2/28/08

Economics

Recent news that bears comment:

(1) we continue to receive additional data points clarifying the resolution of the sub prime problem: [a] MBIA received confirmation of its AAA bond rating and [b] the Office of Federal Housing Enterprise Oversight {federal regulators} announced that it would allow Fannie Mae and Freddie Mac to increase their ownership of mortgages,

more clarification = less uncertainty = less risk of a negative surprise = less potential downward pressure on stock prices

(2) in Congressional testimony, Bernanke reiterated that the Fed’s key focus is on the downside risk to the economy; in other words, it will continue to lower interest rates,

the Fed policy, rightly in my opinion, will do what is necessary to insure that the sub prime dilemma does not sink the economy before it will take whatever steps may be required to offset any inflationary implications of its policy ease,

(3) the January consumer price index [reported last week] and the January producer price index [reported this week] indicate [along with gold and commodity prices] that inflationary pressures are building, pointing out that the Fed will indeed have work to do to quell inflationary expectations once the sub prime crisis has passed,

the Fed has a tightrope to walk--meaning lots of opportunity to make mistakes (in this case, staying too easy too long) as well as providing a basis for disagreement (uncertainty) among investors which suggests that stocks will remain in a trading range and that investors should keep cash reserves at a reasonable level.

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fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.). New ways to waste money and disrupt markets:

http://www.reuters.com/article/bondsNews/idUSN2759236020080227

Politics

Obama on defense:

http://www.powerlineblog.com/archives2/2008/02/019891.php

Domestic

International War Against Radical Islam

The Market

Technical

Fundamental

Subscriber Alert

At the Market open this morning, the Aggressive Growth Portfolio will Sell its remaining shares in Quest Diagnostics (DGX-$48). As I mentioned when the initial DGX shares were Sold, this is one of our holdings that (1) is trading in that fundamental no man’s land between the lower boundary of its Buy Value Range and its Stop Loss Price, (2) has failed to trade above any of the technical markers we have been using to judge relative price strength and (3) shows no sign of lifting in the current Market rise.

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