Friday, April 11, 2008

Stock Market -- Position Overview

Our recent newsletter, dated March 10th, stated that the proceeds from the sale of leadership stocks are not yet being reinvested into the broader market, but simply used to pay down debt. We also expected international stocks to be the next shoe to drop, creating more proceeds with which to pay off debt and move back into safer domestic heavens. The DOW was projected to continue its bear market decline, with a trading range for the month between 10,880 and 12,350. We anticipated a larger range, as the period of consolidation after the large decline that occurred in January 2008, was now completed and would be resuming the downtrend. Actually, the period of consolidation continued longer than expected, producing a narrower as well as elevated trading range for the month, between DOW 11,731 and 12,622.

We expected the Federal Reserve to cut the prevailing fed-funds rate to 1.75% by the end of this year, from the current 3.00%, but even that aggressively of a response would not be any quick cure, since economic growth cannot resume until the banking system and the credit markets begin to function more normally. The Federal Reserve did cut the fed-funds rate part-way, to 2.25%, and ushered in a one-day positive response from the markets. The US treasuries were projected to be price-supported, at least for the near-term, with the anticipation of further interest rate cuts by the Federal Reserve, resulting in a US 10-year Note peak-yield for the month of 3.65%. This proved to be very accurate, as the price of the US 10-year Note was supported, inversely causing yields to decline, with an actual yield range for the month between 3.31% and 3.70%.

We stated that the US dollar would remain under pressure and could motivate foreigners to eventually start reducing their US dollar holdings, as the decline in interest rates makes it less attractive for them to hold. We anticipated the US dollar to have a euro fx equivalent trading range for the month between $1.51 and $1.57. The actual result saw the US dollar continue its decline, as the US economy slowed even further and the Federal Reserve cut the fed-funds rate once again, with a euro fx equivalent trading range for the month between $1.5155 and $1.5835.