Wednesday, September 10, 2008

Stock Market -- Position Overview

Our previous newsletter, dated August 9th, stated that businesses are going to be forced to step up their layoffs to protect profit margins, with this placing additional pressure on the stock market going forward. We forecasted that the DOW would remain within a period of consolidation, before resuming the primary downward trend, and anticipated a trading range for the month between 10,850 and 11,775. The actual result saw the DOW continue to consolidate as anticipated, but with a narrower trading range than expected, between 11,221 and 11,867.

We stated that the US dollar's recent strength could be contributed to the unwinding of various currency spreads, resulting in a sharp short-term rally. We further stated that it could have run its course, and expected the it to resume the primary downward trend, with a forecasted euro fx equivalent trading range for the month between $1.50 and $1.56. The actual result saw the US dollar continue its rally and produced a wider-than-expected trading range for the month, between euro fx equivalent of $1.4580 and $1.5551.

The US treasures were expected to be price-supported, since spreads on mortgage bonds were near where they were before the Bear Stearns collapse, corporate-bond yields have followed to a significant degree, and bank borrowing from the Federal Reserve discount window remained quite high. We anticipated the US Treasury 10-year Note would have a peak-yield for the month of 4.05%. Our concerns and expectations were accurate, with the US 10-year Note being price-supported as anticipated, producing a yield trading range for the month between 3.75% and 4.04%.