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Market Commentary 01/15/2012

The first two weeks of January 2012 showed a nice recovery for stocks, with our Favorite 30 theoretical portfolio* (see disclaimer on performance table page) gaining 7.0%, our theoretical Tiny 6 Portfolio* gaining 8.06%, and the S&P 500 Index up 2.5%. 

Is this the time for growth stocks?  Our OU-P measure of market sentiment maintains that the overall market is underpriced by over 30%, while the measure of consumer confidence is rebounding (4th quarter 2011), the level of consumer spending is increasing, and the combined measure of leading economic indicators continues to move upwards, as it has since March of 2009.
The ten components of The Conference Board Leading Economic Index® for the U.S. include:
 
  • Average weekly hours, manufacturing
  • Average weekly initial claims for unemployment insurance
  • Manufacturers’ new orders, consumer goods and materials
  • Index of supplier deliveries – vendor performance
  • Manufacturers' new orders, nondefense capital goods
  • Building permits, new private housing units
  • Stock prices, 500 common stocks
  • Money supply, M2
  • Interest rate spread, 10-year Treasury bonds less federal funds
  • Index of consumer expectations
 
For full press release and technical notes: http://www.conference-board.org/data/bcicountry.cfm?cid=1
 
HRA feels confident that the U.S. economy will continue this upward trend throughout the year, but perhaps not at this pace.  Outside political and economic influences such as the debt problems within the Euro-zone, as well as the domestic political Presidential campaign, are as yet unknown, yet we believe that the majority of potential negative impacts have already been priced into the market, hence the 30% underpriced level of our HRA OUP factor, which is measuring market sentiment in the FEAR category. (See the HRA OUP graph on website).
 
We have been optimistic throughout 2011, and we feel that this is the year in which companies will continue to show earnings growth recovery.  We are already seeing the building industry begin to show improvement, and perhaps the job market will begin to reflect the economic rebound that we’ve been seeing here in the U.S. for the last 18 months.
 

WHAT DOES THIS MEAN FOR HRA?

 
HRA believes in investing in under-priced stocks; well, we’re at a point where almost everything is underpriced!  Our stock selections have been taken from a list of buy candidates which is showing 265 out of 800 possible stocks. Selecting a mere 30 out of this list for our “Favorite 30” theoretical portfolio has become difficult, yet we try to stay with a stock once we’ve selected it, in order to try for long-term capital gains.  
 
We’re seeing a lot of volatility in technology stocks, and yet there are several that have been doing well for the last quarter or so.  
 
Natural resources and materials stocks have also been recovering after the commodity run-up last summer, as the prices have come back down to a more “normal” level for the last few years.  This industry has good potential, as we see the same for manufacturing.
 
Manufacturing levels and productivity had a wild swing in 2011, up for the first 3 months of the year, then receding throughout the European debt crisis, and then showing recovery in the last quarter of 2011.  We believe that select under-priced manufacturing stocks will bring key growth to both the economy and our portfolios throughout the year.
 
The retail sector has been seeing the bulk of the increase in consumer spending, and select retail stocks are also one of the keys to our portfolios.
 
In balance, HRA can say that we like the prospects for 2012, as we said in our December 31 issue, and under-priced growth stocks, held over the long-term with judicial changes, is how we will operate during 2012 and on.
 
HRA notes that not all investments are suitable for all investors – speak to your advisor before making major changes in your portfolio, and make sure to take into account changes in life situations, risk aversion, and investing time horizon.  HRA also notes that past performance is not an indicator of future performance, and that the idiom “buyer beware” is particularly appropriate in the investing field.  
 
Good luck and Happy Investing!
 
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