By proceeding, I acknowledge that I have read and understood the Disclaimer, Performance Reporting Disclosure and Copyright Statements .

Dear Clients,
The following is my Performance Update and Outlook for February. All prices and returns are as of 2/29/08.

PART I: INTRODUCTION

The Stagflation theme has finally caught on with the investing public. On February 21st, both the Wall Street Journal and Larry Kudlow’s show Kudlow and Company dealt with the prospect of Stagflation. I just got an e-mail from an analyst in Dallas by the name of John Mauldin and his article is titled Stagflation and the Fed. (I think these guys are bit late to the party as I’ve been preaching about Stagflation for some time. Last April I wrote a post titled Goldilocks or Stagflation which concluded that Stagflation was the more probable outcome.)

Stagflation is simply persistent price inflation coexisting with a cyclical slowdown in the economy. It’s not the end of the world, but it can do nasty things to a portfolio invested in equities and bonds.

Inflation pressures are undeniable. I wrote in my Annual Update that we are experiencing unprecedented long-term inflation. The 5 year appreciation in commodities as measured by the CRB Index is running at it fastest clip since the index’s inception. The CRB index is up almost 200% since the beginning of 2002. And this month it got worse as the CRB Index increased by 12.4%. Since the “omniscient” Fed started their rate cutting campaign in August, the CRB Index is up 36.8% - the second largest 6 month increase since the index’s inception. The biggest increase was in 1973, not exactly the best time to be invested in equities as they fell 49% in 18 months. (Are you growing tired of me quoting that stat in every single update? If so, my apologies, but I feel the need to include it for non-clients who might be visiting this site for the first time. Feel free to skip over such redundancies in the future.)

Another certainly is the reality of a slowing economy. For reassurances about the slowing economy you can check out my Stagflation Alert or just read any of the latest Fed minutes, speeches or Congressional testimonies. (Federal Reserve Website link)

But this introduction has run on long enough; let’s get to the good stuff.

PART II: ACCOUNT PERFORMANCE

Here is how my performance measured up to the averages for the first two months of 2008:

PORTFOLIO	2007	2008 YTD
The MAC’s Core Portfolio	12.5%	22.0%
The MAC’s Focus Portfolio	11.0%	25.3%
S&P 500 (VFINX)	5.4%	(9.1%)
NASDAQ 100 (QQQQ)	19.0%	(16.13%)
Benchmark	8.5%	(1.9%)

We had another stellar month in February. On a YTD basis, My Core Portfolio has beat the S&P 500 (VFINX) by over 30% and Scott Burn’s Couch Potato Portfolio by nearly 24%. In a $1M account, my strategy would have yielded nearly $240,000 more than the Couch Potato Portfolio. Not bad considering that 75% of financial advisors are supposedly incapable of beating his benchmark. Read the rest of this entry »