your loan.

Statistics to Watch...Some Good News, Some Not So Good News

  • There was some good news recently. Retail sales grew at an unexpectedly robust 1.4% in July after 0.9% growth in June. Even after stripping out auto sales, growth was still 0.8%. Factory orders grew 1.7% in June, while construction spending grew 0.3% and durable goods orders grew 2.6%. This all indicates a strengthening economy.

  • The Federal Reserve held the overnight lending rate at 1% and indicated that it plans to leave rates stable for the near future.

  • GDP grew at an annual rate of 2.4% in Q2, while the consensus growth estimate was for 1.6%. GDP grew at 1.4% in Q1. While this seems to indicate that the economy is picking up steam, the reality is that the majority of that growth was represented by an increase in defense spending. GDP growth was only 0.7% without defense.

  • The consumer confidence index fell to 76.6 in July from 83.5 in June. That tells you that Americans are still very concerned about the state of the economy and their jobs.

  • Unemployment fell from 6.4% in June to 6.2% in July. The problem is that 470,000 people have given up looking for work. 44,000 jobs were lost in the month, vs. an expected growth in new jobs.

  • According to Stephen Roach of Morgan Stanley, the current account deficit of the US rose to 5.1% in Q1 which is a very dangerous level. He posits that the deficit could grow to 7% by the end of the year which would mean that the government would need $3 billion in new foreign inflows per day to cover the deficit. Foreign investors currently own 32% of US Treasuries, 23% of corporate debt and 12% of agency debt. If they were to start looking elsewhere to invest, we would be in real trouble.

Monthly Tax Tip

The Bush administration recently began mailing out about $13 billion to middle-class families with children as part of an expanded child income tax credit contained in a $350 billion economic stimulus package that Congress passed in May. So watch your mailbox to see if you get a check!

Financial Planning Suggestion...Pay Yourself First

The first suggestion that I make to each new client is to "pay yourself first". By this I mean you should set aside money to save/invest every month, before you pay the rest of your bills. Do this every month, automatically. The best example of this is one client of mine that has $1,000 deducted from every paycheck and deposited into his investment account. Two other clients have $500 per month wired from their checking account into their investment accounts. By doing this, they have institutionalized the process of saving. This transfer has just become another bill. You can do this too. You can start small, maybe $50 or $100, to see how things go. Then you can increase the dollar amount after a few months. You are in control. The most important thing is to start! Remember, it's never too late to begin funding your LifePlan.

Poll Question:

Do you believe the Bear Market ended when the Dow hit 7,286 last October? Please click here if you believe the bear market is over and blue skies are ahead. On the other hand, click here if you believe the bear has yet to release investors from its clutches. Look for the results of this poll in next month's newsletter.

Share This Newsletter

If you found this letter to be interesting, please feel free to share it with a family member, friend or colleague by forwarding this email to them. If you wouldn't mind, please copy me so that I know to include that person on subsequent mailings.


That's it for now. In the future you can expect this to arrive earlier in the month. I look forward to sharing more thoughts and insights with you in the months to come. I welcome your feedback on what you liked, what you didn't like or what you would like to be added to future newsletters. As always, if I can be of any assistance, please don't hesitate to call me at 914-741-6839 or 800-PHON-WAM. I recently competed in the Masters National Swimming Championships, after which I spent a few days on the beach with my family, followed by a few days in Colorado caring for my mother who broke her ankle. She is now home and mending well. I hope you and your family enjoy the remaining few weeks of summer in good humor and good health.

Best regards,


Greg Werlinich
President
Werlinich Asset Management, LLC
400 Columbus Ave.
Valhalla, NY 10595
914-741-6839
800-746-6929
greg@waminvest.com
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