Market Commentary for the week of June 25, 2007

· For those who follow the news nightly, one might conclude that when interest rates move on Monday, the market responds; when unemployment rises on Tuesday, the market responds; when oil goes up a penny a barrel, the market responds on Wednesday; when the Fed speaks on Thursday, the market responds. When Friday’s trade data is announced, the market responds.

And while it may appear as if there is a lock-step response to all news events, it just is not so.

I have earlier referred to this as a “parallel disconnect”. But more importantly, while the market does gyrate (wildly, sometimes) on a daily basis, the true course of the economy and the markets is derived from longer term secular themes. It is from these themes that investors should draw their inspiration.

For instance, the recent collapse in housing and mortgage backed securities did not occur in one day, or one month, as the media portrays. Instead, the secular low in interest rates produced an era of leveraged buying in all asset classes. And those who loaned the money under those conditions failed to widen their aperture of evaluation, focusing solely upon their short term fee structure at the expense of longer term trends

The secular reversal upwards in interest rates took hold in 1998, well before the culmination of today’s mess. So in between and in hindsight there was a decade-long period in which to speculate and wait for what is transpiring today.

Across the board, savings rates are low, borrowing is up, prices are rising, financial stocks are lagging, and the confluence of greed and free money is avalanching towards the bottom of the hill.

For those who like to gamble, fine. The hedge funds have ridden the wave of leverage for a long time. For others, I say step aside and avoid the carnage.

In the market’s current phase, I am expecting a bit of a shake-out, during which sectors rebalance and new, more efficient trends take hold. For example, while I am keen on tangible assets and inflation as a long term secular play, many equities in those related sectors have come a long way since their intermediate buying opportunity in 2006. As we are witnessing, some of the Consumer Non-Cyclical names are beginning to look attractive. Stay tuned for my quarterly list of earnings accelerative equities sometime in July.


· I am sometimes told that my weekly commentary is “too difficult” to understand, or that it is written in an “intellectual” manner that doesn’t connect with my audience. That might be fair, although I don’t necessarily agree.

But let me clarify two things. Firstly, any one of my readers is free to call me directly for clarification or conversation. I will always try to make my point of view understandable. So, call if you feel so inclined.

Secondly, the message of my Arlington Econometrics product is to simplify and augment the decision-making process for investors based upon the methodology’s ability to sift data and draw quick and efficient conclusions. The tool is a very expansive database of correlated facts and statistics which is designed to enhance traditional fundamental economic market analysis.

So, whether it is tailored for institutions or individuals, it works. And its efficient analyses have kept a lot of trouble away from those who wish to avoid it.

As I said, let’s chat.