The Boring Portfolio

ANN ARBOR, MI, June 11, 1996 -- In some respects, one could spend an entire lifetime trying to acquire a deep understanding of the stock market and still not succeed. Identifying the two principal drivers of the overall market is not in the least complicated, however. They are company earnings and the interest rate environment. Since we're currently in the slow period between peak reporting periods for quarterly earnings, interest rates become the focus of attention. And they were certainly the focus today.

Tuesday's market session began brightly enough. The morning's report of producer prices for the month of May turned out to be surprisingly benign: no inflation here, no inflation there, no inflation the other place. Which meant that interest rates might perhaps be a bit less likely to creep up, which makes stocks marginally more attractive than interest-bearing vehicles as investments.

That's how the textbooks read, and that's how the market behaved. By mid-session today, the DJ Industrial Average had risen 41 points, and we were off to the races.

A bit later, however, one of the Federal Reserve Board governors got a bit testy about President Clinton's public insinuations that the Fed should more or less leave well enough alone (wouldn't want to upset the applecart a few months before the fall elections, would we?). We're already at full employment, said Fed Governor Lindsey (of the Republican persuasion). So back off, Bill.

Well, *that* was sufficient to send the zigging market back into a zag -- even launching some pre-emptive computerized "sell" programs. When the smoke had cleared, the major market averages closed lower again today, with the exception of the NASDAQ, which ended Tuesday negligibly higher thanks to a strong computer software group.

Alas, the Borefolio ain't got no software stocks (yet). But we do have some interest-rate sensitive ones, along with one from the suddenly ailing HMO group. You can figure out the story from there. Even though there was, once again, not a single major (or even minor) news item about any of the Boring portfolio stocks, five of the seven holdings lost ground (bless you, Borders), and the Borefolio fell 1.2% on the session.

Frustrating? You bet, at least for a little while. There's no point in getting all lathered up about it, though. The Borefolio stocks are good ones, and their basic stories are unchanged as far as I can tell. Indeed, Standard & Poor's reaffirmed today their relatively favorable ratings for Green Tree's asset-backed debt offerings.

So we roll with the punches and we look for something worthwhile to round out our holdings. A few shares of a nice, Boring software company, perhaps?

Transmitted: 6/11/96