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Sub-Prime, Sub-Performance

Well, we’ve had a busy few days.

The market has been down then up then down then up, but the trend is down. What’s causing this? The melt down in the credit markets.

It started as a problem with sub-prime loans, but now we see that a lot of prime loans are having problems because the lenders gave borrowers home equity loans to get them from 0% down to 80% down. The 80% down loan appeared to be a prime borrowing, but the borrower still owed 100% on the house. Ugly.

So, what is and is not working?

There are some strong sectors that you can now buy at prices lower than a couple of weeks ago: Ag, Infrastructure, Machinery, Defense, Energy, Metals. These are the sectors that have pricing power and they will be winners. Buying now when prices have pulled back is an opportunity.

Cycle out of the financials and into these sectors. There is value in these sectors; there is pain or at best malaise in the financials.

I’ve been buying quality defense stocks (Northrup Gurman, Lockheed), Ag stocks (Syngenta, Monsanto, Deere, BASF) and energy ( Weatherford) on the pullback. These are companies with strong earnings and strong prospects for better than average earnings growth.

More later!