Portfolio strategy update

America is being tested

David Gottstein

Editor’s note: David Gottstein is with Dynamic Research Group in Anchorage.

As if the lagging economy and the looming war wouldn’t be enough, the loss of the Columbia space shuttle has hit America both in the stomach and the heart.

We are faced now with even greater burdens. But Americans will pull together, as we have always done, and we will prevail.

By moving ahead with the economy, albeit slowly, defending America, and getting the space program back on track.

Not without costs however.

And the uncertainties remain high. That is because the stakes are high, especially on the defense and military fronts.

Deficit spending may continue for several years. Until we know whether an Iraq campaign is looking more like a long-term opportunity as opposed to a problem, and the full costs of the consequences come more into focus, it will be very difficult to gauge the direction the country will take, and the likely outcomes.

Expect downward pressure

There are many important topics of the day, but we primarily stick with issues that affect the American financial markets.

So when we focus on that, we see more things in the near future that will likely put downward pressure on the markets than upwards.

Earnings, on a year over year comparison are looking good, but that is against an abysmal comparative.

And it doesn't look like the first quarter is shaping up to be that strong either. Although I am impressed that companies are making decent money, they don’t appear to be poised for sustainable growth.

Much of the earnings gains have come at the expense of job and other cuts. Housing is continuing to shoulder a core base of economic activity, with surprisingly no end in sight yet. So that’s some good news.

Autos are hanging in there, but through special deals and rebates. Retail sales have not tanked.

That’s about all the good you can say there. And any payroll gains and unemployment continue to be problematic. Jobs will continue to move to China.

The good news is that at current prices, the market is closer to fair valuation, and should provide decent returns from here, over the long haul.

The problem is that there will likely be pain and suffering along the way.

On the battlefield, the unemployment line, the oil markets, along with a host of state budget contractions in the works.

The only things that can help the market now would be an expanding economy, and or falling interest rates.

Federal deficit spending is helping to pad the economy, but it needs to move forward under its own steam as well. And it isn’t doing that.

Until it does, we at best will trade within a range. We think that range is about 7,000-9,000 on the DOW. With the current trend down for a bit more.