2007 Review

REITs (real estate trusts), a favorite of mine, started out at record levels but pulled back during the year. Uncertainty about interest rates, not to mention the mortgage mess, did them in. Their yields are much higher at today's lower prices, some are at or near the 10% levels not seen since the early part of this decade. High yields at a time when rates (at least short rates) are declining should catch the eyes of very smart investors.

Junk bonds, a long time favorite of mine, pulled back. Uncertainty was a key word in 2007 hitting them hard. Investors became disenchanted after supporting them nicely in recent years. The selloff sent yields to 10-11% in junk bond closed end funds, around 7 points (700 basis) points above the Treasury bond yield. While my views may be prejudiced, this spread is too high, worthy of checking out by value investors.

Master limited partnerships are a class of investment I first learned about around mid year. These investments are not well understood by some but are getting more attention because of their excellent track records. The Alerian MLP index is 301, up from a starting value of 100 on 12/31/96. In addition, MLPs generally pay nice distributions (many over 6%). There is a lot to learn plus tax hassle because these are partnerships, but the track record should speak for itself. Last year the index went up with the market, reaching 342 after mid year followed by a sharp selloff at the end of July. Since then it has remained in the 290-310 range. While offering excellent investment opportunities, there is a lot to learn about these partnerships. Fortunately there are a few good primers (available for free on the web) that taught me a lot.

One of my favorite groups is S&P Dividend Aristocrats. S&P screened stocks with minimum track records of higher dividends annually for 25 years to be in this group. In the S&P 500, 56 made it. 2007 was a mixed year for them. Two I like, Masco (MAS) & Stanley Works (SWK), pulled back as they felt the effects of the slumping housing market. Caterpillar (CAT) had a great year reaching the high 80's, but pulled back to 72 after management guidance reduced earnings forecasts. There is also Coca Cola (KO), a long term investment in my IRA, which rose to it's highest level in 7 years. The group is excellent for long term investment, but selectivity, as elsewhere, is needed.

Watch out for January. Traditionally it is a very good month benefiting from the end of tax loss selling & fresh money going into pension funds for the new year. Those conditions are in place, but I have a feeling that problems in the economy (loan losses, mortgage mess, housing slump, weak retail sales, etc.) will be the stock market's most important issue.


Time to wish everybody: HAPPY NEW YEAR!!!



My friend Misty wants everybody to have a great 2008.