By proceeding, I acknowledge that I have read and understood the Disclosure and Copywrite Statements.

Dear Clients,

Ordinarily, I would not inundate you with so many musings in a matter of days. However, yesterday’s market action was notable. You may be wondering what happened to the stock market and what the implications might be for your portfolios. As I have mentioned in previous remarks, I have been preparing your portfolios for some stormy weather in the capital markets. The storm may be close at hand.

The volatile action in the markets yesterday should serve as a wake-up call for investors that have slipped into 2006’s market induced complacency. The S&P 500 fell approximately 3.5% in Tuesday’s trading session, erasing three months of impressive gains in a single day. All of the major indexes buckled under massive selling pressure amid extremely high volume trade. Few stocks survived the fall as declining stocks outnumbered advancing stocks by a ratio of 12:1 on the NYSE. The catalyst? China’s stock market fell 9% on Monday night, setting off the frenzy in the U.S. stock market and other global markets. These events beg the question, “why would a sell-off in China ignite such fear in U.S. markets if investors are confident that our “goldilocks” economy is so impervious, the stock market so attractively valued, and our real estate markets on such solid ground?”

I don’t know, but the explanation must run a little deeper than “investors just got a little spooked by the news from China.” I might point to a couple of concerns weighing on the market psychology; Former Fed Chief Alan Greenspan’s warning of a recession in 2007, a difficult U.S. housing market, down beat economic reports, decelerating corporate earnings, historically rich stock valuations, increasing inflation pressures, growing trade deficits, heightened Middle-East tensions, and resurgent energy prices. These things can make for a challenging investment climate.

You may find it counterintuitive when I say that our investment strategy has the potential to perform well in this environment. I can only make a general comment about how our portfolios faired yesterday. However, I’m pleased to report that, while the S&P shed a jaw-dropping 3+ percent, the Catamount managed portfolios held up quite nicely. Today, the portfolios advanced respectably. Rest assured that I will continue to monitor the situation closely.

Greg

By proceeding, I acknowledge that I have read and understood the Disclosure and Copywrite Statements.

Dear Friends & Clients,

We are off to an excellent start in 2007! Your portfolios are showing nice YTD returns due in large part to positions in silver, gold, oil, and Japan. Let me say, with personal humility and with professional respect for the vagaries of the markets, I’m confident that more auspicious rewards are forthcoming.

I have been preparing your portfolios for a change in season. Sometimes it take’s a while for investment strategies bear fruit, but now there are clear signs that we have a well cultivated crop. I’m expecting good harvests. Thank you for your patience.

I have made a change to your portfolios. I added 5% to your position in Street Tracks Gold Trust (GLD). This brings the GLD weighting close to 11% of your overall portfolio. Gold and Silver prices soared through some key resistance levels on more than double the normal trade volume on Wednesday. This is an indication of strong buying interest.

I believe that this renewed interest in precious metals could be the tip of the iceberg. There are many reasons why precious metals stand to perform well on a short, intermediate and long-term basis. Touching on all of them would be a little onerous for today’s comments. So, here are just three reasons why we are investing in precious metals.

First, there are clear signs that inflation is on the rise in the U.S. economy and precious metals offer protection against the ravages of inflation. The primary scourge of inflation is the erosion of your purchasing power. These commodities can preserve your purchasing power when consumer prices rising. Believe me, no matter what the CPI numbers tell you, prices are on the rise.

Secondly, this week Federal Reserve Chairman Bernanke expressed concern that the current distress in the housing and sub-prime mortgage markets could lead to a substantial decrease in personal consumption. This should come as no surprise to you, since I have been talking about the potential risks in the housing and residential credit markets for many months now. Anyway, personal consumption drives close to 70% of the U.S. economy and a sharp decrease in spending could usher in a deeper economic slowdown than anyone, including the Federal Reserve, expected. The U.S economy may miraculously avoid a slowdown but, remember, economic cycles are inevitable. We should be prepared to survive a down cycle. Precious metals typically act as a safe haven for your capital during periods of economic uncertainty.

As if that weren’t enough reason to invest in precious metals, the third and perhaps the most important fundamental reason to own gold and silver relates to the increasingly bloated U.S. trade deficit and it’s implications for our national currency. The U.S. trade deficit is, in essence, borrowing from foreign countries on a mass scale to finance the purchase of goods from those countries. In other words, we are buying a lot of imported stuff on credit. The absolute size of the debt is becoming a burden to the U.S. consumer and cannot be supported indefinitely. The easiest way to repay the foreign debt is to systematically devalue the dollar. It should be no mystery that the orderly devaluation of the Greenback is central to U.S. Treasury Secretary Paulson’s agenda with China. This portends a continued and, hopefully, measured slide in the value of the U.S. dollar against other foreign currencies and particularly against precious metals. With that said, foreign governments, central banks, institutions, and investors that are looking to reduce their positions in the Greenback will likely replace many dollars with investments in gold and silver among other alternatives.

With these three trends in place, there should be plenty of investment demand for gold and silver which should translate into higher prices and attractive investment gains for those who get in before the herd. We are already there.

Catamount Capital is located on McKinney Avenue in Dallas, Texas. I welcome you to drop by for further discussion on this topic. We enjoy visitors!

Greg

By proceeding, I acknowledge that I have read and understood the Disclosure and Copywrite Statements.

I have added a 5% position in United States Oil Fund (ticker symbol: USO) to partially replace the liquidated PIMCO position. USO is an Exchange Traded Fund (ETF) that tracks the physical spot price of West Texas Intermediate Light Sweet Crude Oil. The rationale is that oil prices have corrected approximately 35+% from highs set just a few months ago. I believe this correction is largely a result of short-term oversupply concerns. However, the long-term supply and demand outlook is supportive of higher oil prices.

I believe this is an attractive entry point. Of course, I can’t be sure that this is the bottom. Nevertheless, some material economic, geopolitical, and technical data seem to indicate that a base has been formed around $43. We purchased USO at around $45.83 on Jan. 24. It closed today at $49.14.

I’m watching closely.

Greg

Dear Clients.

Last week, I liquidated your entire position in PIMCO Commodity Real Return Strategy Fund (Ticker symbol PCRDX or PCRAX) which represented approximately 10% of your overall portfolios. PCRDX is a mutual fund that is intended to mirror the Dow Jones-AIG Commodity Total Return Index which is an unmanaged index comprised of 19 physical commodities. In case you’re interested, here are the approximate weightings of the commodities in the index.

Natural Gas 12.28%
Crude Oil 12.81%
Unleaded Gas 4.05%
Heating Oil 3.85%
Sugar 2.93%
Wheat 4.87%
Cotton 3.23%
Corn 5.94%
Coffee 3.02%
Soybeans 7.60%
Soybean Oil 2.67%
Aluminum 7.06
Copper 5.89%
Zinc 2.67%
Nickel 2.61%
Gold 5.98%
Silver 2.00%
Live Cattle 6.15%
Lean Hogs 4.39%

Here’s my rationale for selling the fund. First of all, I was on the right track in 2003 when I began to build positions in commodity funds to take advantage of what has obviously evolved into a structural bull market in commodities. The PIMCO fund has served is purpose in allowing us access to a broad basket of commodities. However, the disadvantage of these long-only “passive” index funds is that they maintain the same weightings without regard for the fundamental outlook of each commodity underlying the index. Holding a predetermined percentage of a commodity with poor supply/demand characteristics can exert significant drag on the overall fund’s performance. This is exactly what happened to PCRDX in 2006, and it’s the primary reason I’m disenchanted with passively managed commodity funds. Another reason is that there are alternatives available today that will enable me to manage more “actively.”

Innovative new products have been developed to help financial advisors and investment managers focus on certain opportunities without having to carry the baggage of entire indexes. After all, this is the era of Exchange Trade Funds (ETF). New ETFs may become so refined they can be used surgically on a portfolio. I intend to use these tools at Catamount until I devise another method, of which I’m diligently pursuing. I’m sure the solution will incorporate a long-short strategy along with an element of active portfolio management. There will be more on that subject in the future.

With all of this talk about commodities, I will leave you with a brief outlook on various commodities in 2007. I expect downward pressure on industrial metals prices (i.e. copper, zinc, nickel, aluminum) as the U.S. economy decelerates. As I have intimated in a previous writing, I’m very constructive on precious metals (i.e. gold and silver) because I believe the U.S. Dollar will continue to slide against other currencies and I suspect inflation pressures will mount. Finally, after a serious correction in energy prices, I’m bullish on oil and gas once again.

Greg