Portfolio Action Update


Ron Miller's technical analysis viewpoint of the financial market environment and the current portfolio management posture for his precious metals portfolio strategies.

We are pleased to present Ron Miller's Portfolio Action Update, a periodic update of his technical analysis viewpoint of the financial market environment and the current portfolio management posture for his precious metals portfolio strategies. Ron Miller and Martin Truax, Managing Directors at Morgan Keegan & Co., lead the Investment Planning & Management Group (IPMG) in Atlanta . Martin and Ron have worked together as a team since 1973. They moved their group from Salomon Smith Barney, where they had been for 29 years, to Morgan Keegan at the beginning of 2001. They focus on portfolio management strategies that have investment risk profiles ranging from conservative to aggressive and with investment goals of income and/or growth.

The table below includes both Short Term (S - T) and Intermediate Term (I - T) Rating results of our technical analysis of the price direction for the Styles and Sectors we follow. The intention is to give you insight into the time frames that are involved in our portfolio management process. Short Term ratings capture more of the wiggles in the market while the Intermediate Term ratings capture more of the trending aspects of the market. If we are in a period where the market is in a trading range with little trend direction, the Short Term ratings are more useful. On the other hand, if the market is in a longer term trending mode, we put more emphasis on the Intermediate Term Rating results. Note that signals can change in between reporting periods which may be confusing at times. For example, a Green light may have changed to Red and back to Green since the last report. The Rating Table would still be Green but the signal date would have changed from that shown on the prevous report.

Natural Resource Plus - NRP: The Precious Metals Mining and the Natural Resource allocation were reduced modestly last week. We note that MZM and M2 monetary growth rates have continued to back off. We believe this is helping to move interest rates a little higher along with the U.S. Dollar. As a result, we expect some short term impact on Precious Metals and Natural Resource sectors. The current allocations are 8% Gold Bullion, 17% Precious Metals Mining, 16% Energy Exploration and Production and 20% Natural Resources. Net market exposure is currently 61% with Money Market Reserves at about 39%.

Gold Portfolio - GLD: We reduced the Gold Mining allocation modestly again last week as Gold Mining sector remains on double Red lights. Letís take a look at Gold bullion Vs. AMEX Philadelphia Gold Mining index (XAU). Year-to-Date, Gold bullion is up 1.51% ($9.6) at $645.6, but the XAU is down 4.82%. Gold bullion has outperformed so far this year. Generally speaking, the Gold Mining index is more volatile than gold bullion. That is, its Beta is greater than 1.0 when compared to gold bullion price changes. Now, letís look at the relative performance since the April highs for the Gold sector. Gold bullion peaked at $691.6 on April 20 and the XAU peaked at 68.70 on the same day. As of Fridayís close, Gold bullion is down 6.65% from the April high but the XAU is only down 6.52%. I consider this positive relative strength for the XAU given its normal greater volatility.

Gold bullion closed Friday at its 200 day moving average, which is often a support level. So it could have a bounce early next week. However, the XAU closed below its 200 day ma which has flatten out. My opinion, has been that we will remain with a bullish bias for the Gold sector as long as the 200 day ma has a positive slope. However, we are now close to this moving average rolling over, so we remain with a guarded outlook and are prepared to increase our defensive posture on further weakness. The current allocation is a 15% gold bullion position and 59% long precious metals mining securities, which includes a 19% specific silver mining allocation. Money Market reserves are about 26%.

Tactical Asset Allocation Style & Sector Signals:

Ratings 60% and Above are a Green Light

Ratings 40% and Below are a Red Light

Ratings 41% to 59% are Neutral

Light Green indicates going from Green to Neutral since last Signal Date

Pink indicates going from Red to Neutral since last Signal Date

This is a reduced version of Ron Miller's Tactical Asset Allocation Style & Sector Signals table. Ron's portfolio management process includes the technical analysis of over 400 mutual funds that have been selected to represent forty four different styles and sectors that are tracked daily for both Short Term and Intermediate Term direction signals. These include the 9 Morningstar portfolio management style boxes plus 16 equity sectors, 10 international styles/sectors and 9 bond sectors. Ratings are based on the percentage of securities followed in each category that are on buy signals. Short Term (S - T) signals are based on daily price data and may be different and change more frequently than the Intermediate Term (I - T) signals that are based on price action for a trailing 5 day period. These ratings are subject to change at any time and obviously their accuracy is not guaranteed. Individual securities may perform differently from these signals. These direction signals are a useful tool in the portfolio management process but are not the sole determinate of actual portfolio style or sector weightings. They should not be interpreted as a buy or sell recommendation for any specific financial securities and do not reflect positions of Morgan Keegan. Market data used in this analysis is believed to be from reliable sources but its accuracy can not be guaranteed. Past performance is not indicative of future results.

Portfolio Action Update Explanation: I try to confine my comments to a discussion of what recent action has occurred in these portfolios and my current technical analysis posture. In general, my portfolio management approach is to determine current market conditions through technical analysis and to position the various portfolios strategies to participate in the current environment. Although I usually have an opinion of the future direction of the market, I donít rely heavily on my opinion in the portfolio management process. Neither opinions, technical analysis or fundamental security analysis produce perfect results. There is always a degree of risk present.

These comments will usually be written on the Weekend. However, a few days may transpire from when they are written and when they are posted on the web site. Obviously, the technical analysis signals and portfolio positions could have changed in that timeframe. Therefore, this technical information and related comments should only be read from a historical perspective, and may not reflect what the current analysis and portfolio positions actually are when you read this update. You can call us for the most current update if you wish.

Although the Technical Analysis Ratings illustrated in the table below are a very useful tool in our portfolio management process, these ratings are not the sole determinate of the asset allocation positions held in our various portfolio management strategies. This information is not intended to be a solicitation of a buy or sell of any financial security. The opinions expressed herein are my own and do not reflect the position of Morgan Keegan & Co., Inc. Past performance is not a guarantee of future results.

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