THOMAS NOGALES FINANCIAL, LLC
April 2007 Update
The S&P500 is at 1420 on 31-March-2007

This page can be linked to at   ( www.thomasnogales.com/emails/2007-4.htm after May 1, 2007.

The Thomas Nogales Financial Market Alert Timing Model is in the stock market.  Since our last buy signal in February 2003, the S&P has risen 67%.

Year to date, the S&P500 index is up 0.0% and the TNF Balanced Portfolio is up 2.2% (with half the stock market risk.)

  Here’s the year to date performance of the TNF Balanced Portfolio by asset class.

As of 3/31/07

Market Alert Model
The TNF core model is used to time large cap stocks. It’s currently IN the stock market. Stocks are safe to hold.  My indicators show the economy is strengthening not weakening.  Inflation is under control.  Stay invested with proper diversification.

Year Ahead Timing Model
The YAT model is used to indicate periods of buy opportunities within the Market Alert Model’s timing cycle. The YAT model is positive for the year ahead. This means money invested in stocks today will likely be worth more one year from now.

Interest Rate Model
The TNF Interest Rate model is negative on interest rates and long bonds.  

Markets Recap
Over the last several weeks we’ve seen volatile stock markets worldwide.  The prevailing fear is that the sub-prime mortgage loan market problems will spread to higher grade mortgages.  This will destabilize the banks and ripple through the derivatives markets ultimately threatening the world financial system.

Then there’s the fear of a widespread housing bust causing consumer spending to decline.  With less home equity, people will feel poorer and decrease their spending and this will push the economy into a recession.

The Iranians snatching British navy personnel has ignited fear of a growing military crisis in the Middle East.  There’s concern President Bush may use this event as a reason to expand the war into Iran.  Gold has bounced off its recent lows.

Let’s see, what else.  Oh, right – the US congress is pressuring Bush on an Iraq pullout and then there’s the attorney general blatantly lying when his office should set the highest standards of conduct.

Here’s the thing – people get depressed and fearful watching general news shows churn these stories.  The financial columns are bursting with news of slumping housing sales and anecdotal tales of middle class Americans on the verge of losing their homestead. 

When I hear this stuff I sit back and drink some herbal tea.  You may prefer a sip of Captain Morgan.  The stock market may bounce around but I see no evidence of an imminent collapse in earnings.  And, earnings are all the stock market ultimately cares about.  Stocks can withstand war, crazy politicians, and anxious reporters.  Good investors get paid to ignore the noise and focus on what’s important.

Concerned about housing?  Sure, things could get worse and probably will.  I’ve read that a million borrowers are behind on their mortgage payments.  I have no doubt many of those will default on their loans after Easter.  But, my research shows housing prices firming up by mid summer.  The housing market may remain sluggish for a long time as excess inventory gets mopped up but I just don’t see a housing collapse in the data at this time.  I do see price declines in some major urban markets but not across the whole nation. 

Remember this; no market bubble has ever been widely labeled a ‘bubble’ before it popped.  Name one!   House prices are higher than many people can afford because land prices rose and construction costs soared.  Many of the costs are rooted in commodity prices.  So, if housing is in bubble-land then that must be true of commodities like copper, lumber, oil, gold, and the cost of labor.  I just don’t buy it.  I think prices just went up.  Many people wanted homes and could afford them due to low interest rates. Banks got greedy and made foolish loans to weak borrowers – they’ll have to eat a lot of bad paper.  Still, if you look around you’ll see new homes are quite cheap in places like Tyler, Texas relative to Phoenix.  Yet, Phoenix has a population influx of over 125,000 people per year looking for a place to live and that keeps prices firm. 

Stocks have some people worried.  Wish I could be more supportive of angst but I can’t get depressed because I see economic growth rising slightly not going down.  Yes, earnings are sluggish but even the wind can’t roar all the time.  Calm doesn’t mean a storm is imminent. And, I don’t see major inflation on the horizon.

It’s possible the economy and housing could take a turn for the worse after mid year but they could just as easily go in the other direction.  Until I see hard evidence of deterioration and my stock model gives a warning, I intend to stay invested.  We’ll have plenty of time to act if things get dicey.  We get paid to take managed risks and the data doesn’t support panic at this time.

The S&P500 is flat for the year but the TNF Balanced Portfolio is doing fine.  We’re up 2.2%.  If the rest of the year is volatile but we get the same level of quarterly results I’d be quite content - 8.8% isn’t bad - if that’s what happens.  But, I suspect we’ll do better than that. 

At some point the markets will break and, if history holds true, it will come when it’s not expected.   The TNF Market Alert model will be ready and we’ll be long gone.

Best Regards,
Thomas Nogales Financial, LLC    (www.thomasnogales.com)
Tom Gleason, Manager & Researcher

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Disclaimer:.
Investing involves risk and the future performance of our models cannot be guaranteed. TNF is not a registered investment advisor and nothing published by TNF should be considered personalized investment advice. Any investment recommendations made by TNF should be made only after consulting with your investment advisor and only after reviewing the prospectus or relevant financial statements.  TNF does not receive any compensation for mentioning stocks, funds, or financial products.