Third Year is a Charm

2007 begins year three of our President’s second term. And, rarely does the market perform poorly in a President’s third year. In modern times, the only exception was in 1939 when the S&P was down only 4/10ths of 1%. The “Presidential Election Cycle” appears to repeat itself regardless of which party is in power. Incumbents do best when the markets are rising and so, the theory goes, they do everything in their power to create a positive environment for the stock market. Therefore, we may soon be entering the ‘sweet spot’ in the cycle of politics and economics.

Value in the Tech Sector

While investors’ appetite for risk appears to have waned over the last quarter, we think now might be a good time to begin doing some selective bottom fishing to prepare for the market’s next up cycle. Some of the iconic technology names of the 1990s have turned in miserable price performances so far in 2006 and are becoming more attractive at current levels. Dell and Intel, the world’s largest direct computer systems company and one of the world’s premier microprocessor firms respectively, are both down more than 30% since the beginning of the year. Internet auction giant Ebay Inc. is down more than 40%. All of these companies are profitable and generate significant free cash flow. While they aren’t timely now, we think they offer investors with a 3-5 year time frame substantial upside potential.

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Disclaimer
The opinions expressed are those of Gabriel Wisdom and Michael Moore and do not necessarily reflect the opinions of American Money Management, LLC (AMM), an SEC registered investment advisor. Clients of AMM, Mr. Wisdom, Mr. Moore and employees of AMM may buy or sell investments mentioned without prior notice. This newsletter should not be considered investment advice. The opinions expressed do not constitute a recommendation to buy or sell securities. Investing involves risks, and you should consult your own investment advisor, attorney, or accountant before investing in anything.