Investing for 2009 and Beyond

We don't know when the stock market will begin to move up but we know it will. There are many stocks that are down 50% or more and plenty of industries that have been pummeled this year. Investing takes time and work and we try to pick stocks that will benefit from the turnaround in the economy but be safe from destruction in a weakened financial system, from overleveraged businesses and from a poorer consumer.

The housing sector has brought the financial system to its knees but the Government has injected capital into many of the faltering financial enterprises while the Federal Reserve has provided enough capital to ultimately stimulate the economy and improve the bank lending system. Housing will bottom and begin to turnaround. We want to be positioned for that occurrence.

Oil prices are down about $100 per barrel but last we looked nobody has discovered any new supply. When economic demand improves, energy sources will be needed. It is important to have a portfolio that is prepared for this inevitability.

Technology drives efficiency and innovation. It is the core to pushing the economic engine forward. Consumers migrate to new phones, computers, and gadgets that make life easier and entertaining. Businesses strive for efficiency and competitive advantages. Technology is the key to solving both consumer and business problems. Every portfolio should own technology companies.

We have been saying that improved corporate credit conditions will drive higher stock prices. Owning fixed income instruments will not only provide good current income but as corporate spreads improve, one will also see capital appreciation in bond prices. Now is the time to own loans and bonds.

Below we will list some of the stocks we own as we prepare for 2009 and beyond. We don't know how well each of these stocks will perform in 2009 but we are pretty confident that within 3 to 5 years most of them will provide very good returns.

Energy- Williams Companies(WMB) and Sandridge Energy(SD)
Both of these companies are primarily natural gas plays. Sandridge is only for those
who want to take more risk.

Housing- Masco(MAS), USG Corporation(USG), Temple Inland(TIN)
Each of these companies are building products enterprises.

Technology- Oracle Corporation(ORCL), Cisco Systems(CSCO), EMC Corp(EMC)
Each of these companies focuses on helping companies run efficiently.

Internet- Google Inc.(GOOG)
We view this company as a play on the advertising environment but it is a virtual
monopoly for search on the internet. This company is innovative and a cash cow.

Software/Utility- Microsoft(MSFT)
This company has a virtual monopoly with all computers. It is in the enviable position of having $20 Billion plus of cash to take advantage of distressed market opportunities, buy back stock or increase its dividend. Its 2.7% dividend is better than treasury bills and it is as safe as a utility.

Industrial/Consumer- Owens Illinois(OI)
This company is the world's largest glass bottle manufacturer serving
the beverage and pharmaceutical industries. This company produces
free cash flow, benefits from low oil prices and a weak dollar, and has
a relatively recession resistant customer base.

Defense-Alliant Techsystems Inc.(ATK)
This company produce advanced military weapons. It has a huge backlog and will
produce strong earnings in any economic environment.

Financial- Bank of America Preferred E(BACpE)
We have limited our direct investment in most financial companies. We are
concerned with the consumer loan problems Bank of America will likely face
in 2009 but the preferred stock has an 11.25% current yield and trades at 35%
of face value. If it were not for the structure of the Citigroup bailout, we would not
own this security.

Special Situations-Icahn Enterprise(IEP), Loews Corporation(L), Leucadia National Corp
The three companies have a few characteristics in common. They are
all run by leaders who have been through many economic cycles. Each
views themselves as a distressed buyer of assets and we expect they will
take advantage of the weak real estate market, soft energy prices,
impending corporate bankruptcies, declining commodities, and the
cheap values in the credit markets.

Commercial Real Estate-Forest City Enterprises (FCE/A)
We believe 2009 will be a very difficult year for commercial real
estate companies but Forest City's stock has dropped about 90%
this year. This is still a very risky investment but we believe the
company will be able to refinance the few loans they haven't been
able to restructure. The company has very experienced
management with a long history of real estate cycles.

Loans-ING Prime Rate Trust(PPR)
This closed end fund is a way to invest in the leveraged loan market.

Corporate Bonds-ISHARES IBOXX $ High Yield Corporate Bond(HYG), PIMCO Corporate
Income Fund(PCN), PIMCO Corporate Opportunity Fund(PTY)
HYG is a an exchange traded fund with a portfolio of high yield bonds with
an 11% current income trading at 74 cents on the dollar.
PCN is a leveraged closed end fund of corporate bonds (many are
investment grade financial institutions) with a current income of 12.7%.
The focus of this fund is high current income.
PTY is similar to PCN except its objective is to maximize total return
through a combination of current income and capital appreciation. Its
current income is 13.84%

Gold-SPDR Gold Trust(GLD)
We believe that inflation is on the horizon as the Federal Reserve has flooded the
economy with liquidity and the Government will need to raise a significant amount
of debt to pay for all its stimulus programs enacted and forthcoming. GLD is an
investment fund holds gold bullion and it is a proxy for the price movement of gold.
Holding gold will be a good hedge for the portfolio if the value of the dollar declines
over time and inflation resumes.