Happy early Thanksgiving. Since our last writing the world and financial markets have been more of the same. A lot of bad news with an occasional tid bit of hope on the horizon. You may recall from our last writing we were assuming the markets would test the October 10th lows. This happened on Thursday November 13th. Ironically this was the same date the 1929 crash bottomed out. This test of the lows was the third attempt for the market to break to lower levels only to turn around and zoom higher with a vengeance. These reversals off the lows are encouraging, however there are still many concerns in the economy that need to be addressed before we can see the markets heal and begin to grow.
Within the past two weeks we have heard reduction of revenue and layoffs from Intel, Best Buy, Circuit City, Amlyn Pharma and Fidelity Investments just to name a few. We have also seen coordinated efforts by all Governments across the globe to lower interest rates in an attempt to bring the cost of borrowing money to levels that will help prevent further announcements similar to those mentioned above. We continue to see unemployment rise, and with recent announcements of layoffs we expect to see unemployment rise to over 8% with a threat of reaching 10%, something that hasn’t been seen in quite some time.
Within all this, the markets seem to be stuck in a range with buyers entering the market when the Dow reaches 8200 and sellers taking control as the Dow reaches 9300 – 9500. At some point in the future this range will be readjusted higher or lower depending upon how effective the recent government interventions as well as the lowering of rates will be. It is expected we could see the Fed lower rates again from 1% to .75% which will help the equities market yet hurt anyone who is dependant on CD interest as this will cause CD’s to pay a rate of return well below inflation and taxes.
Regardless of the fear and loathing that is so prevalent there are some opportunities for us. With the market stuck in a range there is an opportunity for us to squeeze out some earnings on accounts that are able to buy as the Dow dips to 8200 and sell as it rises to 9300. As always there is risk that the markets could break the current range to create a new lower range and because of this we are only utilizing 10% to 20% of our money market positions to do this kind of strategic positioning.
There are also some opportunities in the Corporate Bond market with many bonds paying over 6% on their yield with potential for capital gains as the bonds are currently trading below par value (100). We will also be using 10%-20% of our money market position to begin small incremental purchases in this arena to help produce some income for our accounts. Beyond that we expect to see market volatility and bad news to continue through the end of the year. As always we will continue to watch for profitable opportunities.
We will update you again with more detail in our next update at the end of the month. Until then I hope you have an enjoyable Thanksgiving.
*The opinions expressed are those of Colby McFadden as of 11/17/08 and are subject to change due to market and other conditions. Past performance is no guarantee of future performance.
** References made about performance or account allocations are generalizations and may differ from one account to the next. For information specific to your account please review your statements or contact Quiver Asset Management.