WEEKLY UPDATE

January 27, 2010

FED keeps interest rates unchanged. The Federal Open Market Committee Meeting ended today with an announcement that they are keeping the Federal Funds Rate unchanged at 0% to 0.25%. The committee also reaffirmed that they expect to end their quantitative easing program by March 31st. Citing a weak economic recovery the FED repeated that it expects to hold interest rates low "for an extended period of time." Stocks initially sold off on the news but worked their way to unchanged later in today's session.

Stocks remain below trend-line support. The market broke decisively below trend-line support last week and has failed to bounce off last week's low (see chart below from our friends at Elliott Wave International). This is a clear sign that, for now, the direction of the market is down. The question is: How far down? Many believe that 10% to 20% is likely. The market is currently down 5% from its recent high. Others are looking for a much deeper correction back to the March lows. We will have to watch the market closely to see how this correction plays out. We remain cautious, but for the time being, we are happy with the balance we have achieved among investment classes.



Bonds moved lower today. Bonds have been moving higher in price (lower in yield) since January 1st. Today however they moved slightly lower in price after the FED made their announcement about interest rates. The trend clearly remains bullish for bonds but, like stocks, we are watching this closely for signs of a reversal in prices. All markets eventually correct but we believe that Bill Gross (from PIMCO) is right when he states that he thinks that interest rates will remain unchanged throughout 2010.

Take care,
Greg

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January 20, 2010

Hello All, I apologize for being tardy with this last update. We have been very busy dealing with the fast market conditions of the stock and bond markets, which have been fueled by an abundance of economic and company news.

As earnings reporting season begins, the stock market is turing lower. A sentiment shift seems to be occuring as institutional investors sell various big-company names even after they report better than expected news. Alcoa, Intel and JP Morgan all traded lower immediately after reporting profits last week. Today the market is selling off in the same fashion after IBM reported seemingly positive earnings yesterday.

It appears that all the good news about companies surviving this economic downturn is already priced into stocks and the long-awaited correction is looming. The negatives are starting to add up; we received sell recommendaitons from one of our timing services last Friday, we have poor investor reaction in the market, and one of our most telling indicators, the Investor Bull/Bear Ratio figures are at the same high level they were back during the peak of the market back in October of 2007; this is all adding up to be quite negative for the stock market.



Bonds Rally

The bond market has been in rally mode since January 1st. I noted before that December was a weak month for bond prices which we thought was largely due to a combination of stronger than expected preliminary holiday sales estimates and light holiday trading in the bond pits. After the New Year passed, all that changed and the bond market has been in rally mode ever since. Economic concerns return as U.S. housing starts in December posted a 4% decline, and the latest consumer spending figures show that consumers actually spent less money in December than in November. These figures come as quite a surprise and have contributed to the weakness in equities and the strength in government bond prices.

Earnings will continue to be the focus for traders this week. So far only 49 of the S&P 500 companies have reported their earnings. More than 60 companies will report earnings this week, and next week will be the busiest reporting week for this quarter. Many eyes are looking at the same thing we are: how institutional investors will react to these reports.

We seem to be in a good place right now with our allocations. I look forward to seeing how the markets react to all the news.

Take care,
Greg

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January 1, 2010

Goodbye 2009, Hello 2010! The financial markets usually start to wind down soon after the Thanksgiving turkey has gone the way of turkey soup. This year was sizing up to end on a typically quiet note, but true to the unpredictability of 2009, the stock market waited until the final minutes of the final day to surprise everyone by falling flat on its face. Of course the market doesn't actually "do" anything; investors move the market indexes by buying or selling stock, but nevertheless the DJIA fell 120 points in the closing minutes of yesterday's trading to end the year on a sour note. Goodbye, 2009!

We stand to ring in an exciting new year. Hello, 2010!

While there may be many concerns to focus on next year, such as sovereign debt defaults, the unwinding of FED stimulus, the threat of rising interest rates, etc., I am looking forward to a new year full of opportunities to reach our long-term goals.

My focus remains on each of your individual tolerances of risk and your investment goals. Some of you are quite aggressive, while others are much more conservative. Our challenge this past year has been balancing your goals for growth and income with your individual tolerances for risk in what was a very unpredictable environment. While the year ahead remains full of challenges, the unpredictable nature of 2009 does not stand to be repeated, making 2010 a promising year for all of us. I am looking forward to a good year ahead; I hope you are as well.

Happy New Year!
Greg