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February 11, 2008

Holdings

	11-Feb-2008
1	PFE
2	HOG
3	AHL
4	NKE
5	SAFT
6	WMT
7	SNP
8	CAT
9	INTC
10	C
11	TSM
12	FNF
13	MS
14	TKC
15	HMC
16	ING
17	MYL
18	DOW
19	COP
20	ACH

Performance of Individual Stocks For last 3 months

11-Feb-08
PFE	-0.1%
NBG	-14.9%
AHL	7.8%
NKE	-2.1%
SAFT	1.4%
WMT	16.1%
SNP	-19.0%
CAT	-0.9%
INTC	-17.3%
C	-21.1%
TSM	-4.0%
FNF	38.2%
MS	-20.5%
TKC	-14.1%
HMC	-12.8%
CRYP	-10.8%
MYL	-15.1%
DOW	-8.0%
COP	-6.8%

Total Increase (Decrease) since last quarter: -6.84%

Additions: ING, HOG

Subtractions: CRYP, NBG

Commentary: (Added February 25, 2008). Ok, I know, the November commentary never materialized, so sorry about this. I appreciate all the emails asking me about it, because it shows people are visiting the site and are actually reading what I write, which is a nice thing to notice. This quarter, I want to make some general observations on the U.S. economy and speculate about the possibility of currently being in, or soon being in, a recession.

First, I realize why the subprime ‘meltdown’ is disconcerting to a lot of people, and I also understand why people are worried about falling home prices – if I owned a home and its market value was falling, I would feel a bit uneasy too. However, I think in the long run we should all be happy that home prices are stabilizing. I’m currently 27 years old and I make more than most people my age, and I’m nowhere near being able to afford a house. The median home price here in San Francisco is somewhere around $800,000, which is so expensive it borders on silly. Of course, other regions of the country have less expensive median home prices, but I think throughout the nation (and, increasing, across the developed economies of the world) the basic trend is the same: the cost of entering the housing market for first-time homebuyers, measured by the number of years of wages it takes to purchase a home, is rising dramatically. In 1987, the median home price was 2.9x the median household income. In 2007, this had risen to 4.7x.

The housing market requires people to be able to buy into it, and if housing prices rise faster than wages it makes the burden of buying a house all that much more onerous for first time homebuyers. So, from a long term perspective, we should be happy that the gap between home prices and wages is starting to narrow, and I think it is good for the overall health of the economy if this can continue.

http://www.census.gov/hhes/www/income/histinc/h08.html

Of course, many economists and others notice that there is should be a correlation between house prices and consumer spending. And, since the U.S. economy is largely driven by consumer spending, the fear is that falling home prices (as well as the reduction in new homebuilding activity) will cause a consumer-led recession, which will cause unemployment and lower wages, thereby negating the potential for closing the gap between median home prices and median wages.

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