The Big Picture For The Week of July 31, 2005

I am concerned about how much optimism seems to be out there. This is not a call to get out but after a great July there seems to be a fair bit of giddiness about stocks. A 3%-4% back slide would not shock me. That would take the SPX down to 1190-1200. This is just a gut feeling and I think the market has a shot of seeing 1270 sometime this year. I don’t know that it will finish the year that high but we might get there and that would probably be a point where I would slightly reduce exposure.

Here is a link to a good article at Bloomberg.com about emerging markets. I have been a big believer in the asset class for a long time. The big thing here that the article might allude to, but I’m not sure, is that over the next few years I think capital previously earmarked for US equities will migrate overseas in search of better growth. Developed Europe has been a slower growth region for a while and I believe the US is headed down the same path. Investment capital will seek out better opportunities which to me means emerging markets. I mentioned, earlier this week, that most clients have 4%-5% to emerging markets. This is not an unusual number amongst investment managers. I think in the next few years 10%-15% will become the norm. This would mean massive inflows into the asset class. A massive inflow should result in higher prices.

I am writing this post early Sunday morning while I am watching Tivo’d Fox Business shows from Saturday. I saw something that I do not know how to react to. Last weekend I was in the hot seat on Forbes on Fox for the Makers & Breakers segment. During the taping of that show I met John Rutledge, who in the last couple of months has been making the rounds on all of the shows. One of the stock I picked on the show was Quest Diagnostics (DGX). I have owned DGX for clients since the fall of 2003. If you saw the show you know my logic for owning it. This weekend I saw Dr. Rutledge pick the same stock on Cavuto on Business. I don’t know what to make of this. I do not know if John saw me pick the stock or not and it is possible that he has owned it for clients longer than I have but I wonder if there is an etiquette thing here? I honestly don’t know.

I do so few TV appearances that I go out of my way to make sure I come up with names other people are unlikely to pick. If I did a lot of TV appearance I would want to have consistent themes for viewers to pick up on. I have never seen Dr. Rutledge pick a smaller cap stock on the air before. It seems like he always mentions one of the small cap ETFs, which is perfectly valid. I could be 100% wrong to even think this is anything at all but it did strike me as I met the man last week.

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