I look forward to the end of the year ending. I get tired of all the sappy commentary and the best and worst of 2007 crap. Most of all, I look forward to ending all the portfolio management nonsense that goes on during December in the absence of meaningful volume. HEDGEfolios analysis since Thanksgiving becomes an exercise in trying to figure out what not to analyze so I don’t overreact to temporary changes. It is extremely important that YOUR end-of-year transactions are based upon YOUR needs and not in response to the all the fluctuations caused by other people’s tax planning and dressing up their year-end financial statements. Consequently, my performance suffers during this period each year as I try to avoid ending positions based on moves that look questionable and similarly, I avoid beginning new positions for the same reason.

2007 ending means that I will do a year end performance review in the next few days. Don’t worry, it won’t be filled with a painful rehash of what happened - hopefully you’ve had enough of that crap elsewhere. Don’t get me wrong. I think it’s very healthy to reflect on what happened and what we learned from it. But we should be doing that all year long and not just wait until some calendar tells us it’s time to look back. And as for 2008 beginning, I will not be writing a New Year’s Resolution list. I try to set loose goals throughout the year - doing so helps maintain a realistic and focused perspective on performance and failure. I have a feeling that is a significant contributor to the consistent performance that HEDGEfolios has delivered while the market gyrates.

For me, investing is a continuum. I don’t look at the past few weeks as a special reason to change what I am doing and I don’t look at the first few weeks of the year as a motivation either. Endings and beginnings happen every day and every week or wherever and whenever we choose to find them.

…and set new goals in new areas. HEDGEfolios has helped me accomplish the main objectives I established over 5 years ago. I had a plan to use the website as a way to create a public record of my ability to cover a huge number of stocks and deliver consistent returns that outperformed the indices. Initially, I determined that 3 years of steady performance would be enough to attract attention from investors for a fund I planned to start or for someone to make me an offer I could not refuse. Before I could get the proof of performance underway, I spent 2 years testing out my analytical methods and designing the website. Since the beginning of 2005, HEDGEfolios has been available on the internet and next week marks the end of that 3-year period.

When this all started, I could barely handle the 500 stocks in the S&P and a few others of interest. Now, HEDGEfolios covers approximately 3500 stocks and about 300 ETFs and I doubt there has been a more diversified portfolio for you to follow each week. As for consistent returns that outperform the benchmarks, I’ll proudly stand by my results and the low volatility throughout these difficult times. With one week to go in 2007, I expect HEDGEfolios performance will come in somewhere between the 25% it did last year and the 20% in 2005.

It’s been a lot of fun and I’ve also enjoyed writing the blog over the past few years. When I started blogging, it had one purpose - show future investors how I think and encourage readers to think creatively and critically on their own. Hopefully, you’ve benefited from it - I know I have. It certainly has been fun to exchange thoughts with market participants from all over the world whether that means the smallest novice investor to the largest hedge funds. Thank you for all your insights and challenges to my opinions.

I’ve achieved all the big goals I set out to do with HEDGEfolios. And with these things being accomplished, it’s time to move towards the next step of getting back into the business of portfolio management. Over the past few years, I got my share of offers, but I always turned them down regardless of how lucrative they may have been. I intended to finish what I started and now I have done that.

So lately, I’ve been listening to some great firms and I’ve been listening to some great personal advisors and I’ve been listening to myself. I am intrigued by firms that can offer me some resources and yet, control is not a compromise I’ve been comfortable with.

As I sort everything out, HEDGEfolios will continue to offer my commentary in the blog and the fundamental and technical database. I plan to take my time making the right choices to either set up my own fund or work with someone else. Additionally, I have made some commitments to children and charities for the next few months so I expect HEDGEfolios to be around for a while until those obligations are fulfilled.

A few months ago, the annual subscription offer disappeared. In the past few days, the quarterly and monthly payment options also were removed. All existing trials and paid subscriptions were extended until January 15th, 2008. All subscriptions extending past January 15th were extended until March 31, 2008.  Why January 15th?  I needed a few weeks to review some existing proposals before making additional plans.  Since I cannot commit to how long it will be available, I cannot ethically sell the service. So, until further notice, using the database will be free. You still need to register, but it will not cost you anything and as has always been the case, you do not need to provide a credit card to receive the free trial. I reserve the right to re-institute subscriptions after January 15th, but it is unlikely.

As time goes by and where it’s appropriate for me to share more information, I’ll do that. Otherwise, it’s time to get back to the daily and weekly challenges of evaluating the markets. Good luck with your investing.

I have enjoyed the market action the last few days.  As you know, I don’t like steep slope moves and all the back and forth in the past few sessions without seeing extreme lows or extreme highs at the close are slightly encouraging to me.  However, I expect Friday to be pretty volatile in comparison due to the last quadruple witching day of this very wild year.  In fact, I’ll be surprised if next week’s holiday schedule doesn’t make tomorrow into the last big trading day of the year.  I’ll be taking the day off so have fun without me.

Please look at the H.4.1 report which showed average Discount Window borrowings of $4.586 billion last week and the 12/19/07 balance was $4.735 billion.   Last week, I thought that the TAF would likely close the Discount Window.  I was wrong.   The results from the first TAF and the 3:1 bid-to-cover ratio showed there was still excess demand above the $20 billion auction and that’s the likely reason the Discount Window borrowings held on this week, despite the supposed stigma and higher rate.  It will be interesting to watch how many of these TAFs will be required to change things.

I was reading through a new blog tonight called OverHedged and was intrigued by their article, Credit Default Swaps: Tick, Tick, Tick, Tick… They mentioned that the global CDS market is approximately $40 TRILLION (I have seen $50 Trillion in other articles so just average them to get to $45 Trillion.) After reading that, I just stopped and sat staring at my monitor. I just cannot begin to imagine the size. I did some research and found that global CDS was about $100 to $200 billion in 1996…by 2002, it had risen to $2.4 Trillion…by the end of 2004, it was $4.8 Trillion…in 2006, it was about $27 Trillion…during the first six months of 2007 it increased 75%. Reminds me of the growth in ABCP….HMMMMM. Please wait while I stare at the monitor and try to clear my mind…………………………………………………………………………

Does any of this make sense to you? Most people didn’t know what a CDS was 6 months ago. Many may have heard of them now, but I suspect that they don’t understand what a CDS is supposed to do. Do you? I wish I didn’t. But I still cannot comprehend $45 Trillion and I doubt anyone can. Total world equity capitalization is probably running about $30 Trillion. So I have to ask, do you really believe that the CDS market is $45 Trillion? And another question…do you believe that the world is 10 times better protected against risk now versus 2004? I don’t. Believing that the CDS market protects the risk of loss is just nuts. It’s never been tested and if we ever see massive defaults, I suspect that the CDSes will not stand up. The whole thing seems like nothing but another piece of the same financial shenanigans that we are seeing in the CDO fiasco. It’s a great way to make money for the ultra sophisticated Wall Street crowd until the nonsense stops and then it gets painful for all the rest of us simpletons.

10 days ago, the market felt relieved when Warburg Pincus agreed to “invest” $1 billion into MBIA. It was said that this was yet another sign that the worst was behind us.  Now we are just left wondering if Warburg knew about the CDO guarantees or whether someone from MBIA had to call up and say, “Oops, we forgot to tell you….”  When a story like this comes out I spend a little time pulling up the original press release and the media coverage.  They usually make for insightful and sometimes funny reading.

The next time you are told that a big name investor buying a stake in a company means that it’s safe for you to buy that stock or the industry or the market, please remember these recent examples:

• Warburg Pincus agreed to invest $1 billion into MBIA. 10 days later MBI is worth 30% less.
• Bank of America invested $2 billion in Countrywide preferred on August 23rd. 4 months later CFC common is worth 63% less.
• Joseph Lewis had his 7% position in Bear Stearns disclosed on September 10th. A little more than 3 months later and BSC is worth 16% less.

There are many more examples that have appeared during the second half of this year including a few Buffett rumors. The media loves to sensationalize these events and suggest that if the smart / rich guys are buying, then apparently so should you. One more time - YOU and I are not these guys.   They have capital and patience most of us do not possess.  Investing is a personal experience and we should never buy or sell anything simply because someone else is doing it. Maybe it makes for a good trade in the short term, but as for investing, not so much. I don’t place the blame on the big name investors or suspect they are trying to sucker someone in by publicizing their positions. They have become successful for all the trades you never hear about. But when it comes to high profile investors making high profile investments, please remember that it is no endorsement and doesn’t guarantee a positive return.

A year ago, I wrote a piece about Health Nuts and their futile attempts to regulate health. So now that 12 months have gone by, do you get a sense that the transfat ban has improved our national diet and health? Tough to measure for sure but I doubt it. What is it about this time of year that causes the media to give so much airtime to the nut job health activists? I am just guessing here, but I suspect it’s all the fat people walking around and the opportunity to sensationalize it during the gluttonous Thanksgiving to New Year’s period.

Today, I saw another piece on how McDonalds needs to do a better job to change its menu to suit healthy people (activists) that probably haven’t eaten in a fast food joint in years and let’s not kid ourselves, they probably never intend to. Now, if loyal customers asked Ronald McDonald to change their menu or display calorie counts, I’d really hope the redhead would listen to their suggestions. And on the off chance that customers vote with their wallet and don’t show up, that would be a good clue to try something different. As for regulation, all it does is make the company less profitable and encourages them to pass the increased costs of compliance onto the price of a burger and fries.

Repeatedly and increasingly, our country is moving towards socialism and this assault on fast food is just one small example. What happened to personal accountability? Instead of believing that a restaurant can make food and customers can buy what they want, the health nuts feel the customer is being taken advantage of and they need a lobbying group or regulator to protect them. That’s not only sad, but it’s ineffective. My perception is that McDonalds has been cooking with basically the same ingredients and the same methods (deep fat frying) since the 1940’s. Despite that consistency, Americans are a lot fatter now than they were then and they are getting fatter. So I struggle with the basic idea that fast food is responsible for the number of unhealthy Americans. Or that nutrition labeling will save us. We are getting fatter because we make many choices that have nothing to do with fast food.

For the record, I have eaten at McDonalds, Wendy’s, Carl’s/Hardees and Burger King et al probably less than a total of 5 times this year. Usually, I go there out of convenience or because others in my car want to, not because I make a choice to buy a Big Mac compared to the Big Mike I can make on my own grill. However, on the few times I have eaten fast food this year, I haven’t been disappointed with the choices I was offered. I didn’t wish for something healthier. I wasn’t confused about the calories. Despite my lack of fast food, I am about 240 pounds. I have been as low as 230 and as high as 250 for the past 10 years. When I gain weight, it’s not the fault of fast food. When I lose it, it’s not because I ate less fast food.

No amount of regulation on fast food will change the unhealthy trends in our country. I don’t see any identifiable positive results from those efforts during the past 10 years or so since they have become more prevalent. I am confident that removing all fast food restaurants from the planet would not solve the problem. When we focus our efforts on the wrong places, we run the risk of letting the real causes continue to go unchecked.

• On January 3, 2001 the Fed Funds rate declined to 6% and continued lower until hitting 1% on June 25, 2003.  During that period of massive Fed rate cuts, the S&P 500 declined 28%.  So much for fighting the Fed.
• From June 2003 until June 2004 when the Fed did nothing to rates, the market advanced 17%.  No reason to fight the Fed but the market did well while they didn’t mess around.
• From June 30, 3004 when Fed Funds began their rise from 1% to 5.25% on June 29, 2006, the market advanced 12%.  Fighting the Fed seemed to work out just fine.
• From June 29, 2006 until September 18, 2007 the Fed Funds remained constant.  Once again, no reason to fight the Fed and the market went up 19%.
• From September 18th when Fed Funds were cut by 50 bps until today, the S&P 500 has fallen 4%.

Maybe all you Fed fanatics love to repeat the phrase “Don’t fight the Fed” but I have no idea why - based upon recent history. Sure, you can talk about lagged effects and all that stuff, but when I look at the actual results of their actions, I just don’t see it.  Obviously, there are many reasons why the market went up or down, but the Fed Fighting nonsense is not something I can buy into.

During the holiday season, I see many discussions about helping those in need. But in practice, this is a lot tougher than it sounds. Seeking out charities and donating money or time is a wonderful thing and I encourage everyone to do it whether it’s Thanksgiving or the December holidays or any other part of the year that goes without as much attention. However, the tougher part of giving help comes from the fact that many people in need are afraid to admit it. It’s a personal pride thing. They live next to you and you look at them and assume they are ok. They are not seeking help from the charities, churches or other social networks that are set up to provide them with assistance. They are not on government sponsored social programs. It’s tough to figure out they are struggling, yet their financial situation may be overwhelming or their health may be failing or any number of troubling things may be too much for them to handle on their own. Sadly, many people in need never let anyone know despite the desire of so many of us to give back to those less fortunate and sometimes, to give back to someone who was just like us in the past. So it’s not enough to help the people that have already asked for it. We must do more and if you suspect someone is too embarrassed or too proud to ask for help, please do it for them in a private and respectful manner. Sometimes that’s all it takes. Over 40 years ago, my family needed help and we survived largely because of my mother and her willingness to accept unsolicited offers of kindness. So this holiday season and throughout the year, if you suspect someone is in trouble and you want to do something about it, realize that some of our neediest neighbors or strangers are too proud to ask for help.