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 July. All prices and returns are as of 07/31/08.

PART I: INTRODUCTION

July was a tale of two markets which resulted in the broad equity and bond market indexes ending the month essentially flat; however, the movements in individual sectors was pretty radical. The first half of the month was purely a continuation of the havoc reaped in June but the markets turned a remarkable 180 degrees on July 15th.

The back half of the month was defined by increased risk taking as the VIX Volatility Index fell 26% from July 15th through the 30th. All safehaven plays; oil, treasuries, gold, utilities and TIPS, were dealt a healthy blow in the last couple of weeks while risky offerings such as financials, REITS and small-caps mounted unprecedented rallies. The financials had their largest one and two day rallies ever! The six day rally in the financials dwarfed any bear market rally seen in the NASDAQ during the 2000 – ’02 bear market…but more about that later.

PART II: ACCOUNT PERFORMANCE

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

PORTFOLIO	2007	2008 YTD
MAC’s Core Portfolio	12.5%	9.1%
MAC’s Focus Portfolio	11.0%	11.6%
S&P 500 (VFINX)	5.4%	(12.7%)
NASDAQ 100 (QQQQ)	19.0%	(11.2%)
Benchmark	8.5%	(3.5)%

July was not a good month for us. The two positions in your portfolio that did very well in June, gave back all their June gains and then some in July (or at least in the second half of July). Considering that my strategy is based on continuing monetary and commodity inflation coupled with deleveraging in equity and bond markets, it is not surprising that we suffered a sizable set back this month.

And here is where I should inject the obligatory statement about how our YTD returns have been far ahead of just about anyone else. While equity indexes are down over double digits, my focus portfolio is up double digits and my Core strategy is almost in double digit area. Furthermore, I could point out that the performance of the best market neutral fund that I track (TFSMX) is up only a mere 2.8% YTD. However, I am very disappointed with the last several months. Bear markets are amazing opportunities to make money and I feel that I am squandering that opportunity.

Wealth is preserved in bull markets but it is created in bear markets. Templeton, JP Morgan, Buffett, Soros and Rogers all made their clients a fortune in bear markets. The legends cemented their legacy by profiting from the foolishness of others which can only be done at market inflection points. While we should be pleased with positive performance in a down market, I am far from satisfied.

PART III: Market Outlook

The following could be the most important commentary I make throughout this entire bear market cycle. I will cover two ideas that every investor should familiarize themselves with while attempting to navigate any bear market. Furthermore, it should answer the following questions that I have been asked by numerous people over the past few months, which are:

Are we there yet?
Has the market bottomed yet?
How much further do we have to go?

Read the rest of this entry »

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

Dear Clients,

I am preparing my Quarterly Update along with your performance reports and fee statements. I am hoping to mail them out by Thursday, but may not get them out until the beginning of next week. In the interim, I wanted to report on your account performance so far this year:

Here is how my performance measured up to the averages on a YTD basis:

PORTFOLIO	2007 Return -	YTD Return
MAC’s Core Portfolio	12.5%	18.4%
MAC’s Focus Portfolio	11.0%	24.4%
S&P 500 (VFINX)	5.4%	(12.0%)
NASDAQ 100 (QQQQ)	19.0%	(11.8%)
Benchmark	8.5%	(2.9%)

Honestly, I am little surprised how well your accounts recovered this past month. I wasn’t expecting much until Q3 but several positions in your portfolios performed very well in June. While we are not quite back to where we were earlier in the year, we are still far ahead of practically everyone else. My Core Portfolio has outperformed the S&P 500 by 30% YTD! In a $1M account, that equates to a $300k swing. None of the market neutral funds I track have even delivered double digit appreciation much less gains in the 20% neighborhood.

While the balance of the year should prove disastrous for equity and bond investors, I expect to continue to deliver positive gains. There are virtually no bullish signals in the equity marketplace over the intermediate or long-term. We may see bear market rallies which will be short and spectacular such as the one from mid-March through May, but the long-term trend is down.

I believe that two very dangerous trends for equities are beginning to converge. First, there is a weak economy which leads to falling earnings. Actually, I would argue that we have vanishing earnings as much of the earnings in the financials where a smokescreen to begin with. The financials, which accounted for 40% of the S&P 500 Earnings last year, are gone with little or no means of replacing them.

The second trend is that inflation is bound to lead to rising interest rates which in turn will lead to equity valuation contraction. As you know, I’ve been harping on this topic for several months now. In Part IV of my January Update, I detailed why and how rates will start to rise. (You’ll have to scroll down to Part IV of the update if you click on the link.) On 6/30, the BIS said that, “Global inflation is a ‘clear and present threat’ to a world economy that needs higher interest rates…” (source: Financial Times).

According to Dow Theory, when interest rates rise it results in valuation contraction meaning prices will fall even faster than earnings. Given that valuations for equities are far higher than their historical average, the result could be a substantial correction in the market’s P/E ratio which currently stands at 22.

Historically, the combination of falling earnings coupled with valuation contraction has led to a sharp correction in equity prices. There are times to be invested in equities, but now is not one of those times. My written update will delve into this topic in much more detail.

If you have any questions or concerns about your account, please do not hesitate to call me.

All the best,

Matt

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 May. All prices and returns are as of 05/29/08.

PART I: INTRODUCTION
Inflation’s back…
Cover of the May 24th Economist

Just as the smoke has cleared from Act I of the credit crunch, everyone is now up in arms about inflation. While the threat of inflation is real and growing, unfortunately, the credit crunch has not played itself out. In fact, the curtain maybe just going up on Act II which I’ll discuss in Part IIIb of this update.

I’ve started to find myself in pretty good company as more and more investing legends are coming around to the probability of Stagflation. On May 20th, Yahoo Finance wrote the following regarding Warren Buffet’s and George Soros’ views on the economy, inflation and the credit crunch.

Soros was particularly concerned about inflation, which is front and center today as crude prices surge toward $130 and core PPI was higher than expected…While the less dramatic than the uber-skeptical Soros, Buffett was certainly direct in his assessment that the credit crunch is not over, contrary to popular belief on Wall Street. “I don’t think the effects of the credit crunch are far from over at all,” Buffett said during a presentation in Europe, according to wire reports. “I think there will be rippling, tertiary effects.”

Bill Gross, CIO of PIMCO Funds and manager of the world’s largest bond fund, is the latest guru to throw himself into the inflation camp which I find odd since he was a proponent of lower rates last year which would have resulted in more inflation. He says in his June Investment Outlook, “…we’ve been foolin’ ourselves [believing] that inflation is under control.” (when he says “ourselves” he is making a general reference to US citizens – not to himself.)

Of course, the continuing inflation in our economy is not surprising as it is a necessary evil. Our government must continue with its inflationary policy to finance trade and budget deficits. They are seeking to repay our debt to foreigners with a discounted currency. Its not an ideal situation but it is likely better than the alternative. Until the US becomes more fiscally responsible with individuals becoming net-savers, industry becoming net producers and government maintaining balanced budgets, inflation is imperative.

PART II: ACCOUNT PERFORMANCE

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

PORTFOLIO	2007	2008 YTD
The MAC’s Core Portfolio	12.5%	9.5%
The MAC’s Focus Portfolio	11.0%	11.2%
S&P 500 (VFINX)	5.4%	(3.9%)
NASDAQ 100 (QQQQ)	19.0%	(2.9%)
Benchmark	8.5%	0.1%

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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 April. All prices and returns are as of 4/30/08.

PART I: INTRODUCTION

The last two months have not been kind to my model portfolios but we are still well ahead of all the equity and bond market averages for the year. Even though the recent activity in your account might be discouraging, I am growing increasingly confident in my long-term strategy and the opportunities for your portfolio. While the current trends could last a little while longer, by Q3 I should be generating returns similar to those we realized in the first part of the year.

The fundamental case for my strategy is stronger than ever. I can’t find any evidence that the economy is improving or that inflation is cooling which are the trends I’m seeking to capitalize on. Stagflation, a unique economic condition that only occurs every several decades, will prevail as long as the Fed can keep the credit markets from crashing – a scenario far worse than what I’m expecting. We are currently experiencing a bear market rally in stocks and a bull market correction in commodities (except energy) but these trends should reverse themselves within the next couple of months. I think we are far closer to the end of the countertrend than the beginning.

The following essentially describes the action in your accounts over the past 15 months. Last year, every asset class (bonds, equities and commodities) was highly correlated which is not the historical norm. I’ve mentioned on numerous occasions over the past year that the historical correlations would be reestablished and now it is finally taking place. Furthermore, I have stated that the normal correlations between these assets classes must be reestablished for my strategy to truly provide significant returns.

Since every asset class was correlated for the first 10-11 months of last year, my long/short strategy was not very volatile as my long and short positions worked against each other. If my long positions appreciated, then my shorts fell and visa-versa. We made money on the margin but that was about it.

Starting in Q4 of last year, the commodity markets, specifically the Precious Metals (PMs), began decoupling from equities. While this decoupling took place, my long/short strategy became far more volatile as my long and short positions started moving in lockstep with one another. From December ’07 through February ’08, everything in the portfolio made money as equity prices fell. Conversely, equity prices started rising in mid-March and all of my positions started to fall in unison. The net result is still a fairly nice gain YTD but far from where we were at a couple of months ago.

I went through a similar rough patch in Q2 of last year but I stuck to the fundamentals and we outperformed the market handsomely in the second half of the year. I believe that the second half this year will be even better as we’ll make money both in falling equities and rising commodities rather than just on the margin as we did in ’07.

PART II: ACCOUNT PERFORMANCE

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

PORTFOLIO	2007 YTD	2008 YTD
The MAC’s Core Portfolio	12.5%	6.9%
The MAC’s Focus Portfolio	11.0%	7.7%
S&P 500 (VFINX)	5.4%	(5.0%)
NASDAQ 100 (QQQQ)	19.0%	(7.8%)
Benchmark	8.5%	(1.0%)

As I said in the Introduction, everything went our way in January and February and practically everything went against my strategy in March and April. I did foresee the countertrend emerging so I liquidated some of our positions which served to partially mute the impact of the current countertrend. Unfortunately, I didn’t think the reversal would be so severe nor did I think the decoupling between the PMs and equities would be so significant. In addition to these errors in judgment, I added some equity exposure to uranium stocks that have historically rallied with other equities but failed to so this time around.
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By proceeding, I acknowledge that I have read and understood the Disclaimer, Performance Reporting Disclosure and Copyright Statements .

Dear Clients,

I am preparing my Quarterly Update along with your performance reports and fee statements. I’m aiming to mail them out by Friday, but there are some analyst reports coming out at the end of the week that I’m waiting for so I might not get them out until Monday. In the interim, I wanted to report on your account performance so far this year:

Here is how my performance measured up to the averages on a YTD basis:

PORTFOLIO	2007 Return	Q1/YTD Return
Core Portfolio	12.5%	15.0%
Focus Portfolio	11.0%	16.8%
S&P 500 (VFINX)	5.4%	(9.5%)
NASDAQ 100 (QQQQ)	19.0%	(14.6%)
Benchmark	8.5%	(2.1%)

The quarter provided a lot of excitement in the market that resulted in losses in most portfolios. The S&P 500 had its worst quarter since Q3 of ’02 – near the bottom of the worst bear market in 70 years. Given that Q1 is typically a strong quarter for equities coupled with the monumental easing by the Fed, this is not a positive omen for the market.

The market has seemed to grab some traction as the government has provided a backstop to the financial sector on March 16th compliments of the US taxpayer. Since all the fun began last August, the fed has pledged over $1,300 for every man, woman and child in America. Fortunately, while our government has been increasing the liability side of your personal balance sheet, I’ve been increasing the asset side.

My performance for the last quarter has been pretty remarkable even though I gave a nice chunk back in March. I explained it to one client that “we went in at half with a 30 point lead but only won by 20”. (He appreciated the sports analogy which McCracken’s are famous for.) So far this year, my Core and Focused Strategy have beaten the S&P 500 by over 24%. In a $1M account, that equates to a $240,000 advantage.

Equities were severely oversold and commodities were equally overbought so a move back to the mean was expected (not necessarily welcome, but expected). The good news is that the long-term fundamental outlook for my strategy improved significantly this past quarter. But the technical short-term outlook is less favorable and I expect that many of our best performing positions might continue to correct. For that reason, I’ve reallocated a fairly significant percentage of your account to lock in profits while trying to find some risk-friendly returns over the next few months. I’ll cover all of this in detail in my report.

As always, please do not hesitate to call me if you have any questions or concerns regarding your account.

All the best,

Matt

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 »

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 for January. All prices and returns are as of 1/31/08.

PART I: INTRODUCTION

As January goes, so goes the year!
- Popular Wall Street Adage -

If this old adage has any validity, than equity investors are in for one hell of a time in 2008; conversely, we could see spectacular appreciation in your accounts this year. Over the past several months, my strategy has gained considerable momentum and your accounts have profited substantially.

While the large-cap indexes (S&P 500 and DJI) have not technically reached bear market territory, it is essentially a foregone conclusion that they will in the near future. For the first time ever, equities fell over 10% in January. The market volatility has been “gut-wrenching”. After falling nearly 11% in the first 14 days of the year, the S&P 500 rallied 5.2% in the last seven days of the month, but only after the Fed took drastic actions in cutting the Fed Funds rate 1.25%. The average intraday movement in the S&P 500 for the month of January was just over 2.4%! Read the rest of this entry »

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

Dear Clients,

Happy New Year!

I am busily preparing my Year End Update along with your performance reports and fee statements. I’ll try to get them out by Friday so you should receive them by early next week. In the interim, I wanted to report on your account performance on a YTD and Quarterly basis:

Here is how my performance measured up to the averages on a YTD and QTD basis:

PORTFOLIO	Q4 Return :	YTD Return
Core Portfolio	8.0%	12.5%
Focus Portfolio	11.3%	11.0%
S&P 500 (VFINX)	(3.4%)	5.4%
NASDAQ 100 (QQQQ)	(0.4)%	19.0%
Benchmark	0.9%	8.5%

The second half of the year has been good for your accounts. While the market has been sideways to down, you’ve enjoyed considerable appreciation in your accounts.
I think we are in the early innings of a protracted correction and if the trends in volatility and inflation continue coupled with a slowing economy, my strategy should continue to provide some nice gains.

There are numerous indicators that are suggesting that ’08 will be unkind to equities, which I’ll cover in-depth in my Update. My goal for the year is to generate some significant returns in your account while protecting you from losses in equities and other vulnerable spaces in the capital markets.

As always, please do not hesitate to call me if you have any questions or concerns regarding your account.

All the best,

Matt

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

Part I: Introduction
Historically, a significant increase in market volatility accompanies a market inflection point. Using history as our guide, it certainly feels like we are at inflection point. While we are entering a seasonally strong period for equities, the winter months do not guarantee positive gains. In fact, the two bear markets that I’ve consistently compared the next bear market to, 1937 and 1973, both started during this seasonally strong period for equities. The ‘37 Bear started in early March while the ’73 Bear started in January.

In the Market Outlook portion of this update, I’m going to briefly cover two very disturbing developments in the capital markets that merit our full attention. But first, I need to get the administrative part of my update out of the way, so here is my account performance on a YTD basis. Read the rest of this entry »

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

Part I: Introduction

What if, on New Year’s Eve of last year, you knew the following would take place by the end of October…
- New Home Starts would be down by over 30%…
- New Home Sales would be down by over 34%…
- Existing Home Sales down by nearly 20%…
- We’d have the first significant decline in home sales prices since 1930…
- Oil would be over $94/barrel…
- YOY gasoline prices up would be up 31%…
- Commodity inflation would be in excess of 15%…
- Food prices would be up over 17%…
- The US$ would be down over 9%…
- Earnings growth for the S&P 500 would be flat to down in Q3…
- And Consumer Confidence and Sentiment would be down 14 & 12 points, respectively…
What would you have predicted for equity prices?

But wait, there’s more…
What if you knew that a hand full of prominent hedge funds would implode by mid-year?
And that our nation’s biggest banks would have created these neat little entities called SIVs (Structured Investment Vehicles) for the purpose of taking advantage of mark-to-market accounting for pricing assets of questionable value - just the way Enron did a half a decade ago. And as an additional bonus, these SIVs allowed banks to move undesirable assets off their balance sheets to help improve financial ratios to meet reserve requirements – and when news of this broke, the equity markets saw it as a good thing and financial stocks rallied!

If you knew all of this at the beginning of the year, would you have predicted that by October, the Dow and S&P 500 would be trading at historical highs and the NASDAQ 100 would be up nearly 30% YTD. I certainly know I would not – which is why I’ve felt compelled to be out of the equity markets - which is a strategy this is finally paying off.

Part II: Account Performance

Here is how my performance measured up to the averages on a YTD basis through October:

PORTFOLIO	YTD RETURN
The MAC’s Core Portfolio	7.2%
The MAC’s Focus Portfolio	3.4%
S&P 500 (VFINX)	10.8%
NASDAQ 100 (QQQQ)	27.9%
Benchmark	9.3%

When I first sat down to write this update on Thursday, I wrote the following: “The last few months have been profitable for your portfolios as the market begins to price in inflation and credit risks but we still have a little catching up to do before I reach parity with my benchmark. But as I sat down to finish my market outlook over the weekend, I downloaded updated account information to find that we have finally caught up to our benchmark after a strong showing in the first couple of days in November. As of the close of business on Friday, my “Core Portfolio” was up 8.7%, just a 1/10th of a percent below my benchmark which is up 8.8%.

While I’m certainly not satisfied with my performance on a YTD basis, the returns in your account for the second half of the year are fairly impressive thus far. I appreciate your patience with my investment strategy and I’m glad that you are finally enjoying some appreciable gains.
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