In our opinion, world economic growth rates in 2007 will be much like 2006. The U.S. and Canada grew a little slower, and Europe a little faster, China and India grew very fast. China grew over 10% in 2006, and four countries total; China, India, Argentina and Venezuela grew at over 8%. Never have we seen economies of large countries grow like that.

If a country’s economy is growing at 8%, the better companies in that country can grow their earnings at a much faster 20 to 30% rate.

I look for more of the same in 2007. In addition, Eastern Europe may surprise many, as they start to grow faster than many had thought possible.

ON THE WHOLE, DECENT AND RESPECTABLE GROWTH WORLDWIDE IN 2007

For 2007, our estimates for real GDP (gross domestic product after removing inflation) for each country/region are as follows:

WHAT DO THESE GROWTH RATES MEAN?

Basically, we are looking for ok economic growth for the world, and much better than ok growth for China, India, Eastern Europe much of Asia. The growth in Western Europe and North America should also be ok.

The strategy should be to wait for corrections, and buy when others are pessimistic. The media will continue to beat the drum that the U.S. economy and market are doing stunningly well. This is true in the short run, however for the last few years this is not true. The reality is that the S&P 500 has gone nowhere for six and 1/2 years, the Dow Jones Index is up only a few percent over the same amount of time, and the NASDAQ Composite is still down 40% from its highs in early 2000.

The last few months have been good, and the last 3 years acceptable, but the beating that the market took from 2000 to 2002 is still affecting many U.S. stocks.

Foreign markets have significantly outperformed the U.S. since 2000, and in our opinion will continue to for the next few years. With foreign markets, there will, be plenty of volatility, and we plan to buy on the dips.

The U.S. market should be ok, but not great. The market and economy may weaken and bottom in the middle part of the year, and be followed by a modest recovery. Also, housing will probably recover in the later part of 2007.

2007……SUMMARY

1. We like China. People may say ‘but the Chinese market rose a lot in 2006….’ This is correct, but for the previous six years it went sideways. We don’t believe that one good year in a row is likely to be the end of the story.
   
   We like travel services, employment services, alternative energy and other business and consumer services in China. There will undoubtedly be volatility and price dips, and we plan to buy the dips.

2. We like India. Some attractive industries in India are alternative energy, industrial equipment (such as diesel engines) and financial services. In India, we also plan to use the dips to buy more.

3. We like other developing markets in Asia, such as Taiwan and Singapore, etc. Here we plan to use the same approach by buying the dips.

4. In Eastern Europe we like construction and infrastructure companies as well as some technology companies. Many Eastern European countries offer very good math, and science education and thus produce excellent engineers, scientists and computer personnel.

5. In the developed countries of North America and Europe we like companies that can grow by offering technologically advanced financial and business services and industrial products. We will look for companies with excellent historical growth who perhaps have hit a pothole and disappointed because of a short term problem in their industry or in the company itself. If, after research is completed, we are convinced that they will return to their trend line growth, we may purchase them during the period of their recovery; before the mass of investors realizes that they have corrected their problems.

CURRENCIES AND PRECIOUS METALS

We expect further declines in the U.S. dollar versus foreign currencies. We plan to use currencies and precious metals to keep buying power intact.

ENERGY

We overstayed our welcome in energy in 2006. We expected a seasonal rally in energy prices in November, December and January. Due to very warm conditions in Europe, North America, and Asia, the rally in oil was not as big as we expected. For 2007, the most well known British climatologist (who correctly predicted the extremely warm winters in 2005-2006 and 2006-2007) is predicting an extremely warm calendar year 2007. This is not good for energy, especially fossil fuel, investments.

First, fossil fuels will be blamed for global warming. Second, consumption will be reduced by the drop in energy demand used for heating. Although energy supplies are still in doubt due to global political issues, and a crisis could send the prices of energy higher, investors can not afford to ignore a potential drop in demand. Our final analysis is neutral to slightly positive for energy. We hold some energy shares that have unique attributes, but believe that better opportunities exist for other industries in the growing global economy.

We again hope you have a wonderful, prosperous New Year and look forward to hearing your comments and suggestions.