Mousetrap 3/10/2012

Condition Bear Market Rally
S&P Target 1020
Small Portfolio IAU & XLF 13.53%
Hedge XLU -2.88%

Position Date Return Days Call
CLH 7/6/2011 30.79% 248 Hold
GCI 7/14/2011 5.36% 240 Hold
CSGS 10/3/2011 27.29% 159 Hold
NLY 10/25/2011 -1.46% 137 Hold
DD 10/27/2011 6.49% 135 Hold
KBR 10/27/2011 22.89% 135 Hold
VG 10/27/2011 -35.61% 135 Buy
TTM 11/30/2011 62.87% 101 Hold
BT 1/4/2012 9.97% 66 Hold
PDLI 3/7/2012 -0.24% 3 Hold

S&P Annualized 2.45%
Small Portfolio Annualized 17.40%
Mousetrap Annualized 20.17%
Hedged Annualized 16.46%

No changes to the models.

I have, however, found a good report that goes into more detail on the demographic problems I keep harping about in these weekly notes:

[url]https://doc.research-and-analytics.csfb.com/docView?language=ENG&format=PDF&document_id=946215251&source_id=em&serialid=03dfjQL2aM3JSWtONzVwDCPZ7pQTGXmHpQTEvtNWnHc%3D[/url]

Of special note in this report are the model targets for 2025:

1) S&P P/E model to fall from the current 16.1 to 5.2 (page 16).
2) 10 year bond yields to rise to 4.6% (page 20).
3) Housing values (adjusted for inflation) to fall another 20-25% in the 2015-2020 timeframe (page 29).

No models should be held to be sacrosanct, because technology or robotics or fusion power could change the parameters that are affected by demographic patterns. But given no significant global economic revolution, these are the kinds of numbers we are facing in the next few years.

Those counting on inflation and spiking interest rates as in the 1970s should be disappointed if these trends hold true. There was no mention about gold in this report, but there is a ratio between gold appreciation and treasury yield rates I plan to dig up for next week that may be applicable given the relatively low target for 10 year bond yields between now and 2025.

Money can still be made, but not by holding an index ETF or a mutual fund. Fundamental stock picking will continue to be far more important now than it was twenty years ago.

Tim