THOMAS NOGALES FINANCIAL, LLC
May 2007 Update
The S&P500 is at 1482 on 30-April-2007

This page can be linked to at   ( www.thomasnogales.com/emails/2007-5.htm after June 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 78%.

Year to date, the S&P500 index is up 5.1% and the TNF Balanced Portfolio is up 4.3% (with half the stock market risk.)

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

As of 4/30/07

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. 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.  

Stock Trends
In March, the S&P500 was down almost 6% for the year.  At the time, news stories and comments from “experts” saw weakening economic activity and an expanding housing loan crisis that threatened to slash earnings and chop the legs off the stock market. I sent out an Alert on March 15th urging subscribers to “Stay the Course” and to ignore the negative housing news.  The indicators of my stock market model and year ahead timing model all showed the market would strengthen.

At the end of March, stocks had recovered to even on the year.  The TNF March 31 2007 eletter stated: 

“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.”

Now, at the end of April 2007 the S&P is up almost 5%.   That’s an 11% swing from trough to peak.  We’re making money and the investors who believed the professional worriers on Wall Street exited the market lost a lot of money.

The news media thrives on bad news.  Whether it’s the stock market or the horrific shootings in Virginia, the commentators love to see the dark side because it attracts attention and sells magazines.  Their financial stories may be accurate but the facts they discuss aren’t what drives stock prices.

Over the last few days the news now says economic growth is sluggish and an economic contraction could lie ahead.  I disagree.  My timing models show we are very likely to do well through the end of the year. Often the market is sluggish in the summer but the primary trend indicated by my stock model is positive.   By year end I think people are more likely to be surprised at the positive performance of stocks than wondering what went wrong.

As you know, I don’t make predictions about how high or low the market will go for the simple reason that I have no idea.  I have no ability to pick a number out of the air and state with any confidence that an index will attain it. My models show if the markets will go higher or lower and, for the investor, that’s what is really important.  Over the years this e-letter has been published, I’m proud to have been consistently correct on the direction of the stock market both up and down.

Housing
Housing prices still haven’t collapsed despite all the warnings of such earlier this year.  I foresee housing prices firming by mid summer although there will still be too much inventory in many major urban areas.  It will take time to work it off – maybe a long time.  The employment market remains good and the housing pros can tell you how important that is.

Even if I was totally wrong on the direction of the markets, if you invest following the TNF Balanced Portfolio, your assets will be well protected even during a market crash. 

I think the stock market could perform well right through 2008.  In 2009 Congress will have to act on cutting social program benefits for the aging boomer generation.  We will see some form of means testing for Medicare.  The potential deficit drag of enormously expanding Federal benefits is just too large – and I mean truly impossibly large - for things to continue as they are. .

This implies that generational legislation is in the offing  and it will impact the stock market.  It’s too early to predict how it will shake out but here’s a warning.

If you aren’t saving, you better.  The Federal free lunch wagon is leaving town.  When Americans are forced to save, the rate of US consumption growth will decline.  The US has already promised China we’ll make efforts to increase domestic saving.  This is part of a deal with China to be flexible on currency exchange rates. 

The US savings rate needs to increase so China isn’t awash with dollars.  Less spending means lower profits and that may mean lower stock prices.  Unless, of course, corporations are able to pick up earnings from Asia.  It’s too early to tell. 

Here’s my bet.  The demand for stocks could increase in the years ahead as the US allows increased foreign control of American firms.  This could happen despite slowing domestic spending here.  Some respected financial people believe the stock market may fall off a cliff when the boomers start to retire but I don’t think so.

It would take too much ink to explain my reasoning but I suspect investors will be well rewarded for years to come due to the unexpected economic integrations resulting from globalization.  Although markets run the risk of being very volatile in the future, my timing models will be able to detect those periods and we'll benefit. I urge you to stay invested. 

Many investors are rightfully afraid they’ll outlive their money or will lose lots off it in a falling market.  Concerns about a demographic storm and weak dollar are valid.  But, these investors can hedge the unknown if they invest properly and with balance.

My Book is in the Works
In several months, I’ll be publishing a book that addresses these issues.  It will show how to win in any type of market and it’s specifically aimed at investors who can’t afford to take a big financial hit.  I’ll explain my longer term forecast in detail and will recommend actions to take so you can sleep well at night. 

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.