Friday, February 8, 2008

Stock Market -- Position Overview

Our recent newsletter, dated January 9th, stated that domestic fears of a recession would fuel a contraction in most developed countries and a significant slower level of growth among fast-developing nations. This would result in the continued downward trend in equities, with inflation pressures remaining. We anticipated a DOW trading range for the month between 12,100 and 13,280, as these concerns as well as others would propel the major stock indices lower. The actual DOW trading range for the month was between 11,645 and 13,278 -- a larger range than anticipated, but an overall accurate forecast.

We projected that US growth would decline to nearly 0% in the fourth quarter of 2007, and that efforts by the Federal Reserve in cutting interest rates would have a minimal lasting effect on the economy and the stock market, but would price-support the US treasuries, with a anticipated peak-yield for the US 10-year Note during the month of 3.90%. The US economy did slow dramatically, causing a flight to safety within US treasuries, resulting in a yield range for the US 10-year Note between 3.44% and 3.91% -- a very accurate forecast.

The US dollar was projected to resume its decline in value, as US treasury were price-supported and inversely yields driven downward, anticipating a euro fx equivalent trading range for the month between $1.46 and $1.50. The US dollar was both pressured and supported during the month, resulting in an actual euro fx equivalent trading range between $1.4488 and $1.4902 -- an expanded range with enhanced volatility, but still a fairly accurate forecast.