Monday, April 13, 2009

Stock Market -- Position Overview

Our recent newsletter, dated March 18th, stated that normally savings are a buffer to support consumption during an economic slowdown, but now consumer spending has been hit by the slowing economy plus the negative-wealth effects associated with falling home values and stock prices as well as the need to replenish savings. Saving rates should return to at least the long-term average of 7%, but the return to forced savings will not pull the economy out of recession. We anticipated that the DOW was entering into a period of consolidation before resuming the primary bearish downtrend, and projected a trading range for the month between 6,400 and 8,800. The actual result saw the DOW enter a period of consolidation, with a trading range between 6,469 and 7,931 -- a fairly accurate forecast.

We stated that the US treasuries could be price-supported, at least for the near-term, due to the decisive action by the Federal Open Market Committee (FOMC) to purchase various US treasuries and agency securities to push mortgage rate down. We anticipated the US 10-year Note to have a base-yield for the month of 3.47%. The actual result saw the US treasuries rally in price, inversely driving yield downward, with a US 10-year Note yield range for the month between 2.89% and 3.46 -- a very accurate forecast.

The US dollar was anticipated to decline in value, as lower US treasury yields would make the currency less attractive, at least for the near-term, and a projected euro fx equivalent trading range for the month between $1.25 and $1.35. The actual result saw the US dollar decline in value, with a euro fx equivalent trading range between $1.2544 and $1.3744 -- a fairly accurate forecast.