Wednesday, December 26, 2007

Position Overview

Our recent newsletter, dated November 6th, stated that both nonprofessional and professional investors in recent polls were looking for higher prices and remained fully invested. We further stated that historically this was a dangerous time to be fully invested and projected the DOW to continue a broad rotation lower, with an anticipated trading range for the month between 12,700 and 13,975. The DOW's actual range for the month, with enhanced volatility, was between 12,724 and 13,924 -- a very accurate forecast.

The US treasuries were expected to be price-supported, as the US economy continues to slow, with a anticipated peak-yield for the US 10-year note at 4.45%. Economic data was released throughout the month confirming our belief of a slowly deteriorating US economy, causing the US treasuries to rally in price and inversely yields to decline, resulting in a US 10-year note yield-range for the month between 3.86% and 4.47% -- a very accurate forecast.

The US dollar was anticipated to have a euro fx equivalent trading range for the month of $1.42 to $1.46, but we also stated that the expectation of lower interest rates could cause the US dollar to decline even further. Interest rates did trend lower during the month, causing the US dollar to remain under pressure, resulting in an actual euro fx equivalent trading range for the month between $1.4415 and $1.4905 -- slightly elevated above the forecasted range.