FASTEN YOUR SEATBELTS

The year 2007 witnessed extreme volatility due to the major events roiling the markets: higher energy prices, inflation, the subprime meltdown and its chilling effect on liquidity, fear of an economic slowdown, and hope for interest rate cuts.  Energy stocks were the best refuge as they posted gains of +4.1% for the 4Q and +32.4% for the year.  Basic materials, responding to increased global demand, were flat for the 4Q but up +20.0% for the year.  Financials got walloped: down -20.8% for the year and down -15.0% in the 4Q alone as the severity of their lending problems unfolded.

Whether the country technically experiences a recession or just a slow down, the point is moot.  Corporate earnings will decline.  Because we have been wary of this possibility for some time, Gold Leaf portfolios do not hold a great deal of economically sensitive stocks.  The top 15 positions account for 58% of the portfolio.  Of this, five or 19.7%, are in the healthcare sector.  Three, or 11.9% are tech related.  Two are international indices representing 7.8%.  Two more are bond funds and comprise 7.2%.  The final three are a bank, an infrastructure company, and a hotel REIT.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages.  Gold Leaf's goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market's upside.  On December 31st, portfolio attributes were:

Our best performer for the year, up+ 86.4%, was an index that tracks the Indian stock market.  General Cable, the manufacturer that is benefiting from grid upgrades, was up +67.7%.  Our 3D rapid prototyping company was up over +60%.

Our financials, both banks and closed end bond funds, saw their prices decline significantly as the subprime mess continued.  We will hold on to these stocks as they continue to generate substantial income.  Over time, like the S&L crisis of twenty years ago, the banks will sort out their problems and return to greater profitability with concomitant price appreciation.