Portfolio Update - 03/31/09

By proceeding, I acknowledge that I have read and understood the Disclaimer, Performance Reporting Disclosure and Copyright Statements . Dear clients, As of the close of the first quarter, all of your accounts are up for the year and beating the indexes by a substantial margin. Here is how my performance has stacked up compared to the averages as of the 3/31/09:

1. We implement our Focus Portfolio inside of IRA accounts and margin accounts. The performance in these accounts differs substantially due to various measures taken in the margin accounts that are not taken in IRA accounts. These measures include short selling stocks and tax considerations. The risk with short selling securities or implementing any sort of leverage in an account is substantial as it can result in losing more than a 100% of your initial investment.

Ever since January, the technical picture for the equity and bond markets has been largely indecipherable. Nothing was definitive until last week when it became apparent that the market is embarking on a significant rally that should last 2 – 6 months. This rally could be a countertrend rally, a continuation of a sideways consolidation or the actual beginning of a new bull market. If the latter is true, then we should see stock indexes drop to within 1 – 5% of their closing bottom at some point in the next 1 to 5 months which would put the S&P back down in the 700 range. ( In Part IIIc of my 7/31/08 update, I explain the markets propensity to “double bottom” at bear market troughs, which you can read by clicking on this hyperlink. You’ll need to scroll down to Part IIIc to find the information.) In nearly every bear market bottom, the final lows are revisited within 1 to 6 months which is why I don’t mind missing out on the substantial rally that took place this month. If the rally was for real, we’ll see the lows retested. If it is merely a bear market rally head-fake, then new lows should be established by year end. I do not think it is likely that the bear market is over but I am not ruling out the possibility. There are three possible scenarios that could play out in the current secular bear market and only one allows for the long-term bottom to have taken place on March 9th. I am gradually building positions in alternative asset classes which I’ll comment on in my quarterly report. I hope to have it mailed by next Monday, April 6th. In the interim, please do not hesitate to call or e-mail me if you have any questions about your portfolio. All the best, Matt