by Ron Muhlenkamp   

The economy continues to grow, along the track of a soft landing. We missed our call on the weakest quarter. We had thought that the third quarter of ’06 would prove to be the low point, but it turned out to be the first quarter of 2007. Of course, if you waited for signs that the economy had bottomed, you missed some nice gains in stocks. In ’07, stocks are up nicely, even though bonds are down. We think this is likely to continue.

The weak spot in the economy is housing which has been exacerbated by the problems in sub-prime lending. A number of firms in sub-prime mortgage lending should go out of business and are doing so. There has been a limited amount of carry-over into the rest of the economy, at least so far.

Meanwhile, volatility in prices continues, particularly on a short-term (daily and weekly) basis. We expect this to continue as well.

Individual companies are doing well, with good profits and cash flows. We continue to search for, and look to own, the stocks of such companies.

The comments made by Ron Muhlenkamp in this article are his opinion and are not intended to be investment advice or a forecast of future events. Copies of past newsletters are available on our web site at www.muhlenkamp.com.