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Time to take chips off the table

Presented by: Scott Noyes

While the third quarter has turned out well on a performance basis, three noticeable

developments have occurred that cause us to reduce your risk exposure:

1) Classes of investments (stocks, bonds, etc) are behaving in a much more

correlated manner than in the historical past. This is bad because a portfolio has

more volatility per unit of risk than it would have had in prior years. Some

investors are taking more risk than they realize.

2) The real economy in the United States is slowing. Housing starts, auto sales and

consumer confidence have been declining for over six months. At some point this

will translate into lower corporate earnings.

3) The Federal Reserve’s decision to lower interest rates has initiated a new leg

down in the dollar and boom in commodity prices. This may lead to higher

import prices and commodity inflation in the future.

The path of least resistance for the stock market remains higher. However, bullish

supporting evidence is diminishing. There is potential for significant volatility in

the fourth quarter. Client positions have been modestly reduced.

I have been asked why we hold precious metal and commodity stocks in all accounts. A

great example of why was pointed out by another advisor friend, Mr. Herb Gernert. He

stated:

“Little notice was given recently to the fact that the Senate raised the U.S. debt limit for

the fifth time in six years to almost $10 Trillion. ….. Did you ever think how $10 trillion

in debt can be repaid? It can't. To appreciate the magnitude write out 1 followed by all

the zeros, I think there are 13.”

I believe that the government has chosen to depreciate the dollar and risk future inflation.

Thus, strategy can work as long as global labor costs are being lowered through the

addition of Chinese and Indian workers. In the long run, the dollar is not a good place to

preserve purchasing power in a global environment. Gold, commodities and foreign

equities are the safe haven to retain purchasing power in the event of a future dollar or

inflation crisis.

NOYES CAPITAL MANAGEMENT, LLC

Retirement Planning, Financial Planning, Investment Management

www.NoyesCapital.com

973-267-8120

The stock market is being supported by several positive factors

:

institutions are prone to supporting the market;

Human Nature - After four years of positive momentum, market participants and

greater than bond and interest rate potential;

Stocks remain cheap to bonds – The earnings potential from stocks remains

companies maintain their growth;

Strong global growth – The globalization of the stock market has helped US

Washington vacillation – Good for business.

Negative themes including;

Slowing US Economy - The economy is starting to slow;

portfolios more globally into non-dollar investments;

Weakening dollar - Foreign central banks are diversifying their investment

and other mortgage debt; Many investors, including hedge funds and

mutual funds own this debt;

Credit Quality Concerns – Credit spreads are widening due to concerns with subprime

interest rates and higher commodity prices, many US consumers are suffering;

Weakening US consumer balance sheet – Due to declining housing values, rising

emerging markets is increasing global commodity prices.

I try to stay focused on the intermediate term trends for various investment choices and

economic trends. My opinions are as follows:

Increased global commodity prices and inflation - Global demand pressure from

US stocks – neutral trend;

Foreign stocks – remains bullish;

growth. Core inflation remains at 3%.

Long term inflation – higher commodity inflation is offset by lower wage

ease to 4%;

Short term interest rates – sideways trend at 4.5%, potential for another Fed

Long term interest rates – sideways trend at 4.5%;

Real Estate – trending lower, no bottom in sight;

The US Dollar – trend is lower but due for a bounce;

Corporate earnings growth – slowing down but positive (7%);

Tax rates – expected to shift from sideways to higher rate trend.

NOYES CAPITAL MANAGEMENT, LLC

Retirement Planning, Financial Planning, Investment Management

www.NoyesCapital.com

973-267-8120

Our overall investment strategy for the Fall is to remain patient and invested

according to your Investment Policy Statement.

long-term trend of the market, we are concerned about the decline in the dollar. We have

moved to a slight overweight in large cap stocks, both US and foreign, and an

underweight in small cap stocks. We continue to hold modest gold positions as a hedge

against global tensions and inflation, which can heat up at unexpected times.

While we remain optimistic on the

We strongly believe that a diversified portfolio should continue to perform well over

the intermediate-term horizon.

of asset classes as some previously leading sectors suffer and new leaders materialize.

Sector allocation and fund manager selection will be keys to performance in upcoming

quarters.

However we are likely to see a shift in the performanceI remain optimistic that 2007 will be a successful year for investors.

____________________________________________________________________

Scott P. Noyes, CFA

independent fee-only wealth management firm based in New Vernon, New Jersey. See

®, CFP® is the President of Noyes Capital Management, LLC, an

www.Noyescapital.com

________________________________________________________________________

.

Noyes Capital Management, LLC (“Noyes Capital”) is a registered investment advisor with its principal

place of business in the State of New Jersey. Noyes Capital and its representatives are in compliance with

the current registration requirements imposed upon registered investment advisors by those states in which

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registered, or qualifies for an exemption or exclusion from registration requirements.

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advisory/management services and is not a recommendation or solicitation to purchase securities. Any

subsequent, direct communication by Noyes Capital with a prospective client shall be conducted by a

representative that is either registered or qualifies for an exemption or exclusion from registration in the

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For additional information about Noyes Capital, including fees and services, send for our disclosure

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