Search results matching tag 'Barak Obama'

Are You In The Top 5% Or Do You Invest Like Everyone Else?

JohnMcClure — Fri, 19 Jun 2009 15:12:00 GMT

www.profitscore.com

An Update on Our Performance
A Perfect Timing Model
The U.S. Dollar vs. the Printing Press
Obama's War on Wealth Goes Global
Assessing the Impact
The Corporate Conundrum
Putting Peter Out of Business to Pay Paul?
Manure... A True Story
Portfolio Performance Analysis
Jack Leaves for Birdie School

Is this a new bull market rally? The S&P 500 index recently crossed over its 200 day moving average and has turned positive the for year. The bad news today seems to be getting less bad than it has been over the past 12 months. Optimism and hope about a recovery are flooding the mass media. Are your feelings of "the worst is behind us" misguided? I believe they are.

I am going to point out some hard facts and ask you some painful questions to encourage outside-the-box thinking. If I strike a nerve with you and motivate you to change your investment strategy, then I will consider this ProfitScore IQ to be one of my best.

First, let me point out some of the hard facts:

Fact #1: If you lost money in your account in 2008, it is not the market's fault because there are ways to make money regardless of the market's direction. Blaming the market is what most people do, but successful investors find ways to navigate the storm.
Fact #2: If the person you hired to manage your money lost money in 2008, it is not your manager's fault because you made the decision to hire the manager.

As the Chief Financial Officer (CFO) of your investment assets, how are you doing at your job? I evaluate managers every week at ProfitScore. If you sent me your monthly performance track record for the past 36 months, would I hire you as a manager? If I or someone else wouldn't hire you to manage our money, why have you hired yourself?

Based on every fundamental and longer term technical indicator I know of, there is at least a 50/50 chance that this market will soon drop like a safe. To help bring clarity to this point, let me incorporate the 50/50 odds of this happening into a more meaningful question.

If there was a 50/50 chance that you would get killed as you drove to work over the next two years, would you change the way you got to work?

If your answer is yes, have you changed the way your money is being managed or would you fall into the definition of insanity - doing the same thing over and over and expecting different results? The majority of investors lost significant sums of money during this bear market and they have changed little or nothing about how their money is being managed today. Why?

Not looking at your statement and hoping that everything will get better is not a sound financial decision. Is that how you do your job or how you run your company?    Don't fall in love with any company, industry, or sector and don't have a strong opinion about the market. Your job is to grow your assets every year-period! Not achieving this goal should have you second-guessing what you are doing and adjusting your investment strategy accordingly.

As the CFO of your net worth, I challenge you to think outside the box and not follow the crowd. There are ways to navigate the storm and if you don't have a proven track record of doing this yourself, then I suggest that you hire a manager who has proven that they can.

Remember, 5% of the people in America control 95% of the wealth. In other words, 95 out of every 100 people follow the crowd and generally make poor financial decisions. My attempt with this passionate introduction is to get you to think like the 5% of people who grew the value of their investment assets in 2008.

"If you think nobody cares, try missing a couple of payments."
Author - Larry the Cable Guy

An Update on Our Performance

May was another solid month for all of our portfolios, showing green across the board.   Our fixed income traders produced positive gains for the second month in a row pushing our Income Builder portfolio positive for the year. For the month, we made profits in all asset categories we trade (major U.S. indices, International indices, U.S. equity sectors, gold, energy, high yield bonds, government bonds, and the U.S. dollar). Our trading accuracy remains positively skewed for both long and short trades.

Below are recent performance returns on the four portfolios we currently offer:

	Past 12	YTD	MTD May
Name	Months	2009	2009
Income Builder (IB)	-1.93%	1.62%	2.92%
The Guardian (GRD)	6.24%	8.32%	3.51%
Harmony Plus (HMY)	16.06%	13.40%	4.00%
The Expedition (EXP)	25.30%	19.85%	4.78%
S&P 500 (SP500)	-32.57%	2.96%	5.59%
Important Performance Disclosure

ProfitScore provides separately-managed accounts for individuals, advisors and institutions. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by clicking here http://profitscore.com/insight.aspx and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info @ profitscore.com.

Someone will contact you within 24 hours of receiving your information.

A Perfect Timing Model

I was speaking with a friend of mine the other day and they were inquiring about our performance returns in 2009. They asked me how our most aggressive program was doing for 2009 and I replied about 20%. He stated, "You must be very aggressive in your management in order to produce those kinds of returns." Since my answer was the exact opposite of what he expected, I built the chart below to explain.

Our investment exposure is reduced when volatility is high. Because of recent high levels of volatility, our overall investment exposure has averaged 25% or less for the past 8 months. So how do we generate high returns while investing such small percentages? The answer is trading accuracy and increased opportunity.

Compared to a traditional buy and hold investor who is held hostage by the relative direction of the market, we have roughly twice the opportunity to produce profits. Our profits are determined by our trading accuracy and capital allocation, so regardless of whether the market is up or down, everyday is an opportunity to make money.

This graph represents an equity curve produced by making money every single day in the S&P 500 from 1/1/2009 thru 5/29/2009. This was done by taking the absolute percentage change in the index and compounding the returns for five months. If the index was up 1% or down 3%, I assumed that I made the correct timing decision of being long or short and compounded the theoretical profits that were possible during this time period. Remember, I said possible not probable.

During that five month period, buying and holding the S&P 500 index would have made you a measly 2.96% profit while perfectly timing the S&P 500 index would have produced staggering gains of 532.79%.

Creating the graph was a double-edged sword. It really helped me explain to my friend how it was possible to generate 20% returns and only be exposed to the market 25% or less. On the downside, it made me realize just how poorly we have performed compared to the opportunities to make profits in the first five months of 2009. If anyone has created a perfect timing model that makes money everyday, please call me because you are hired!

The U.S. Dollar vs. the Printing Press

Over the years, you have probably read some very compelling arguments about the good and the bad of eliminating the gold standard from the U.S. dollar. There are some very smart people who present solid arguments for both sides. If the dollar was tied to the gold standard, then 2008 probably would not have occurred. However, being tied to the gold standard tends to limit how fast an economy can grow.

The problem with not having the dollar tied to some kind of discipline or standard is that it allows savvy politicians to indirectly control the printing press. Having the dollar tied to something that can't be manipulated by politicians would be healthy for any economy. One look at our budget deficit clearly removes all doubt at how terrible our politicians are at being prudent with our very hard-earned tax dollars. A friend of mine sent me the best graphical presentation I have ever seen displaying the effects of not having the U.S. dollar tied to the gold standard.

This log scale graph of the purchasing power of the U.S. dollar begins with an index value of 100 at the passage of the Mint Act of 1792. The solid lines present periods when the dollar was convertible into a specific quantity of gold, and the fluctuations represent changes in the purchasing power of gold. The dotted line presents periods when the dollar was not pegged to gold, during and after the War of 1812, the Civil War, World War I, and World War II. There was limited convertibility from 1945 to 1971, and the dollar lost purchasing power during the period. The last link between the U.S. currency and gold was cut in 1971 and the loss of purchasing power accelerated. By 2004, the dollar had lost more than 92% of its original value. This graph and its content was produced by the American Institute of Economic Research http://www.aier.org/.

The chart unfortunately ended in 2004. I contacted the source and they are looking for an updated version. I will include it in next month's letter if they do indeed send it to me. The dollar has dropped like a stone since this chart was produced, so it will be much worse than above.

Considering the $20 trillion deficits we are scheduled to owe by 2020, is it possible that the value of the U.S. dollar will be worth less than the paper it is printed on?

Obama's War on Wealth Goes Global

But just how wise is it?

"Why does a slight tax increase cost you $200 and a substantial tax cut save you thirty cents?"

Author - Peg Bracken

In our last ProfitScore IQ, we discussed the negative impact rising taxes have had on European economies. We also looked at the latest Forbes Tax Misery Index results, where the U.S. is on the scale and what we can look forward to in light of the president's plan for increasing tax revenues.

Not long after President Obama reached his first 100-day milestone, he announced another sweeping tax initiative, this one aimed squarely at multinational corporations and the wealthy, increasing tax revenues by 40% by 2013. It was the second phase of his plan to raise money to pay for his spending initiatives.

Here is an excerpt from the Department of Treasury (May 4, 2009) statement entitled, "Leveling the Playing Field."

Today, President Obama and Secretary Geithner are unveiling two components of the Administration's plan to reform our international tax laws and improve their enforcement. First, they are calling for reforms to ensure that our tax code does not stack the deck against job creation here on our shores. Second, they seek to reduce the amount of taxes lost to tax havens - either through unintended loopholes that allow companies to legally avoid paying billions in taxes, or through the illegal use of hidden accounts by well-off individuals.

A major part of this plan involves changing the deferral rules that allow U.S. companies to "ship jobs overseas" according to the administration. Currently U.S. companies are allowed to defer the taxes they pay on overseas income as long as the money remains invested in overseas operations. This will end as the Obama plan would eliminate deferral provisions and other "loopholes" for offshore subsidiaries.

Is this approach realistic or even practical? Here is how the new Administration's proposals will impact multinational corporations, according to PACE coalition (Promote America's Competitive Edge) Coalition in a May 4, 2009 statement.

The current tax system permits for a temporary tax deferral until those earnings have been paid to the parent corporation. U.S. companies are still subject to taxes in the countries in which they operate. Since 95% of the world's consumers live outside the U.S., overseas operations are essential. All Organization for Economic Cooperation and Development (OECD) nations that tax worldwide earnings, permit some sort of deferral. "Leaving aside the questionable wisdom of raising taxes in the midst of a deep recession, this proposal is a job-killer for American workers," according to John Engler, President of the National Association of Manufacturers. "U.S. corporate rates are already higher than most of the rest of the world. Deferral is essential to the competitive operation of U.S.-owned companies in foreign markets."

American multinational companies directly employ nearly 22 million U.S. workers, support the jobs of 30 million more, and pay wages that are 24% higher than average U.S. private-sector wages. Those 52 million American jobs - 44% of the U.S. workforce - depend, in part, on the competitiveness of U.S.-owned foreign affiliates.

In a nutshell, these proposals amount to a $200 billion tax hike for U.S. companies that the group calls America's most successful job creators.

Assessing the Impact

As we learned in our last newsletter, the first phase of the Obama tax plan, announced in April, is to raise taxes on those individuals and businesses making more than $250,000/year. The second phase, announced in May, specifically targets U.S. multinationals with overseas operations and the wealthy with overseas investments.

Both initiatives are intended to help pay for Obama's spending plan. Initiatives that Professor Michael Hoskins from Stanford University believes can in no way be limited to those making more than $250,000, since it will add $6.5 trillion to the 2010 - 2019 national budgets, not including his planned changes to Medicare or Social Security.

Here is how he explained it in an April 3, 2009 Wall Street Journal article entitled, "The $163,000 Tax Bomb."

If spread evenly over all those paying income taxes (which under Mr. Obama's plan would shrink to a little over 50% of the population), every income-tax paying family would get a tax bill for $163,000. (In ten years, interest would bring the total to well over $200,000, if paid all at once. If paid annually over the succeeding ten years, the tax hike per year would average almost $26,000.) That's in addition to his explicit tax hikes. While the future tax time-bomb is pushed beyond Mr. Obama's budget horizon, and future presidents and Congresses will decide how it will be paid, it is likely to be paid by future income tax hikes as these are general fund deficits.

We can get a rough idea of who is likely to pay them by distributing this $6.5 trillion of future taxes according to the most recent distribution of income-tax burdens. We know the top 1% or 5% of income-taxpayers pay vastly disproportionate shares of taxes, and much larger shares than their shares of income. But it also turns out that Mr. Obama's massive additional debt implies a tax hike, if paid today, of well over $100,000 for people with incomes of $150,000, far below Mr. Obama's tax-hike cut-off of $250,000 (over $130,000 in ten years and over $16,000 a year if paid annually over the following ten years). In other words, a middle-aged two-career couple in New York or California could get a future tax bill as big as their mortgage."

Therefore, hoping that additional taxes on those making in excess of $250,000 per year will pay for this plan is a fabrication according to Hoskins - it will cost all taxpayers more money.

But is it a good idea to target U.S. companies operating overseas? Are claims by PACE and U.S. manufacturers that such a move is counterproductive valid?

The Corporate Conundrum

The following table produced by the Tax Foundation ranks nations according to corporate tax burden. As we see, the U.S. has the highest combined corporate tax rate behind Japan. (As we learned in last month's ProfitScore IQ, companies in New York City have the dubious distinction of paying the highest corporate taxes in the world at a combined rate of 46.2%.)

Rank	Country	Combined
		Corporate
		Income Tax
		Rate 2008
1	Japan	39.54
2	United States	39.25
3	France	34.43
4	Belgium	33.99
5	Canada	33.5
6	Luxembourg	30.38
7	Germany	30.18
8	Australia	30
9	New Zealand	30
10	Spain	30
OECD 30 Average		26.60%
	Source - Tax Foundation

U.S. corporations currently pay a tax rate that is 50% higher than the average for the OECD thirty most industrialized nations. But that isn't the whole story.

Of even greater concern is the fact that of that elite group of 30 nations, the U.S. is the only country that taxes its companies (and citizens) based on citizenship, not residency. That has created a unique problem for US companies with operations abroad and one that has required some rather imaginative solutions to keep them competitive globally.

Back in 1984, the Foreign Sales Corporation program was Congress's way of leveling the playing field for U.S. multinationals due to the fact that the U.S. is the only major industrialized nation (and one of only three countries in the world, namely the Philippines and Eritrea) that taxes based on citizenship. This puts American companies operating in foreign territories at a competitive disadvantage visa vie companies from other countries.

Subsequently, the World Trade Organization in 2000 ruled that the FSC rules were an illegal subsidy and allowed the EU to levy $4 billion in tariffs against U.S. exporters and multinationals unless the rules were replaced. In response, Congress adopted the Extraterritorial Income Exclusion (ETI) Act of 2000, but that was also successfully challenged by the EU.

In response, the ETI was replaced by the American Jobs Creation Act of 2004 signed by President Bush. It provided $140 billion of tax relief to domestic manufacturers and other producers, including several sectors that in the past, never qualified for tax relief. The corporate tax rate for domestic manufacturers dropped from 35% to 32%.

For a one-year period, U.S. multinationals were able to repatriate foreign profits at a 5.25% tax rate. This rate also applied to deemed dividends accumulated by affiliates of controlled foreign corporations that are exempt from current taxation under the Internal Revenue Code Kennedy Amendments of 1962, according to economist and international trade expert Walter Diamond.

Instead of the tax losses predicted by Democrats and even some of the Bush Administration economic advisors, the move caused a flood of overseas cash to be repatriated to the U.S. from more than 800 companies - approximately $362 billion was repatriated from foreign operations, according to the July 1, 2008 Wall Street Journal article "Corporate Tax Cut Windfall."

After the one-year period expired, companies would be taxed at the new corporate rate of 32% on repatriated income. Before the law was enacted, companies had to pay 85%, so this was an improvement. The Act also greatly reduced the double taxation of U.S. exporters and overseas manufacturers. Was it any wonder that more than $600 billion in corporate profits sat overseas?

If overseas corporate earnings had been repatriated under the tax rules Obama has proposed, as much as $510 billion would have gone to taxes. But the reality is that corporations would have permanently kept the income abroad.
Phase two of Obama's plan was made public before the election in his Patriot Employer Act, in which he promised to address these corporate "tax breaks." Promises in a presidential campaign are not unusual and often forgotten once the candidate wins.

Unfortunately, this one wasn't. Even more unfortunate, it is these so called tax breaks for which Congress has fought so hard keep so that U.S. multinationals could remain competitive with their global counterparts. An end to these breaks would force companies with overseas operations to pay the U.S. domestic tax rate (currently a minimum of 35%) on all income-no matter where it is earned-unlike the companies of every other industrialized nation against which American companies compete.

Taxes vs. GDP Growth from 1960 to 1996:

Government Size (Taxes/GDP)	Average Annual Growth Rate of Real GDP
Less than 25%	6.6%
25 - 30%	4.7%
30 - 40%	3.8%
40 - 50%	2.8%
50 - 60%	2.0%
Great than 60%	1.6%
Source: http://www.freetheworld.com/papers/Gwartney_Holcombe_Lawson.pdf

As we this table shows, economic growth was found to be inversely proportional to taxes as a percentage of GDP (tax burden), according to this Cato Institute study.

Putting Peter Out of Business to Pay Paul?

Since 1990, the average tax rate for the 30 developed nations of the Organization for Economic Co-operation and Development has fallen from 40% (what the U.S. corporate tax rate was then) to an average of 26.6%, while the U.S. rate remained more or less static. And, during the 18 intervening years, Congress has been on a continual search to find ways to allow U.S. multinationals to effectively compete, given their unique international tax handicaps. If Obama's latest tax plan is approved by Congress, U.S. competitiveness would greatly diminish.

"Ironically, what the president proposes [increasing taxes for multinationals] will make it more likely that American companies will be bought by their foreign competitors," according to Dave Camp, lead Republican on the House Ways and Means Committee.

According to an article that appeared in The Wall Street Journal after Obama's plan was released in February 2008, "[Obama] has it backwards. The offshore activities of U.S. companies tend to increase rather than reduce domestic business. A 2005 National Bureau of Economic Research study by economists from Harvard and the University of Michigan found that more foreign investment by U.S. companies leads to greater domestic investment, and that U.S. firms' hiring of more offshore workers is positively, not negatively, associated with the number of American workers they hire. That's in part because often what is produced overseas by subsidiaries are component parts to final, higher-value-added products manufactured here."

In a May 6, 2009 article for Tax-News.com, U.S. Chamber of Commerce Chief Economist, Dr. Marty Regalia, warned that deferral has been "mischaracterized" as a tax break when it actually provides a "vital mechanism" for U.S. companies to claim relief from double taxation.

"The United States is the only major industrialized country which double taxes the overseas earnings of our companies. Since other countries don't subject their companies to double taxation, U.S. companies need deferral to stay competitive in the global marketplace," he said.

Who would be affected? According to a Wall Street Journal estimate in April, ten of the biggest U.S. corporations accumulated nearly $58 billion in overseas earnings during 2008, representing about $20 billion in revenue if taxed in the U.S. Since total U.S. corporate tax receipts that year were just over $300 billion, the amount is sizeable. But what would be the offsetting costs?

The challenge to taxing these companies is the type of businesses involved. For example, foreign profits are often highly portable like those in the technology or pharmaceutical sectors that rely on intellectual property, royalties or patents. Such property can easily be moved between entities or to different jurisdictions. Capital is extremely mobile. The problem is once it has moved, it rarely comes back.

Take Microsoft for example. By utilizing Irish patent income rules, the company was able to legally save an estimated $500 million in taxes annually, according to the Wall Street Journal's 2005 Round Island One report. That type of property can easily be moved.

Among the companies affected would be top tech firms such as Hewlett Packard, Cisco, Oracle and Google, as well as global icons like Coca Cola, Pepsi and most of the big pharmaceutical firms. Each of these companies has competitors from other nations that would relish the thought of seeing their U.S. competitors paying higher costs. It doesn't take an accounting genius to appreciate the benefit of buying a company with higher costs and moving it to a lower-tax cost jurisdiction especially when one considers that any other jurisdiction would have lower tax rates on multinationals than the U.S.

"If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S....and to compete against our foreign competitors who are not subject to this U.S. tax," John Earnhardt, a Cisco Systems Inc. spokesman was quoted as saying in a May 4, 2009 WSJ article entitled, "Firms Face New Tax Curbs."

So tell me again how raising tax burdens on our top echelon global companies and making them less competitive is a good idea? Just how vulnerable will it make U.S. companies? How many American jobs will it cost and how likely are they to be buy-out targets or move operations offshore? And if it turns out to be an extremely bad idea, how does the U.S. government go about bringing those companies, their jobs and investment dollars back home again?

The problem is no one, including those in the Obama Administration have provided the answers to these and other pertinent questions.

What are some other solutions? An idea put forward by economists like Nobel Prize winner Robert Lucas is to eliminate multiple taxes on capital gains, interest and dividends, as well as reduce the corporate tax rate. Taxing it once from income and then again when it's earned is not only counter-productive, but it discourages investment and job creation as well.

Isn't it about time the U.S. had a globally competitive corporate tax that encouraged business growth both domestically and abroad instead of penalizing it? Seems to me that the only ones who benefit from new taxes and anti-business regulations are the bureaucrats who create them in the first place.

Suggested Reading

Obama's $163,000 Tax Bomb
http://online.wsj.com/article/SB123871911466984927.html

Forbes 2009 International Tax Misery Index
http://www.forbes.com/global/2009/0413/034-tax-misery-reform-index.html

Obama Announces International Tax Crackdown
http://www.tax-news.com/asp/story/Obama_Announces_International_Tax_Crackdown_xxxx36605.html

Ireland Inc Is Nervous of Obama's Tax Plans
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS+FEATURES-qqqm=nav-qqqid=41325-qqqx=1.asp

Obama to Crack Down on Business Taxes
http://www.thetimesonline.com/articles/2009/05/04/ap/headlines/d97vgg581.txt

US Firms Gird For Battle On Obama Foreign Profits Tax
http://forexdaily.org.ru/Dow_Jones/page.htm?id=491499

Congress Approves Chamber-Opposed Budget
http://www.uschambermagazine.com/content/090504x.htm

Manure...A True Story

I got this in an email and then confirmed the story with Google. The author is unknown.

Manure: In the 16th and 17th centuries, everything had to be transported by ship and it was also before commercial fertilizer's invention, so large shipments of manure were common.

It was shipped dry, because in dry form it weighed a lot less than when wet, but once water (at sea) hit it, not only did it become heavier, but the process of fermentation began again, of which a by product is methane gas. As the stuff was stored below decks in bundles you can see what could (and did) happen.

Methane began to build up below decks and the first time someone came below at night with a lantern, BOOOOM!

Several ships were destroyed in this manner before it was determined just what was happening!

After that, the bundles of manure were always stamped with the term "Ship High In Transit" on them, which meant for the sailors to stow it high enough off the lower decks so that any water that came into the hold would not touch this volatile cargo and start the production of methane.

Thus evolved the term "S.H.I.T " , (Ship High In Transport) which has come down through the centuries and is in use to this very day.

And I had always thought it was a golf term!

Portfolio Performance Analysis

Risk & Reward

Each of our portfolios is strategically allocated across one or more of the Investment Pillars of Strength discussed below. Each Pillar is managed by multiple, uncorrelated, absolute-return investment managers to produce a return stream that is consistent, negatively correlated with the major market averages in down markets and non-correlated with each of our core Pillars of Strength.

Managing risk is our most important consideration and it is reflected in the way our portfolios are built and managed each and every day.

The S&P 500 had another positive month in May, pushing toward, and finally crossing the highly watched and arguably over-emphasized 200 day moving average. Since crossing the longer-term moving average on June 1^st, the market has traded sideways and is either consolidating its gains for the next move higher or setting up for a tremendous fall. Extended moves higher off of significant lows are called "climbing the wall of worry" and for good reason.

Bear market rallies are notorious for sucking most investors back into the market because they feel they are getting left behind. Getting left behind is an ingrained fear in all humans for the reason that the pack has traditionally meant safety. In investing, it usually works the opposite, causing pain and anguish, but investors can't shake their carnal fear. Once the move higher pulls most investors back into the market, it will, more often than not, crash from its own weight. Bear market rallies are known for their fast and powerful moves higher. Bear market declines are equally known for the ferocity of their decent.

So which one will it be? Another powerful move higher and the start of a new bull market or the continuation of the current bear market pushing major indexes to new market lows? Since we make our trading decisions daily, we don't really care as long as we are winning more trades than we lose. Like I tried to point out in the introduction to this letter, the ground is littered with dead bodies of investors and investor advisors who think otherwise.

Below is a performance summary for the indices we track and benchmark our portfolios to:

	Cumulative Return			Average Annual Return
Indexes	Mth.	YTD	1 yr	3 yr	5 yr	10 yr

CSFB L/S *	3.87	6.85	-15.00	1.60	5.95	7.75
CSFB Multi-St. *	2.97	9.12	-14.85	0.64	3.44	6.27
Barclay F-of-F *	2.69	3.82	-17.69	-2.75	1.57	5.25
S&P 500	5.59	2.96	-32.57	-8.24	-1.90	-1.71
Barclay HY	6.73	26.80	-7.78	1.02	4.05	4.38
Barclay Agg.	0.73	1.33	5.73	6.30	5.02	5.88

* Note:	Estimated monthly performance

Index Advantage:

The S&P 500 index rallied strongly again in May, tipping the scales with a 5.59% gain. Our long/short traders continue to impress even me as they consistently harvest profits from the daily opportunities that present themselves. Our trading accuracy continues to remain high for both our long and short trades. Our upside and downside capture ratios for this allocation are off the charts.

For the month, this pillar gained 6.13%.

Strategic Balance:

Our overall exposure for the month in this allocation was 17.2%, yet these traders were able to produce gains of 2.91% for the month. In other words, the total exposure to the market in during May was only 3.4 days. Based on a risk-adjusted basis, annualized returns for this allocation would be triple digits. May was the 7^th month in a row this important allocation has made a profit.

For the month, this pillar earned 2.91%.

Dynamic Income:

My frustration for this allocation has turned into pure satisfaction as we continue to fire on all cylinders. The return stream for every asset we trade in this allocation has shown a drastic improvement for trading accuracy, lower volatility, and reduced correlation. This month's performance takes us positive for the year and is now outperforming the S&P 500 for 2009 with a small fraction of the risk versus being exposed to volatile equity assets.

For the month, this pillar earned 3.17%.

Our portfolios are built using varying distributions to the strategic allocations discussed above. To view detailed performance and risk statistics information about our investment portfolios for the month, please click on the links below:

If You Are a Client, Don't Be Confused.
Actual management and performance fees are incurred monthly but are deducted from client accounts in the first month of every quarter (January, April, July, and October). For performance reporting purposes, we deduct fees monthly as they incur and not quarterly, as they are reflected in client statements. It all washes out in the end, but this may cause your account performance to deviate from our published performance reports on a month-to-month basis. To be conservative, we also deduct the maximum fees we charge from our performance reports and your actual overall fees paid may be less than our maximum.

Jack Leaves for Birdie School

Several months ago I wrote about my new dog, Jack. Jack is a Pudlepointer (it is pronounced Poodlepointer) and for you manly men who are rolling their eyes thinking I have lost my mind for owning a bird dog that looks like a Poodle, Jack looks nothing like a Poodle and more like a slimmed down Chocolate Lab. The breed is known for their intelligence, friendly demeanor and athletic ability. I am proud to report that Jack excels in all categories. If you are interested in learning more about the breed, here is a link to my breeder's website: http://cedarwoodgundogs.com/.

My last two dogs were English Setters and we still own both dogs as well. Adding a young pup to our dog family has certainly stirred the pot as Jack wants to play constantly and my older Setters Maggie (11) and Bessie (13) would rather I lock Jack outside so he can't pester them anymore.

My setters are great companions and were exceptional hunting dogs, but due to their age, they can't go bird hunting with me anymore. I have owned a lot of dogs and I have to say that Jack is the smartest dog I have ever owned. I trained my last two dogs and I am at best a marginal trainer. However, Jack's intelligence makes me look like I really know what I am doing.

I am so impressed with Jack's capabilities that I have decided to have him professionally trained. So, yesterday Jack left for birdie school. My Setters welcomed the peace and quiet, but I miss Jack's energy around the house. Jack will be gone for the rest of the summer as he works with an excellent trainer honing his natural-born instincts to point and retrieve birds. I can't wait for my dad's annual bird hunting trip to Idaho this year. Spending time with my dad and watching my new dog work the field will be a special time shared between father and son.

I hope I didn't make anyone mad with my slap in the face introduction to this letter. This bear market has created many real life hardships and I have heard several stories first hand. I just get tired of all the misleading garbage pushed out over the airways and felt I owed it to my readers to tell them like it is.

June is already half over and I hope you are enjoying the summer with friends and family. Talk to you next month.

Working to grow your wealth,

John M. McClure
President & CEO
ProfitScore Capital Management, Inc.

P.S. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by clicking here http://profitscore.com/insight.aspx and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info @ profitscore.com.

Someone will contact you within 24 hours of receiving your information.

Here Is My Secret for Outperforming the Market

JohnMcClure — Fri, 20 Feb 2009 23:27:00 GMT

In This Issue:

An Update on Our Performance
A New Discovery
Evaluating Our Great Recession
U.S. Markets - The Lost Decade
How Did Your Money Manager Perform?
My Secret for Outperforming the Market
Putting the Odds in Your Favor
Constructing Your Portfolio
Portfolio Performance Analysis
Dancing with My Daughters and Hitting the Slopes

What will happen to the markets in 2009? I am projecting more of the same, but with less relative downside risk. Volatility will ebb and flow for the next 18 months, as the market searches for the bottom. The current corporate earnings are worse than terrible, causing the overall market fundamental valuations to be very expensive! You are going to hear of a lot of talk about the market bottoming out in 2009. That would be good for all of us if it did, but I think any rallies will be short lived, and that the ultimate bottom will not occur until the summer 2010. I hope I am wrong.

If 2008 is known as the year of the financial crisis, then 2009 will be known as the year of the economic crisis. In this letter I will explore the long term implications of the Great Recession and its effect on our domestic and worldwide economies. The fires are still burning, so it may be difficult to see through the haze, but I will do my best to provide some transparency.

For my long term readers, you are aware that I have been a real estate bear since the end of 2005 and became a market bear in the summer of 2006. I knew that the drop in real estate values was going to have a negative impact on our economy, but I would be lying to you if I thought it would get this bad. My projections were telling me that real estate was approximately 35% overvalued, but knowing how markets overact I thought a 50% drop was possible.

I knew it was going to be bad, but until I saw the storm up close and personal, it was hard to image that it would collapse the worldwide financial system. The sad part is how it affects real lives. I talk a lot about percentages, statistics, and economics in this letter, but behind every failed bank or company are thousands of hard working people. My heart aches for these fine people and their uprooted families.

I look forward to the day when I can report to you the good news about our economy. We will work through this mess and someday, in our future, I will put on my horns and become a table-pounding bull. Unfortunately, that time is not now.

"Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception."
George Soros

An Update on Our Performance

At the end of February, we will be celebrating our two-year anniversary for the launch of our multi-manager portfolios. 2008 gave baptism by fire a whole new meaning. I was hoping for a strong finish and it looks like we are about to get our wish.

As far as months go, January 2009 was the worst January in the market since records have been kept. In contrast, our equity portfolios enjoyed an excellent month outperforming the S&P 500 by 13.55%! Month-to-date February our equity portfolios are also showing green across the board as we close in on our two-year anniversary.

Below are recent performance returns on the four portfolios we currently offer:

	Past 12	YTD	Jan	MTD Feb
Name	Months	2009	2009	2009
Income Builder (IB)	-3.02%	-5.66%	-3.83%	-1.67%
The Guardian (GRD)	-2.43%	0.24%	0.10%	0.14%
Harmony Plus (HMY)	1.80%	3.15%	2.40%	0.68%
The Expedition (EXP)	3.75%	6.83%	4.98%	1.79%
S&P 500 (SP500)	-37.00%	-12.71%	-8.57%	-4.53%
Important Performance Disclosure

Complete our Private Client Group request form by Clicking Here and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info@profitscore.com.

Someone will contact you within 24 hours of receiving your information.

A New Discovery

I read about this recent new discovery at the blog of The Free Menesch-http://www.freemensch.com/2009/02/governmentium.html

"Besides arsenic, lead, mercury, radon, strontium and plutonium, one more extremely deadly and pervasive element is known to exist.

This startling new discovery has been tentatively named Governmentium (Gv) but kept top secret for 50 years. The new element has no protons or electrons, thus having an atomic number of 0. It does, however, have 1 neutron, 125 deputy neutrons, 75 supervisory neutrons, and 111 team leader neutrons, giving it an atomic mass of 312.

These 312 particles are held together by a force called morons, that are surrounded by vast quantities of lepton-like particles called peons. Since it has no electrons, Governmentium is inert. However, it can be detected as it impedes every reaction with which it comes into contact.

According to the discoverers, a minute amount of Governmentium causes one reaction to take over four days to complete when it would normally take less than a second. Governmentium has a normal half-life of approximately three years. It does not decay but instead undergoes a reorganization in which a portion of the deputy neutrons, supervisory neutrons, and team leader neutrons exchange places. In fact, Governmentium mass will actually increase over time, since, with each reorganization, some of the morons inevitably become neutrons, forming new isodopes.

This characteristic of moron promotion leads some scientists to speculate that Governmentium is formed whenever morons reach a certain quantity in concentration. This hypothetical quantity is referred to as the ‘Critical Morass.'"

No one sums up the feelings of the silent majority better than CNBC's Rick Santelli as he discusses Obama's recent mortgage bailout plan:

(Please visit the site to view this media)

Evaluating Our Great Recession

Contrary to what your mutual fund manager or broker may be telling you about the bottom being just around the next corner, the history of monster bear markets tells a different tale. At present, we are 16 months into the current bear market and a quick glance at the table outlining the worst bear markets in industrialized nations below shows just how young this bear is. (Lines highlighted in bright yellow show bear markets still in progress.)

Dates	Market	Bear Duration	Time to Bottom	Loss at Low
1929 - 1954	Dow Jones Ind Ave	301 months	34 months	-89.20%
1989 - ?	Nikkei 225	233+ months	229+ months	-81.60%
1974 - 1987	Madrid Stock Exch	145 months	74 months	-74.10%
1988 - 1995	Helsinki All Share	76 months	41 months	-73.10%
1988 - 1995	Stockholm All Share	51 months	38 months	-52.50%
2007 - ?	Dow Jones Ind Ave	16+ months	12+ months	-50.30%
1973 - 1983	Dow Jones Ind Ave	120 months	23 months	-49.20%
2000 - 2006	Dow Jones Ind Ave	81 months	33 months	-39.60%
1966 - 1972	Dow Jones Ind Ave	201 months	66 months	-33.90%
	Average Bear Stats	136 months	61.1 months	-60.39%

With a drop of more than 50% to the November 20^th lows for the Dow, the current bear is in the middle of the pack of the worst declines in history. You will also notice from the table that the average bear market took 61.1 months to hit bottom and the investor who bought near the top and "stayed the course," it took an average of 136 months or 11.3 years to get back to break even point.

Comparing the current bear to those in the past, we are faced with two stark possibilities - either we have been extremely lucky as bears go and stocks did hit the bottom in late November, or the true bottom still has yet to occur. From a probability point of view, the latter is more likely.

This chart gives a great perspective about our current bear market as compared to other major bears in our past. In comparison, a couple of important things should jump out at you. First, our current bear market has dropped further faster than the Great Depression. Second, if the bear market ended today, it would be the shortest one listed in the graph above. Given current circumstances, I don't see this bear market ending until 2010.

U.S. Markets - The Lost Decade

Before continuing, we need to clarify the difference between a cyclical and a secular or structural bear market. A cyclical bear is a relatively short term correction lasting months to a few years. A secular bear lasts multiple years to decades. So far this millennium, we are into our second cyclical bear market. The first one lasted almost three years from 2000 through 2003.

From a secular standpoint we have been in a bear market since 2000 with a brief break when the Dow rose above its previous year 2000 high, a high that technicians call a fake breakout or fake-up, lasting a few months. For the most part, the monster bear markets in the table above were secular bears and, for the purposes of discussion, we have separated the secular bear into two cyclical bears-2000-present and 1966-1983-to compare their severity .

What do you think the worst ten-year period has been in the U.S. stock market? Based on a percentage basis, the answer is the Great Depression. However, if you factor inflation into your calculation, then your answer is much different.

To be fair, bear markets cannot be compared without considering inflation. Until now, the worst ten-year period for stocks was the period ending September, 1974. Correct for inflation and the result is a compound decline of -4.3% per year (dividend income included). This period was worse than the ten-year inflation-adjusted compound decline in the Great Depression from October 1929 through September 1939 of -2.6% per year (including dividends).

So how did stocks do in the decade ending January 2009? As you may have guessed, it generated the worst ten-year inflation-adjusted returns in history with a compound decline of -5.1% per year according to Floyd Norris in a February 6, 2009 article entitled Off the Charts - A 10-Year Stretch That's Worse Than It Looks.

Perform the same calculation for the Dow Jones Industrials priced in gold over the last decade and the picture is even uglier. Since hitting its peak in July 1999, the mighty Dow has lost nearly 80% of its value to January 2009 when priced in gold.

How Did Your Money Manager Perform?

Since the peak in December 2007, investors around the world have learned some difficult lessons. An article entitled, "Lame Fund Managers Head for an ETF Thumping" (http://www.bloomberg.com/apps/news?pid=20601212&sid=aJ0iz9WuEfVI&refer=home), highlighted just how tough this year has been on money managers as well. According to Morningstar, 58% of all actively managed mutual funds lost more than the benchmark against which they measure themselves during 2008. Indexes like the S&P500, Russell 1000, 2000 or 3000 outperformed most of these actively-managed mutual funds.

To add insult to injury, the S&P500 has dropped approximately 50% over the past 15 months, so most investors who had investments benchmarked to the S&P 500 paid their money managers a handsome fee to lose half their portfolio's value.

But wait, it gets worse. We did some research into money management performance over the long haul. According to Morningstar, of the universe of 2,812 funds that they tracked, 54% underperformed their benchmark indexes in the five years ending January 31, 2009. A little better, but not much of an improvement, is it?

Over the past ten years, 38% of the funds under-performed their benchmark indexes. This is one statistic fund managers and brokers use to encourage investors to "stay the course" and be patient, especially in bad markets. If history repeats itself, you'll make your money back and more. But is it valid?

What the stats don't tell you is that results improve because over time, the funds that do not survive are removed from the record. According to Morningstar, over the five-year period 6,129 fund companies survived. However, there were 2,039 companies that didn't survive-making it a one-in-four chance that an investment company and their mutual fund would fold 60 months later.

Therefore, over a ten-year period, there is a one-in-three chance that any single fund would go under before the period was complete, according to this data. Not a glowing endorsement for the long-term, "stay the course," buy-and-hold approach promoted on Wall Street.

What happens when the returns are adjusted to include those that don't make it? According to the study by Index Fund Advisors entitled, "The Daunting Odds of Stock Picking," real performance is far worse. The study looked at the ten-year period ending October, 2004 and found that 97.6% of professional managers managing mutual funds underperformed the S&P500 Index when the losses from failures were factored into the equation (see chart below).

My Secret for Outperforming the Market

I get asked from time to time what I do for a living and it is a hard question to answer. How do you explain to someone that you use quantitative mathematics to mange other people's money? My favorite reply that seems to get the most response is: I have developed a system to take money from other people's investment accounts and put it in the accounts of clients who hire us to mange their money. I am kidding (sort of).

You see, the market is a zero sum game. For every buyer there is also a seller and vice versa. The buyer thinks that the stock is undervalued and the seller thinks it is likely to go down in value. It is the basic premise on how markets work. Keep that in mind the next time you buy or sell a stock. Someone is betting that you are wrong!

What 99% of individual investors and 95% of most money mangers don't understand is that a loss is twice as important as a gain. If you don't understand that sentence, I suggest that you read it over and over again until it is imprinted on your brain. One of the reasons our clients perform so well in bear markets is because we know that not losing money is statistically the best way to outperform the market during a market cycle. A market cycle would include both a bull and bear market-approximately10 years.

Because this is such an important topic, I am going to share with you a way to determine if your mutual fund or money manger knows how to protect and grow your money in all market environments. In institutional money manager circles, capture ratios are commonly used to help evaluate if a money manger is good at what they do or just lucky. There are many other valuable ratios, but I believe capture ratios may be the most telling.

To understand, I need to explain how capture ratios work.

How Capture Ratios Can Put the Odds in Your Favor

There are a number of ways that money managers measure themselves and their peers. Perhaps you've heard the terms like the Sharpe Ratio, R-Squared or Optimal-f.

Capture ratios are a great tool to evaluate how a manager reacts to changing market environments and how they manage risk in a portfolio. To calculate a capture ratio, a manager's performance must be measured against a benchmark index. Since most people consider the S&P 500 to be the best proxy for the US stock market, I am going to use the word market in my capture ratio examples below to refer to the S&P 500 index (market = S&P 500 index).

If a manager has an upside capture ratio of 60% against the market, then that manger will typically make 60% of the gains when the market increases in value. So when the market increases by 10% in a year, a manager with a 60% upside capture ratio will capture 60% of the returns, or make 6% during that year. A downside capture ratio measures the manger's success when the market loses value. The smaller the loss of the manger in the down years, the lower his downside capture ratio will be. Let me break this down for you:

Up Year:
Market increases by 20%
Upside Capture Ratio is 60%
Manager makes 20% * 60% = 12% for his clients

Down Year:
Market decrease by 40%
Downside Capture Ratio is 80%
Manager loses 40% * 80% = 32% for his clients

Which measure do you think is the most important? If you said measuring the downside risk of a manger is twice as important as measuring the upside reward, then pat yourself on the back. Not only is measuring the downside more important, but it increases in importance the further the market falls. The table of pain below details why that is the case.

Table Of Pain
	Deciles		Gain
Investment	Percentage	Cumulative	Required To
Principle	Loss	Loss	Break-Even
100
90	-10.00%	-10.00%	11.11%
80	-10.00%	-20.00%	25.00%
70	-10.00%	-30.00%	42.86%
60	-10.00%	-40.00%	66.67%
50	-10.00%	-50.00%	100.00%
40	-10.00%	-60.00%	150.00%
30	-10.00%	-70.00%	233.33%
20	-10.00%	-80.00%	400.00%
10	-10.00%	-90.00%	900.00%
5	-5.00%	-95.00%	1900.00%
0	-5.00%	-100.00%	You're Broke!

In the table above, please focus your attention at the midpoint where the asset value drops 50% to $50 in value. Notice the amount required to break even. If you own an asset and it decreases 50% in value from $100 to $50, your investment now has to increase 100% in value just to get you back to break-even. Ouch! To be crystal clear, a 50% loss equals a 100% gain, so focusing on how a manger protects your money in down markets is twice as important as how he grows your money in bull markets.

Traditional managers dig themselves into such a deep hole in the bad years that it can take them years and in some cases decades to bring client accounts back to break-even. This simple but powerful fact is how ProfitScore outperforms 99% of all money managers over a market cycle.

One other very important point I want to bring to your attention is how getting back to break-even becomes increasingly more difficult the further your asset value falls in value. Over the last 15 months, the current bear market has decreased the value of the market by roughly -50%. A -50% loss requires a 100% gain to get your head back above water. But look at what happens if your asset value drops -60% in value. The amount required to break-even has now increased to 150%! An additional loss of -10% in asset value now requires another 50% gain to get your portfolio back to break-even. The further it falls the more the math works against your net worth.

During the raging bull market of the 90's, arguably the strongest bull market in our lifetime, it took from October 1995 to the market peak in March 2000 for the S&P 500 index to increase 150% in value. During this current Great Recession, I expect the market to fall at least 60% in value. How long do you think it will take the market to increase 150% in value after a world wide financial crisis? Those who invested in the Dow in 1929 and hung in there to eventually lose 89.2% needed to see their portfolios increase 826% just to get back to where they started. As it turns out, it took the steadfast buy-and-hold investor 25 years to do so.

Now is NOT the time to sell and do nothing because you will miss the bounce in the market when it comes. Now IS the time to hire a manager who can protect and grow your hard-earned investment assets in both bull and bear markets.

Constructing Your Portfolio

By focusing on managers that don't lose money in bear markets, you get to have your cake and eat it too. Some managers can capture all of a market's upside and make considerable money in down markets as well. The only catch is finding top quality money managers who can do both on a consistent basis.

The two tables below represent several different portfolio combinations based on capture ratios of the S&P 500 from 1990 through 2008. The first table is built by using portfolios with positive capture ratios and the second table is built using portfolios that make money or break-even in down markets. In this simplified example, I hope to demonstrate how important it is to not lose money in down markets.

S&P 500 Average Geometric Mean Return
1990 through 2008
Upside Positive Capture Ratios
Upside Capture	Downside Capture	Geometric Mean
Ratio	Ratio	Return
100.00%	100.00%	7.32%
100.00%	0.00%	12.92%
90.00%	10.00%	11.19%
80.00%	20.00%	9.44%
70.00%	30.00%	7.69%
60.00%	40.00%	5.93%
55.43%	0.00%	7.32%
50.00%	50.00%	4.15%
40.00%	60.00%	2.36%
30.00%	70.00%	0.55%
20.00%	80.00%	-1.27%
10.00%	90.00%	-3.10%
0.00%	100.00%	-4.96%

Table 1 is constructed by building each portfolio with positive upside capture ratios and positive downside capture ratios. With this table, you will make money in an up market, but lose money or break-even in down markets.

Two things need to be pointed out in Table 1 above. First, all downside capture ratios are positive - meaning that the best any of these portfolios did in a losing market year was break-even or make a 0% return. The second item is the break-even point highlighted in yellow. A lot of investors think in order to outperform the market, you need to swing for the fence and make large profits in bull markets. Actually, the exact opposite is true. Since 1990, if you hadn't lost money in the down years, you would have only needed to capture 55.43% of the market's gains in the up years to equal a buy-and-hold strategy. This break-even percentage will vary from decade to decade by plus or minus 10%, so it holds true over time. They way to get ahead is simply not to give it back.

S&P 500 Average Geometric Mean Return
1990 through 2008
Downside Negative Capture Ratios
Upside Capture	Downside Capture	Geometric Mean
Ratio	Ratio	Return
100.00%	-100.00%	17.43%
0.00%	-100.00%	4.00%
10.00%	-90.00%	5.03%
20.00%	-80.00%	6.03%
30.00%	-70.00%	7.00%
40.00%	-60.00%	7.94%
50.00%	-50.00%	8.85%
60.00%	-40.00%	9.72%
70.00%	-30.00%	10.57%
80.00%	-20.00%	11.38%
90.00%	-10.00%	12.16%
100.00%	0.00%	12.92%

Table 2 is the reverse of Table 1 above. All of the downside capture ratios in this table are negative. Once again, a negative downside capture ratio means the opposite of what you think. If the market is down -20% and you have a negative downside capture ratio of -50%, you would make 10% during that year (-20% * -50% = 10%).

I wish this wasn't so hard to explain, so stay with me a little longer. There are some very important differences to point out about Table 2.

There are no losing years.
Having a negative capture ratio (making money in down markets) makes your returns higher on average than Table 1.
The majority of portfolio options significantly outperforms a traditional buy-and-hold portfolio.
You would be a much happier and wealthier investor if you did not lose money in bear markets.

A picture is worth a thousands words.

The chart above represents the S&P 500 index (blue line), compared to a portfolio constructed using an upside capture ratio of 70% and a downside capture ratio of -20% (red line). How do you think you money should be managed?

Portfolio Performance Analysis

Risk & Reward
Each of our portfolios is strategically allocated across one or more of the Investment Pillars of Strength discussed below. Each Pillar is managed by multiple, uncorrelated, absolute-return investment managers to produce a return stream that is consistent, negatively correlated with the major market averages in down markets and non-correlated with each of our core Pillars of Strength.

Managing risk is our most important consideration and it is reflected in the way our portfolios are built and managed each and every day.

The decade long secular bear market peaked 15 months ago and is in a death spiral as I write this. The S&P 500 and the Dow are both down approximately -50%. As of January, the Dow has fallen five straight months in a row and has also fallen 12 out of the last 15 months. Similar to most bear markets, asset class correlations increased dramatically causing most asset classes to fall in lock step with the market. Even balanced portfolios holding 60% equities and 40% bonds have dropped an average of -35%. Gold, oil, grains and any other commodity you can find dropped like a safe during this period, destroying the myth of non-correlation between asset classes. It will be interesting to see what color lip stick modern portfolio theorist put on this bear market to justify the complete and utter destruction of their asset allocated portfolios.

Below is a performance summary for the indices we track and benchmark our portfolios to:

	Cumulative Return			Average Annual Return
Indexes	Mth.	YTD	1 yr	3 yr	5 yr	10 yr

CSFB L/S *	0.11	0.11	-16.26	0.08	4.61	7.36
CSFB Multi-St. *	1.77	1.77	-20.84	-1.56	2.21	5.76
Barclay F-of-F *	0.96	0.96	-18.85	-3.02	1.04	5.60
S&P 500	-8.43	-8.43	-38.63	-11.78	-4.24	-2.65
Barclay HY	5.99	5.99	-20.67	-4.24	-0.01	2.62
Barclay Agg.	0.88	0.88	2.54	5.19	4.30	5.46

* Note:	Estimated monthly performance

Volatility continues to remain high, so our overall equity investment allocation remains low. We expect volatility to remain at historically high levels for some time, so overall investment allocation remains muted to normalize the market's volatility.

Our equity traders continue to walk on water by producing positive returns in the worst performing January on record. Our long/short equity traders lead all allocations followed by impressive gains in our Strategic Balance allocation. We continue to struggle trading the government manipulated fixed market, but are optimistic about the opportunities in this important allocation long term. We are currently showing positive gains for February as the market moves to test November lows.

Index Advantage:

Our long/short index traders outperformed the S&P 500 index for the month by an astounding 13.55%. Because volatility remains so high, our overall investment allocation within this allocation remains 25% or less. Our trading accuracy for the month exceeded 80% with no losing weeks and few losing days. Considering our low investment allocation, our 6.97% gain for the month was once again impressive.

For the month, this pillar gained 6.97%.

Strategic Balance:

Having to repeat yourself about making money in down market is a nice problem to have when writing this letter. The traders in this allocation tend to spend the majority of time invested in the safety of cash, while waiting for high probability trades to materialize. Our 2.44% monthly return was earned while being invested fewer than 10% of the days during the month.

For the month, this pillar earned 2.44%.

Dynamic Income:

In looking back over the past 12 months, trading fixed income investments has caused me more grief than equity investments. Considering that equity investments in 2008 experienced about the same amount of volatility as they experienced during the Great Depression may seem a little odd. The reasons vary from assets that don't track their benchmark index, to government manipulation, to limited asset trading options, etc. January was another one of those oddities where the high yield investments that we traded actually went down in value as the benchmark index went up in value. What we do is difficult enough in normal circumstances, so dealing with these problems has made it almost impossible. We've learned some valuable lessons over the last 12 months, and I plan to use them to our advantage in 2009.

For the month, this pillar earned -3.36%.

Our portfolios are built using varying distributions to the strategic allocations discussed above. To view detailed performance and risk statistics information about our investment portfolios for the month, please click on the links below:

If You Are a Client, Don't Be Confused.
Actual management and performance fees are incurred monthly but are deducted from client accounts in the first month of every quarter (January, April, July, and October). For performance reporting purposes, we deduct fees monthly as they incur and not quarterly, as they are reflected in client statements. It all washes out in the end, but this may cause your account performance to deviate from our published performance reports on a month-to-month basis. To be conservative, we also deduct the maximum fees we charge from our performance reports and your actual overall fees paid may be less than our maximum.

Dancing with My Daughters and Hitting the Slopes

Valentine's Day at the McClure house has developed into a great tradition. For the past five years (since my oldest daughter turned five), my girls, Sarah and Annabelle, and I have attended a dance at their school called the Daddy Daughter dance. It is truly a fun time for all of us. Mom gets to go shopping with her girls to find them just the right dress. The girls get dressed up, go out to a nice dinner, play with their friends, and of course dance with their dad. I get to take it all in. You might say I have the most fun. It brings a smile to my face every time I think of it.

The dance theme changes form year to year. This year's theme was a 50's sock hop. I have to admit, I felt pretty cool in my white t-shirt and jeans. My wife, Leigh Ann, found my old high school jacket and to my surprise, it still fit.

The person who puts on the dance doesn't miss a detail-cake, punch, dancing games, great music, pictures, lots of moms helping everything run smoothly, and flowers for the girls. I was kidding Sarah on the way to the dance that she would have to take me to the dance when I was an old man. When we met a very pleasant old man and his beautiful daughter at the dance this year, we both laughed.

I plan to attend this dance as long as Annabelle and Sarah will let me go. I will be disappointed when they grow out of this tradition.

My old college roommate and his family spent President's Day weekend with our family. Geoff and I hit the ski slopes for a couple of days to soak it all in. Geoff originally taught me how to ski and volunteers to teach ski lessons at Mt. Hood. Geoff skis at least twice as good as I do, so my legs are plenty sore from our big adventure. Good snow, good friends and no broken bones. I give it two thumbs up.

I am already looking forward to my next letter. Until then, take care and stay in touch.

Working to grow your wealth,

John M. McClure
President & CEO
ProfitScore Capital Management, Inc.

P.S. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by Click Here and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info@profitscore.com.

Someone will contact you within 24 hours of receiving your information.

Monday Weekly Overview Sample Letter

RichardSchwartz — Mon, 28 Jul 2008 13:19:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

A learning, teaching, always evolving stock market letter and advisory service

Seventeenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

Post Office Box 1236 · New Paltz, New York 12561 - U.S. A. · (845) 255-6894

E-mail address: Richardstk@aol.com

Subscription · One-Year Morning E-Mail Delivery · $150.00

Monday, July 28^th, 2008: Your New Paltz, NY SUNFLOWER update: A few sunflowers have popped but I noticed the farmer’s market has alternated its plantings so any time you visit you should see some. Just spectacular!

THE BIG PICTURE

Looks like one potential US and global leader gets it. Presumptive Democratic nominee Barack Obama, to shore up his lack of experience on the global stage, embarked on a global tour last week. And was again able to put his finger on the pulse of the world and his audience, exhibiting his knowledge of history and this particular critical point in time speaking at the historic Brandenburg Gate in Berlin. While he didn’t rock star the crowd, fine with me, it was good to see he continues his role as alienate no one, moderator showing again he understands all sides of issues and is committed to leading by example. While not denigrating any political party, say our Republicans, or country, say Old Europe. Thus there is hope that America will soon embark on a new direction, one of getting things done by bringing all parties together and then making logical and effective, not ideological, decisions, forgoing our previous path of fostering divisiveness in the world, between our two political parties and among the American people ourselves.

Schwartz View: Enough said. I always get negative feedback when treading in political waters. I do like presumptive Republican presidential nominee and American hero John McCain quite a lot but just feel we have to drastically change policies going forward, not follow a similar path. America needs to get it’s act together quickly as all long range forecasters have reached consensus, saying we’re on a downward slide, financially, politically, economically, socially. We just need to start cohesively tackling our problems.

THE ECONOMY

Numerous economists last week admitted that the US economy is weakening. Among them Brian Bethune of Global Insight, James O’Sullivan at UBS and Moody’s John Lonski. So, in spite of the US not posting two straight quarters of negative GDP growth, the old and easy definition of a recession, and one not used any longer by the National Bureau of Economic Research which calls and dates recessions but problematically many months late -- remember in today’s new globalized world we need to learn new economic relationships! -- it looks like a recession is here. And in my view is going to stay with us for quite some time. That’s because America has been moneying-over all near term problems for many, many years, thus postponing the always needed recessionary cleansing and efficientizing of the US economy, while we’ve also avoiding developing and implementing solutions to our long term ills, like our increasing oil dependency, our underfunded government pension plans, Social Security and former Fed head Alan Greenspan’s #1 concern, Medicare. America does have a bad habit of avoiding problems until they reach crisis state. Maybe that’s because our representative democracy has become so dysfunctional here in the US. I would suggest we start fixing things right there in Washington by first getting rid of lobbying which skews everything toward those with the money to get their voices heard. Even corporate America, who now realizes it’s entrapped by this self-perpetuating system, would like nothing better than to see lobbying go away as big business now has to carry and fund a large and increasingly onerous lobbying budget.

Schwartz View: All I’ve read recently has been about how there are so many inefficiencies corrupting our inherently great economic and social framework that it’s a wonder anything can get done. Such as the US having 600,000 lawyers while Japan has 15,000 (those figures were about 10 years back but obviously haven’t changed for the better). And all the broken marriages and unwed mothers costing America a fortune as well. It’s almost funny, after encouraging the rest of the world to move to free markets for decades, when the Soviet Union collapsed and showed the economic rot hidden there, the world finally started followed our recommendations. And economic success followed suit but that led to tremendous and widespread global competition, so it’s vital we get our own act together as soon as possible, to just keep up. Thus the silver lining to this current economic slowdown, a slowdown that isn’t responding to our normal response of throwing money at it, is that crisis is when change really does occur in America

THE STOCK MARKET

Stocks have again gotten ahead of themselves on the downside although not as much out of whack as at the first bottom back in mid-March. Figuring the Dow Industrials and S&P 500’s previous bull market tops were set back last October, after nine months of a bear market or at the recent July 15^th lows, we are down on average about 2.5% per month versus the historic average bear market monthly decline of 2%. So we could easily see a backing and filling trading range here and now or even a modest rally, the two normal ways bear markets correct themselves. Much government intervention has come together to force down the price of oil and thus commodities in general, prop up housing and consumer spending, keep the financial system from breaking down completely and holding interest rates way below the rate of inflation. So all this government stimulus has to go somewhere just as previous stimulus found places to bubble up. Plus new government props and controls historically have been able to put a temporary fix in place.

Still, over a period of time the stock market reflects the economy and things aren’t really getting any better there, despite Q2 GDP growth out this Thursday going to again be positive. In point of fact, the economy is continuing to get worse if one looks under the surface at signals like credit spreads, a rough definition being the difference in yield between US government bonds and non-US government guaranteed bonds, which remain wide. Or if we factor in historic trends which show that economic downturns tend to surface hidden problems which end up feeding on themselves. Today’s continuing wide credit spreads mean at some point MBIA & Ambac and Fannie & Freddie, the other 17 big financials which have also been taken off the allowed short selling list & all the other financials who’ve lost billions of dollars aren’t going to be able to hide things any longer and are going to have to really own up. So stocks remain iffy for now. And with the rug pulled out from under the remaining stock leadership in the stock market over the last two weeks, out from under energy, the energy complex and other commodities, any market rallies are going to be just technically based, say from an oversold position or short sellers being forced to cover. Sure, a rally may then feed on itself and last longer than bears think, but should ultimately roll over as data worsens.

Schwartz View: Technically then, we could be embarking on a summer rally and if so sharp traders with the courage to risk their monies in the propped up financials may be able to scalp the stock market. And other pockets of strength should or may show up (hopefully in the health sector as that is now my focus with my few longs) normally searched out and propelled along by momentum players.

PORTFOLIO STRATEGY

LONG TERM PORTFOLIO STRATEGY continues to be hunkering down until this big storm passes. I expect that to be longer than most government and Wall Street economists and market strategists believe or at least publicly state. Publicly state because we all know that bearish Wal Street analysts and economists ultimately get fired and that in the aftermath of the dot.com bubble bursting, we got some theretofore hidden insight into what analysts really think. I see widely-followed, economist Nouriel Roubini, formerly holding various high level economic advisory positions in government, believes the US and European economies are now sinking as last Friday he said Wall Street was in spin mode and that financial institutions are “… manipulating at will their earnings, and analysts [are] falling for this supreme baloney.”

NEAR TERM PORTFOLIO STRATEGY depends more on whether this two-week, fledgling rally proves it has legs or not. I’m using as a key gauge whether the Dow and S&P are able to close above their last Wednesday’s closing highs, Dow 11,632.40 and S&P 1282.19. If these key indices close higher, then we will have the definition of a new up trend in place, a series of higher lows and higher highs. Strategy then will be to favor the long side but with say with no more than 50% at most market exposure. Planning on a modest summer rally for a month or two, with strategy being trying to scalp some short term profits.

AS FOR INCOME INVESTORS, we’ve all gotten used to our income fixes after 25 years of income investing being easy during a bull market in bonds, meaning just riding the trend toward lower and lower long term rates, I know it’s a struggle for you all today. My best suggestion is to watch for weakness in income sectors, say in utilities, royalty trusts and even REITs, then strike. Only move in and in a small manner AFTER a sector has just been blasted. This gives you some profit buffer as primary extended downtrends many times have sharp sell offs after disillusioned investors finally give up hope and sell, right before they rally. This can get you in at unusually good prices, at least for the near and intermediate term.

INCOME IDEAS. Thus I would currently search through the utility sector as the Dow Utility Index has just fallen a sharp -8% over the last two weeks. Or take another look at my previous July 11^th, 2008 two energy income recommendation Cross Timber Royalty Trust (CRT) and San Juan Basin Royalty Trust (SJT), both haven tumbled hard with crude. Both go ex-dividend tomorrow, meaning today’s the last day to get in to collect the substantial August dividend (both pay monthly). Or finally, revisit my other income recommendation, back on July 10^th, 2008, of two large European pharmas, GlaxoSmithKline PLC (GSK) AstraZeneca PLC (AZN) paying moderate dividend yields of 4.4% and 5.8% respectively. You need to buy GSK today to be entitled to this quarter’s dividend and buy AZN soon before it goes ex-dividend (not declared yet but last year it went ex on August 8^th). Good income investing!

Have a great week!