WHEN WILL IT END?

The S&P 500 dropped -2.7% during the 2Q and is now down -11.9% for the first six months of the year.  Higher energy prices, continued credit problems, and the prospects of declining corporate earnings all worked in tandem to drive down stock prices.  For the 1st half of the year, only the energy sector reported positive gains, +8.1%.  When will it end?

The truth is -- we don't know for sure.  It is now even more clear that the housing market is working off ludicrous credit excesses.  All those new McMansions you saw in cornfields (and wondered "Who lives in those things?") have to suffer further price declines.  Corporate America is laying off employees because the economy is slowing.  The good news is that will act as a brake on energy prices.  Economies are cyclical, and stock prices are always a "two steps forward" and "one step back."  No one rings a bell when things have bottomed; that's why you have to stick it out and wait for the recovery.

In the meantime, companies that we invest in are industry leaders with strong balance sheets with several having no debt whatsoever.  More importantly, the lower prices afford the opportunity to buy more cheaply.  We are constantly monitoring the market for additional, solid opportunities.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages.  As an independent firm, Gold Leaf provides objective investment management.  Our goal is to protect client assets on the downside while participating in most of the market's upside.  On June 30th, portfolio attributes were:

Somanetics, which makes oxymeters for the surgical industry, was our best performing stock.  The company reported earnings on June 18th.  Revenues increased +40% year-over-year while net income increased +27%.  Some of our closed end bond funds continued their rebound; Calamos Convertible fund was up +7.5% while the Nicholas Applegate Convertible fund was up +5.8%.  KeyCorp announced that it needed a capital infusion to offset an adverse tax ruling from leases several years ago.  They trimmed the dividend to rebuild capital; the stock was our worst performer during the Q.