Market Commentary for the week of June 18, 2007

· As market valuation falls, precipitating a new intermediate downleg cycle, other sectors and phenomena gain strength. In fact, the value of any cyclic phase methodology is to quantify the prevailing trends and counter-trends so as best to position one’s money to benefit from low-risk investment strategies.

As “selling into strength” gives way to the search for value, let it suffice to say that new leadership will emerge from amongst the wounded. One nagging reminder, however, of the pervasiveness of negative earnings is that Consumer Cyclicals and Financials remain stuck in a cycle of underperformance.

Emerging from the ashes could be the long-dormant Non-Cyclicals and Basic Materials, particularly gold stocks.

It is also interesting to note that in a rush to get ahead of the rise in interest rates, there is a flurry of merger and acquisition activity. I have noted this phenomenon previously, and continue to decry the use of share buybacks and M&A activity to inflate artificially the nominal value of some stocks whose earnings performance does not comport with their true valuation. I am especially concerned that the low U.S. dollar inflates sales and earnings projections and ignores that, besides cost, our products are not moving well in the global arena.

To counter the negative influence of rising rates some investors are shifting to cash or buying short term time deposits that roll over on a 3 month cycle. I would also urge clients/prospects to look at using Utility shares as a surrogate for price pressure in communities where public service commissions “pass along” the ever increasing cost of creating and delivering electric or water services.

In addition, the emergence of global telecommunications equities is another example of success from amongst the degradation of other economic statistics, as well as a way to play a “utility” share along with technology.

To those with a penchant for bottom-up investing, I am afraid that “waiting for” your favorite stock or sector to rebound is just not the right strategy at this time. My clients know that asset and sector allocation plays a greater role in the probability of portfolio performance than does any single security within that portfolio. Therefore, it is usually unwise to fixate on when and how to get back into a favorite stock or to wait for the “right time” to jump in. Instead I always urge sector weightings based upon the current uptrend and consistent with the prevailing pattern of earnings acceleration within that industry or sector.

It is also useful to overweight the predominant theme and to underweight any negative influences. Therefore given the climate of rising rates and market instability, I am probably a little heavier in cash than usual, but nevertheless consistent with a low-risk asset allocation methodology.

With the market having given back a significant portion of its mid-year gains, I am pleased that a steadier hand is guiding our philosophy and that we are competing successfully with actual and relative gains that place us where we want to be…out of harm’s way.

· I don’t find it at all curious that as the markets slide, there is an increase in Wall Street related advertising proliferating the media. They’re scared that you will be mad at them for not foretelling the pullback and the related damage it has done to your account. As they like to tell you, they are your “partner”.

So expect more retirement commercials, more pictures of beach houses, grandchildren and dogs. “Warm and fuzzy” covers a lot of ills that gambling in the global stock markets might induce.