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Each year, along about this time, this publication (with help from our readers) makes a series of “Fearless Forecasts” - frivolous flights of foolishness and fantasy.

The Investment Case for New Zealand Special Study...BenchMarks Is (Finally) Coming...Social Security or Insecurity...Golden Fleece Awards...Copper Traders Anonymous

After a 300-point move in the DJIA in a little over two months, a number of observers view the market as “overbought”. However, we see no significant evidence among our indicators that supports this opinion.

For the month of January, the S&P 500 gained 7.1% and the DJIA was up 8%. The Russell 2000, a good measure of secondary stocks, gained a lagging 4.4%. Not much beat the DJIA in January.

By traditional measures, the New Zealand stock market is the most undervalued market in the developed world. As of this issue we are incorporating a 6% package of New Zealand stocks into our asset allocation models, both the conventional and the unconventional.

For years we have been searching for better measures of secondary stock activity. When the new Russell 1000, 2000 and 3000 indices were developed we thought our search was over. Despite some criticism of the Russell indices, we still think this index gives the best representation of secondary stock action.

This is indeed a strange environment, where higher short-term rates in effect have become a bond market positive. High short rates cool the economy and keep the dollar strong. Both of these consequences are bond market positives.

Another New Year has arrived.

A month ago this section lead off with the headline "All Systems Are Go".

Since year end, several clients have called to inquire about the 1988 performance of the S&P 500 with each component stock given equal weight.

For a number of years, we have used Jim Floyd's computer screen to isolate stocks most likely to score the largest gains from early December through the end of January.

The table on the following page is a performance run down for our equity market sectors ranked by 1988 performance.

In recent months, a number of you have been asking about technology stocks and the technology sector.

Self examination can be good for the soul, so each year time is taken to look back over the preceding year or so, critically reviewing the significant studies, portfolio shifts and recommendations appearing in this publication. Including the good....and the bad.

Holiday Wishes...New Quarterly Publication BenchMarks Will Be Introduced and Sent at No Extra Cost to All Clients... Client Questions Answered

As indicated in our November 29th Interim Memo, our Early Warning Index, which is designed to detect intermediate stock market bottoms, turned positive as of the November 28th calculation. I expect a significant rally in December.

In September and October, we viewed the improved market action of the “Airlines” as possibly only a knee jerk response to lower oil prices. But in November, oil prices strengthened and so did the airlines. Clearly, more was going on than just lower oil prices.

For the month of November, the S&P 500 lost 1.9%, with the DJIA down 1.6%. The Russell 2000 (a good measure of secondary issues) was down 3.6%. Blue chip growth groups and Utilities tended to dominate the leaders along with Airlines.

This year we have decided to “play the bounce” with 8% of our model’s equity assets. The market environment looks right and we have confidence in our quantitative and qualitative judgement disciplines.

As promised, in this issue we present the very long-term record of this long-term low risk stock market momentum tool. With a data assist from Bill Doane of Minuteman Financial in Boston, we can now present the record tracking back to 1897.