To summarize last week: the government debt auctions proceeded without a major hitch, productivity in the US increased during the second quarter, and the Fed sees that “economic activity is leveling out.”  Yet the broad markets were all lower for the trading week.  What is going on here?  What is happening is that the markets jumped the gun to the upside with irrational exuberance taking over instead of solid investment decision making.  The rally, which started for the S&P 500 back in March, moved very rapidly.  In looking at the move on an annualized basis, it represents an enormous 151 percent gain, which is really something to behold since the S&P 500’s best year was 1954 when it achieved a return of 45 percent for the year.  So a decline, or at least a modest pull back to more rational valuation levels, seemed inevitable.  In looking at the level of insider trading that went on over the past few months, Jefferies & Co recently found that many corporate insiders have, in fact, been selling into the recent uptrend (something that runs counter to the rally continuing).  The insider trading could be happening for a variety of reasons, such as: tax mitigation, insiders needing money after having compensation packages cut, or perhaps they believe the market is incorrectly valuing their companies’ stocks.  Whatever the reason, we have not witnessed the current level of insider selling for several years, and we should monitor it very closely since insiders are rarely wrong in predicting their own company’s stock movements.

On Friday the 14^th there was an economic news release indicating that the US consumer is growing less and less confident in the current state of our economy.  This really was not new information: signals have been coming out for the past few days and weeks, but the markets reacted to the news as though it was new information.  Apparently, the market and many practitioners thought that the US consumer would spend blindly during an economic downturn and that the government could entice the consumers to carry the weight of the economy on their backs and run.  During normal times, the US economy does run on the backs of the consumer (to the tune of about 70 percent of total spending), but the catch is that, in the past, much of this spending has been done on credit.  With the major credit card companies pulling in people’s credit limits and credit card defaults recently reaching very high levels, it is little wonder that consumers have less of an ability to increase their spending.  Another aspect of the US consumer not spending like they have previously is that unemployment (or the threat of unemployment) continues to rise in most states throughout the US.  A consumer who fears for the security of their job is unlikely to kick up their spending habits no matter how rosy the economy looks.  A final aspect of the lowered spending is the current level of housing prices in the US. While the housing market looks like it is leveling out and prices are ticking upward in a few select cities, overall values are still much lower than they were when consumers could pull equity out of their houses and spend freely.  As long as the US consumer spends their money gingerly, the US economy (as well as the economies of many of our major trading partners worldwide) will have a very difficult time completely pulling out of the current economic correction.

For the week the major index averages all moved lower, with the largest losses stacking up in the technology-heavy NASDAQ.  The world markets, on the whole, followed suit to move lower for the week, while the US dollar held up very well against other major world currencies.  Commodities moved lower for the week, led by a decline of more than four percent in oil as well as a more modest decline of .8 percent in gold.  The overall market volatility moved lower for the week, as measured by the VIX index, but interestingly, the lower reading was seen on Friday despite the market moving lower for the day.  If the VIX moves up substantially over the next few weeks, we could expect a fairly large move in the markets (likely in the downward direction).

For the trading week ending 8/14/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-0.59 %	12.97 %
Aggressive Model	-0.78 %	6.54 %
Growth Model	-0.49 %	5.93 %
Moderate Model	-0.18 %	3.28 %
Stable Model	-0.45 %	5.35 %

Last week we made only one change in our model positioning: we sold our remaining half-position in the consumer staples fund (CNPIX) because it looks as if a continued break down in the sector is on the horizon.  With the strong downward pressure at the end of last week, it looks like we may get stopped out of other holdings this week.  We continue our attempt to participate in some of the upside return of the markets while protecting against the day.  With the markets appearing to be overheated we are very cautious about our holdings and are making decisions on a day to day basis.  We still like the natural resources sector, but it has been too overvalued to justify purchasing.  If we get a strong enough pull-back, then we will probably move back into the sector because of its longer-term outlooks as the world’s economies start to recover.

Economic Wrap Up: Last week saw much of the economic news as being negative for the markets, with the only positive release being the preliminary productivity report for the second quarter.  The productivity reported showed an increase of 6.4 percent, which is substantially better than the previous quarter’s reading of 0.3 percent.  This one piece of positive news was accompanied by an onslaught of negative reports released throughout the week.  The negative report that impacted the overall financial markets the most was the Michigan sentiment figure, which is a gauge of overall consumer confidence in the US.  This figure was released to show that consumer confidence has fallen below the very low levels seen in March of 2009.  This is a very negative report because the US economy runs on consumer spending and if that money flow stops, then the US economic recovery could also stop.  Retail sales for the month of July were also released last week and to almost everyone’s surprise they showed a decline for the month, despite the cash for clunkers program, which many thought would help boost retail sales above the nearly 1 percent estimate that The Street expected.  This decline really emphasizes the weak state in which the US economy finds itself as well as the importance of the consumer getting behind the recovery and stepping up their spending.  The final two releases of last week that impacted the market were the Fed decision to keep rates where they are and initial jobless claims, which unexpectedly increased over the previous week.

This week is a relatively slow week for economic news releases.  The major releases all occur on Tuesday, kicking off with building permits and housing starts for the month of July.  Both will clearly indicate the direction of the real estate market, and the markets expect both to show a slightly lower reading than the previous month.  The other major announcement on Tuesday will be the Producer Price Index for the month of July, which is expected to show a small decline in producer prices.  This small decline would be good because it would indicate that there is no overall inflation creeping into the economic system, and signals that no change is needed to the current Fed policy.  The trading week finishes off on Friday with existing home sales for the month of July.  Overall it is a slow week for releases, but the releases that are due could have a fairly significant impact on the overall financial markets.

On a side note, we have received a few calls from clients about checks that they are receiving from something called the Bear Sterns Distribution.  These checks are a result of litigation which occurred for one of the mutual funds bought and sold by Financially Speaking back in 1999.  If you received one of these checks, we recommend just going ahead and depositing them.  You can find more information, including tax information, about the check at the following webpage: http://www.bearstearnsfairfundsettlement.com/.  Please feel free to call us if you cannot find the answers you are looking for on the above mentioned webpage.

Financial Planning Tip: Electronic Dividend and Interest Payments

Your Schwab account now has an electronic funds transfer option available for income payments from dividends, interest, and money market funds.  Once you elect this option, funds can be automated to transfer electronically to your bank account (checking or savings).  This will provide you with access to income payments sooner and without the hassle of a paper check.

Electronic payment of income is available for both retirement and non-retirement accounts. You can specify different bank accounts to receive dividends, interest and money market income. You can also choose to receive income payments either monthly or as they are credited to your accounts.

Please contact our office if you would like to have your income payments electronically transferred to your bank.

August is now fully under way with its first trading week in the books. For the week, many of the world indexes moved higher, expanding into new levels for 2009. Volume picked up on the S&P 500 and was the strongest we have seen in the last 12 weeks – indication that either the major traders came back from summer vacation early, or that perhaps some of the money from the sidelines has started to trickle back into the market. Overall volatility of the markets moved lower for the week, as measured by the VIX Index, and remains at a very low level (relative to where it was). That being said, volatility is still much higher than last year’s averages. One of the more interesting aspects about last week was that many of the leading sectors of the market that had been showing strength have now broken down. The most visible of such sectors was the technology sector, which led the pack throughout the recent move but, last week, dropped back. Another area that had been performing well but lagged last week was the entire healthcare related industry. This could have come, in part, from the realization that the healthcare bill would not pass before the recess, or investors could have just been taking profits out since the industry moved up drastically from when the rally started.

Commodities moved higher last week with the Dow Jones AIG Commodity Index moving up by nearly three percent. Oil moved approximately one and a half percent, upward on continued unrest in the South American Region as well as continued uncertainty about the stability of the Middle Eastern Region. Gold moved up modestly over the course of the week and remains in a safe trading range it has been within since the beginning of the year. Investors should watch commodities for a signal of when the global economy will really start a strong recovery. As many countries begin a true recovery, the prices of commodities typically increase, as pent up demand starts to pull on the supply. This cycle is a long term one and may have turned upward earlier this year, but it is still early to tell for certain.

Where do we go from here? Many people on Wall Street seem to think that the recovery is fully under way, but more and more people are saying that a correction is needed. Merrill Lynch came out today with a very interesting angle on the market as it relates to Dow Theory, saying that they see a “modest 15 to 20 percent pullback” coming in the very near future. We believe that a pullback will occur, but the severity is unpredictable. If history provides any insight, a 20 percent plus pullback is a very real possibility.  One of the events of this coming week that could have a fairly lengthy impact on the market is the $75 billion government debt auction which will take place over the course of three days for three different lengths of notes. Prior to this week, all of the government debt auctions proceeded with few problems, and interest rates did not increase very much during the auction to sell the offer out. This week, however, a record bout of debt is being offered.  There is speculation that the rate on the 10 year note will be forced over 4 percent (from its current level of 3.84). This could impact the government’s ability to issue debt in the future at current rate levels and could also put a damper on this rally. Our economy lives on the ability of the US government to issue debt to willing buyers, many of which are foreign countries and major financial institutions.  Should those buyers start to demand higher rates, it could lead to inflation (among other global issues).

For the trading week ending 8/7/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	2.37 %	13.64 %
Aggressive Model	0.31 %	7.38 %
Growth Model	0.39 %	6.45 %
Moderate Model	0.43 %	3.46 %
Stable Model	0.24 %	5.83 %

Over the course of last week, we made a few changes in our models.  Many of the sector funds that showed so much strength in the later stages of the current rally began to break down, so we sold a few positions.  Positions we sold included: Biotechnology, Semiconductors, Pharmaceuticals, and part of our position in Consumer Staples.  All of these holdings were positions that we considered tradable, and we purchased them with very strict stop-out points should they start to break down. We continue to monitor a variety of investment opportunities and will move into various positions as opportunities come available.

Economic Wrap Up: Last week saw an interesting mix of economic news releases, some of which were positive, while others highlighted a few of the key weaknesses in the US economy. The biggest positive surprise to hit Wall Street was the released unemployment rate for the month of July which showed a decline to 9.4 percent while everyone was expecting a tenth of a percent increase. There are a couple of possible explanations for why the number was not as expected.  One possibility is that many people stopped looking for work and are, therefore, not counted in the employment pool.  A second possibility is that many people’s unemployment benefits stopped because they received them for so long that they hit the time limit.  This would also artificially lower the reported unemployment rate. Either way, we do not believe that the unemployment rate declined meaningfully during July.

Other positive economic news releases from last week included an increase in construction spending, a larger-than-expected increase in personal spending, increased factory orders, great pending home sales figures and a smaller-than-expected decline in nonfarm payrolls.  Much of this information, when looked at it together, seems to signal that the recession may come to an end soon, and that the worst of the downturn is behind us. There were a few dark (and important) clouds hanging over an otherwise bright economic news release week, including a figure much worse than the last for employment change in the month of July (according to ADP), a greater-than-expected decline in personal income, and, depending on how it is looked at, a way worse than expected reading on consumer credit. One of the major negatives was the consumer credit reading showing a contraction of more than $10 billion during June, indicating that either the banks are not lending like they used to, or that the us consumer is relying less heavily on credit than they once were to finance purchases.  Personal income moving lower by 1.3 percent during June was also a negative event because the speed at which the US pulls out of this recession greatly depends on the US consumer’s ability to purchase goods and services.

This week offers a wide variety of economic news releases, some important and many second tier.  Some of the releases that investors will watch most are the CPI figures, which are released on Friday for the month of July. These indicate the current level of inflation in the US.  Retail sales figures, released on Thursday, probably will come in much better than was first expected by Wall Street – in large part due to the massive success of the government’s Cash for Clunkers Program.  The last major piece of news for the week will be the FOMC rate decision, which we expect will not change from the current zero to 0.25 percent range. There is little reason at this point in the game to change interest rates, but they could become a key instrument in fighting off any future inflation.  The list of second tier economic news releases is quite extensive this week and includes items such as: the preliminary productivity report for Q2 2009, the Treasury Budget for July, and business inventories for the month of June.

July came and went, and in its wake the stock market is trying to continue the upward trend that started back in March of 2009.  The month had a somewhat shaky start with the major indexes moving lower over the first quarter of the month, but then the rally ensued and volume picked up steadily through the end of the month.  The unprecedented upward move at the end of the month resulted in the strongest July for the Dow Jones in the last 20 years, and the strongest July for the S&P 500 since 1997, according to the Associated Press.  Much of the market move can be attributed to better-than-expected earnings from many everyday household company names and the raised expectations about the rest of 2009.  Also, many of the reporting companies foresee a sunnier outlook for 2010 with the economic recession now fully behind us. While we could certainly experience bumps in the road and some sort of pull back in the future, there are many signs that life is coming back to the US economy.  This life is evident in various reports, such as: the housing market stabilizing and, in some cases, actually starting to move up, and some corporate earnings that had been in a free-fall either leveling out or even turning positive.  It is noteworthy that the majority of the first round of economic stimulus has not yet hit the economic system.

On the political front, President Obama’s administration took a number of steps over the course of July that helped the economy and the stock market.  One of the major events was the Cash for Clunkers Program, which would help the US and the economy in multiple ways.  First, it should get cars moving from dealers’ lots again, and second it should help cut down on the carbon emissions being released from old polluting vehicles that are on the road.  The program certainly met its first objective – in fact, according to some industry analysts, the number of cars sold during July was on pace for an annualized rate of 10 million units for the first time in 2009.  With the government giving away as much as $4,500 for vehicles, which in some cases are not worth one quarter of that, it is no wonder that so many people jumped on the opportunity to get a new car.  The onslaught of transactions effectively froze up the government’s computer system, leaving the government in a very interesting quagmire regarding how close they are to exceeding the $1 billion set aside for the program.  The House of Representatives voted last Friday to add an additional $2 billion of emergency funding to the program to keep it going, but we have not seen anything from the Senate to that effect, leaving many dealers concerned about selling any more cars under the program for fear that the government might renege on the deal.  The second objective of reducing emissions in the US will probably be seen over the coming years.  One possible downside to this program is that new car sales could really be hurt for the remainder of the year, so many of those who had clunkers and were thinking about a new car jumped at the opportunity.  Without the $4,500 carrot dangling in buyers’ faces, they may be less inclined to purchase a new car, hoping that a program like this could roll around again in the future.

For the trading week ending 7/31/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date	July 2009
S&P 500 WD (benchmark)	0.81 %	11.01 %	7.57 %
Aggressive Model	0.84 %	7.05 %	3.86 %
Growth Model	0.82 %	6.04 %	3.16 %
Moderate Model	0.86 %	3.02 %	2.19 %
Stable Model	0.71 %	5.58 %	2.87 %

Over the course of last week we made only one major change in the investment models and that was to add a position in our most aggressive models in the Asian region of the world.  We did so by using Guinness Atkins Asian Pacific Fund – a very well managed fund with a large amount of expertise and a long investing record in the region.  Other than that one new position, all of the other models stayed put for the week.  We are actively weighing all of our current holdings against each other and other investments in order to find out if we are positioned in the best possible locations and will make changes as necessary.

Economic Wrap Up: Last week was a mixed week for economic news releases with approximately half of them being positive for the market and half being negative.  Starting out with the positive news releases was the new home sales figures on Monday the 27^th which showed that during the month of June the total number of new home sales in the US climbed to 384,000.  This was much better than the expected 352,000 and May’s reading of 346,000.  This unexpected jump is partially due to government first-time home buyer credits and partially due to those who were sitting on the fence until deciding that the economy is turning around and that now is the time to get into residential real estate.  As confidence builds in the housing market, which was also seen on Tuesday the 28^th with the Case Schiller Home Price Index being better than expected, prices could start to increase and we may see a large number of housing currently on the market get purchased very quickly as consumers jump in.  The last large positive for the economy was the advanced GDP figure for the second quarter of 2009, which was released on Friday the 31^st to show a contraction of 1 percent – half of a percent better than the market had been expecting.  The first of the negative economic news releases was the Consumer Confidence Index (released on the 28^th), which showed that the US consumer lost a little more confidence in the economic situation, when compared to the previous month.  Maybe it was the lack of visual improvements in the economy from the stimulus package, or it could have been the projected higher unemployment rates for the second half of 2009, but whatever it was, the consumer grew a little wearier during July.  The second major negative economic news release of the week was Durable Goods Orders for the month of June, which fell by 2.5 percent while the market expected a much more moderate decline of .6 percent.  Durable goods orders play an integral part in the overall economy and will have to increase in order to help the economy out of the recession.  Finally, the last piece of negative economic news released last week was an unexpected increase in the initial jobless claims for the previous week.  The initial jobless claims came in at 584,000 while the markets expected only 575,000 with the previous reading having been 559,000.  While some of this increase may be seasonal, it was still a blow to the economic recovery, as many people once again are worried about keeping their job or finding a new job.  People who are fearful about their employment tend to really pull back on their spending, which is exactly what could draw this economic cycle out longer than would otherwise be the case.

This week is an average summer week for economic news releases with the majority of the potentially heavy-hitting releases occurring during the first half of the week.  The week starts off with construction spending and auto sales on Monday.  Both of these figures will probably be a bit higher than market expectations because the housing market seems to be turning up and the successful cash for clunkers program.  On Tuesday, both the personal income and personal spending figures for the month of June are released; let’s hope that the market expectations for a decline in personal income are incorrect and that spending has in fact increased (that could be a definitive signal that the economic downturn is behind us).  The week finishes with a pretty big day on Friday with both the unemployment rate for the month of July and the consumer credit report for the month of June being released.  The unemployment rate is expected to have ticked upward from 9.5 percent in June to 9.7 percent in July; if this figure goes over 10 percent the market could be in for a large move on Friday.  We do not think that this will be the case – the unemployment rate will probably come in exactly in line with expectations.  Lastly, the consumer credit report will be a telling sign of how much credit the banks are really giving out and will show if they are sitting on cash or really putting it to work in helping the economy.

We finally broke through the upper end of the trading range that all three of the broad market averages had been stuck in since the end of May.  With breaking through to the upside, there is now a strong level of support under the indexes, which takes out part of the downside risk that has been present through the entire rally.  With the Dow breaking 9,000 for the first time since the beginning of 2009 and the S&P 500 marching steadily toward 1,000 it appears that the rally could continue, possibly even through the end of the year.  One thing to keep in mind is that, although the markets have performed well since the rally started back in March of this year, they still have a long way to go to recapture a new high over the high mark of 2008.  As an example, the S&P 500 is still down more than 30 percent below the high point of 2008 (even after taking into account the latest rally), meaning that the market would still need to move up nearly 43 percent from here in order to make a new high.  This point seems forgotten by many investors who are watching the talking heads on TV, discussing the rally and how great it is for everyone involved.  If investors learn nothing from the losses 2008 bestowed upon them (and many commentators are conveniently forgetting), the stock market will probably head blindly into the next bubble and the cycle will start over again.

The financial sector appears to be a hot sector right now, as many key players released better-than-expected second quarter results.  We believe, however, that the sector is still not over the worst of the economic cycle.  The first reason for such thought is that the commercial real estate market, for the most part, has held up well, but the big waves of necessary refinancing are still to come and many properties could find it difficult to refinance existing borrowed money anywhere near the terms that they are current enjoying.  The second reason that the financial sector could see some bumps is the amount of government oversight that will come down the pipes from Capitol Hill.  One thing seems very clear: congress now thinks that it is their job to police the financial system and make sure that there are no financial institutions working their way into the “too big to fail” category.  Lastly, banks still are not lending as they should—we do not need a return to the loose lending practices that helped us into this mess, but we do need reasonable lending to take place.

Last week, gold moved up sharply following the previous week’s upward move, adding 1.6 percent during the course of the week.  Gold’s move was somewhat muted when compared to the overall move of the commodity index which, in some cases, moved more than five percent over the course of the week.  Oil was the big mover of the week in the commodities space, moving up more than seven percent.  Worldwide demand is now expected to increase during the second half of 2009 and all of 2010 on predictions that the economic contraction has ended and expansion will once again begin in full force.  We think that oil will probably stay in a trading range between $55 and $75 per barrel in the foreseeable future, provided that no major geopolitical event disrupts oil production in the Middle East.  In general, as economies start to move into recovery mode, commodities are one asset class that performs very well since many industries must produce goods to replace inventories that have been drawn down during the downturn.

For the trading week ending 7/24/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date	Since 12/31/07
S&P 500 WD (benchmark)	4.19 %	10.12 %	-30.62%
Aggressive Model	2.84 %	6.16 %	-6.58 %
Growth Model	2.04 %	5.18 %	-5.31 %
Moderate Model	1.17 %	2.15 %	-7.02 %
Stable Model	1.90 %	4.83 %	-5.91 %

We made numerous changes over the course of last week as we received confirmation signals that the rally could continue in the broad markets for the near future.  During the first part of the week, we moved into two sectors of the market that have shown strength and which we had been watching for a number of weeks: those being semiconductors (SMPIX) and consumer staples (CNPIX).  Both sectors have announced unexpectedly good second quarter earnings results and also have cut back on the negative outlook for the rest of the year, which plagued the first quarter earnings results.  The third fund we bought into during the beginning of the week was a managed mutual fund that excels at finding and investing in undervalued spaces in the markets.  The fund is Sierra Core Retirement fund (SIRIX) and has a very active manager who will move to cash quickly in a deteriorating market in order to preserve principal.  We also sold all of the remaining hedging position in DXSSX after the market moved to more supported levels.  Toward the middle of the week, we moved into a full position in Biotechnology (RYOIX) and a full position in Emerging Markets (DXELX) — we are finally putting some of the sidelined cash to good use.  All of the new positions, except for SIRIX, are tradable funds with no penalties for quick exits, so if the market turns back downward, we can jump out to cash.  If the markets further improve and the overall risk appears to diminish, we will move more out of the indexed/sector funds and into more actively managed funds, but we are still far from such a move.

Economic Wrap Up: Last week was a very slow week for economic news releases.  The main release of the week was existing home sales for the month of June, which was released on Thursday the 23^rd to show that home sales had increased.  The 4.89 million homes sold during June represented a 2.5 percent increase over the number of homes sold during May, and signals that the housing market is probably moving in the correct direction in the US.  The New home sales figure scheduled for early this week will most likely confirm a turn in the housing market.

This week, the new home sales figure for the month of June kicks off the economic news on Monday.  The market is looking for somewhere around 350,000 after the previous month’s reading of 346,000.  Should the housing market deliver much better-than-expected numbers we could start to see an increase in the residential construction sector as more builders ramp up for what could be a buying binge.  On Tuesday, one of the most influential economic news releases comes out – that being the consumer confidence figures for the month of July.  We have said for some time now that the current economic situation and how the country pulls out of it will greatly depend on the consumer.  If the US consumer starts to feel more confident and spend accordingly, it could drastically improve the economic condition of the US.  If consumers lose confidence or cut back more on spending, then this recession could be unnecessarily lengthened.  Also released on Tuesday is the Case Shiller Home Price Index for the month of May, which should show a leveling off in the decline of US housing prices.  Wrapping up the week on Friday we get multiple releases for the second quarter of 2009 including: advanced GDP figures, the core personal income and consumption report, and the employment cost index.  We will also see the Chicago PMI figures for the month of July.  With so many releases scheduled for Friday, it seems like it could be a news-generated trading day that may have a very wide trading range.

Last week snapped the month-long downward trend for the three major market averages as they all moved higher during the course of the week.  Earning announcements made by several major market movers, including Goldman Sachs and JP Morgan, primarily drove the increase.  While it seems a little strange, many of the large banks that took government bailout money to stay viable not 9 months ago turned a hefty profit during the second quarter of 2009.  This profit came despite many consumer loans on the banks’ books becoming more risky as late payments skyrocketed and defaults continued to increase.  One sector of the market that took off last week was the semiconductor space after Intel beat market expectations during second quarter and issued raised guidance for their third quarter earnings.  With the majority of second quarter earnings thus far released beating market expectations, some market observers think that the earnings season will end up being very good for the markets – but the best results may already be released.  Typically when companies announce earnings early or unexpectedly it is because they are better than expected.  This causes earnings season to appear to kick off very strongly when, in fact, it could turn out weak.  We are still taking a cautious approach to this earnings season, as many companies and industry leaders have yet to release second quarter earnings.

One dark shadow looming over the stock market is the CIT Group, which provides much needed credit to a number of small businesses throughout the US.  Many companies rely heavily on CIT in order to keep their day-to-day inventories and payroll payments current.  CIT received several billion dollars from the government last year, but yet again finds itself in dire straits with the government denying it more money.  It has, so far, managed to stay out of Chapter 11 bankruptcy, but it only by the good graces of their bond holders.  A bankruptcy by CIT could spell big problems for many of its clients, which include Dillard’s and Dunkin Doughnuts.  In total, they offer their services to more than 950,000 small and medium sized business, according to their website.  Last year, major household names caused the markets to shake: could a little-known company cause the trouble this year?

For the week, almost all asset classes returned a positive result, led by the financial and semiconductor industries.  Commodities moved higher for the week by nearly two percent, helped along by a weaker dollar.  An increase in projected worldwide demand also benefitted commodities, as many countries are predicted to start pulling out of their current downward economic cycles during the last half of 2009 and the early part of 2010. The VIX index moved down sharply for the week (down 12 percent), and now sits at a level not seen since July of 2008.

For the trading week ending 7/17/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	7.02 %	5.69 %
Aggressive Model	1.12 %	3.23 %
Growth Model	0.81 %	3.08 %
Moderate Model	0.24 %	0.97 %
Stable Model	0.66 %	2.88 %

We made no changes to the model allocations over the course of last week.  We continue to search actively for quality investments that provide downside protection, and make allocations as they present themselves.  We continue on in wealth preservation mode and will remain so until regularity returns to the financial markets.

Economic Wrap Up: The economic news released last week was a mixed bag of indicators.  Some showed that the economy is in a full blow recovery, while others indicated that the economy is still on shaky ground.  To start the week off, on Tuesday the Producer Price Index (PPI) as well as retail sales figures were released.  The PPI figure showed that there was an overall increase in producer prices of approximately 1.8 percent during the month of June.  While this figure came in higher than the previous month’s, it is still not high enough to send up any red flags about coming inflation.  Retail sales figures for the month of June were released to show that sales lined up with market expectations, increasing by a fraction of a percent.  On Wednesday, the Consumer Price Index (CPI) was released and, similar to the PPI, showed benign growth in prices that consumers pay in the US, somewhat easing inflationary fears.  On Wednesday, the Fed released the minutes from their June 24^th meeting.  They were pretty much as-expected by the majority of Fed observers on Wall Street, stating that the economy is getting better but remains very vulnerable.  Initial jobless claims for the week before last were released on Thursday and came in with 522,000 claims while the market expected 553,000 claims.  Also released on Thursday was the Net Long-term Treasury International Capital flow for the month of May, which, in simple terms, is a figure that represents total flows into or out of US assets.  The figure released was a negative $19.8 billion.  While the indicator is a lagging indicator by more than a month, it shows that there was very little international appetite for US assets during the month of May and, in fact, assets flowed from the US toward international assets.  Rounding out last week were the building figures in the US, represented by building permits as well as housing starts.  Both figures came in much better than expected, signaling a continued turn-around in the US housing market.

This week is a very slow week for economic news releases: only the existing home sales release on Thursday could majorly impact the overall markets.

With the first full trading week of third quarter 2009 now behind us, we can see that it went much the same way as the previous weeks, with the three broad indexes moving lower.  The decline represents the fourth straight week down for two of the three broad indexes, and we are entering into what looks like a very rocky earnings season. Earnings on the S&P 500 for the second quarter of 2009 are expected to be 36 percent lower than they were for the second quarter of 2008 according to Thomson Reuters. Some industries will be hit much harder on their earnings than others as the releases get rolling.  One industry that could be in for a rough few weeks is the electronics industry with the announcement this morning that Philips saw their second quarter profits decline to 44 million Euros from 732 million Euros a year ago, a decline of nearly 94 percent.  Financials could actually see a fairly decent earning season, because they are starting out from such a low starting point.  With all of the government intervention and the influx of money to the financial sector, it seems as though they should have been able to make some much-needed changes over the course of the last quarter and, correspondingly, be in better shape now than they were when they reported first quarter results.

The overall volatility of the S&P 500, as measured by the VIX Index, moved up slightly over the course of last week, and has now swapped its once very narrow trading range for a much wider one.  Volume remains benign on all of the major indexes, as is customary during the summer doldrums, but this year does appear to have unusually weak volume.  Commodities slid over the course of last week, led by the price of oil declining more than ten percent; did anyone see lower prices at their gas pump?  Gold continued to decline in value as it has almost every week since it hit nearly $1,000 per ounce back in late May.

On the international front, almost all major world markets moved lower over the course of last week, following the lead of the US.  Anticipated weakness of US companies produces a negative global effect, as many foreign companies and countries depend heavily on the US to purchase their exports.  Helping international investments this week, the US dollar fell in value against many major world currencies and has now hit a narrow trading range.  There was little financial news out of the G8 Summit, which took place in Italy last week; discussions focused on what they felt were more pertinent matters, such as global warming and emissions standards.

With the markets moving lower or possibly into a narrow trading range for the foreseeable future, it becomes very difficult to find suitable investments with an acceptable amount of downside risk.  We constantly examine data on various sectors and subsectors to see if there are any that warrant an investment, but right now not much of anything shows strength.  With the large daily trading range of the markets, correctly timing investments is very difficult and the systemic risk of investments is high.  This is why our models are so highly allocated toward cash and fixed income.  Should the markets begin a clear trend on which we feel money can be made with a reasonable risk, we will move more into the market.

For the trading week ending 7/10/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-1.88 %	-1.24 %
Aggressive Model	-0.55 %	2.09 %
Growth Model	-0.34 %	2.25 %
Moderate Model	-0.16 %	0.73 %
Stable Model	-0.29 %	2.21 %

We made no changes to the model allocations over the course of the last week. We continue to search actively for quality investments that provide downside protection, and make allocations as they present themselves.  We continue on in wealth preservation mode and will remain so until regularity returns to the financial markets.

Economic Wrap Up: Last week turned out to be a very uneventful week as far as the economic news releases went. The two “big” events of the week, consumer credit and initial jobless claims, did little to move the market (despite initial jobless claims being better than expected).  Consumer credit really took a hit during the month of May (negative $3.2 billion) when compared to the reading from April (negative $16.5 billion), which goes to show that people continue to use much less credit when making large purchases, or they are just not making the large purchases at all. Other releases during the week included wholesale inventories falling by roughly the expected amount, and both import and export prices increasing at a slow pace.

This week is a much more active week for economic news releases than the previous week. On Tuesday the Producer Price Index is released and is expected to show a slight increase. Retail sales are also released on Tuesday, as are business inventories.  Sales are expected to have increased during the month of June while inventories are expected to have fallen during the month of May (it is an indicator which lags by a month).  We are expecting retail sales to have been weaker than market expectations as we see that people are starting to think that the rally is over and that the economy will probably not be turning around completely during 2009. On Wednesday the 15^th the Consumer Price Index is released as well as the minutes from the last Federal Reserve meeting. The Consumer Price Index is going to be a key release because it will be a very clear indication of the amount of inflation which the US economy is experiencing; it is expected to be nearly flat. The FOMC meeting minutes will be closely scrutinized for any material changes in the verbiage as it relates to the recovery and the possibility of a second round of stimulus. The week finishes off on Friday with the release of both building permits and housing starts for the month of June. The two housing releases will continue to either show that the housing construction market is flattening out or that it might have actually started to rise.

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Last week was a wild week on Wall Street, with the three major averages chopping in a close trading range until Thursday, the final trading day of the week, when the bottom seemed to fall out of the markets.  It seemed as though every major equity asset class fell and then, to make matters worse, commodities followed suit.  Oil was one of the hardest hit sectors, falling by more than 4 percent for the week while simultaneously bringing down several oil producing regions such as Brazil and Latin America.  The US dollar provided positive news from last week: as commodities fell, the US dollar gained strength against many other major world currencies.  Short and intermediate term Treasury bonds, one to seven years in length, increased in value over the course of last week, in part due to the strengthening dollar.

The end of second quarter 2009 occurred during the middle of last week, with the three major indexes turning in results that provide a much needed break from recent quarterly results.  The NASDAQ led the group at quarter-end with an impressive 16.36 percent return for the first half of the year, followed by the S&P 500 with a positive 3.2 percent, and the Dow Jones Index came in last, declining by 3.75 percent over the first half of the year.  Those numbers might sound impressive to an investor who was no paying attention during 2008, but when considering where the year started out, the returns seem much less impressive.  Since the peak in 2008 the NASDAQ is still down 30.81 percent even after including the recent rally, the S&P 500 is down 34.98 percent and the Dow Jones Index is down 36.32 percent.  The bottom line is that while this rally has been very nice and some investors made a lot of money, they are starting out with a lot less money, after the declines seen over the last 18 months. To give everyone an idea of what many already know, in order for the S&P 500 to reach a new high it would need to increase from its current level by nearly 54 percent.  Even the most optimistic of the talking heads on Wall Street seem unwilling to throw that kind of expectation around when positing where the market will head for the remainder of the year.

Where are we right now?  Let us take a historical approach and look back at recent volatility from a perspective many people can relate to: the everyday movements of the broad indexes.  To start off with, we looked at the number of days in which we saw the indexes move by more than 1 percent either positive or negative.  The following table represents the S&P 500:

2009 1st Half	Days with 1 percent Move	% of total Days
	75	60%
2008	Days with 1 percent Move	% of total Days
	133	53%
2008 2nd Half	Days with 1 percent Move	% of total Days
	86	67%
2008 1st Half	Days with 1 percent Move	% of total Days
	47	37%
Since 2000	Days with 1 percent Move	% of total Days
	786	33%

As shown above, the first half of 2009 was actually much more volatile than the first half of 2008 and the average since 2000 but a little less volatile than the second half of 2008. The break downs looking at both positive and negative moves for the S&P 500 are as follows:

2009 1st Half	Days down by 1%+	% of total Days	Days up 1%+	% of total Days
	39	31%	36	29%
2008	Days down by 1%+	% of total Days	Days up 1%+	% of total Days
	75	30%	58	23%
2008 2nd Half	Days down by 1%+	% of total Days	Days up 1%+	% of total Days
	48	38%	38	30%
2008 1st Half	Days down by 1%+	% of total Days	Days up 1%+	% of total Days
	27	21%	20	16%
Since 2000	Days down by 1%+	% of total Days	Days up 1%+	% of total Days
	422	18%	364	15%

The figures are relatively the same for both NASDAQ as well as the Dow Jones Industrial Average.  The bottom line is that we are currently experiencing heightened volatility with very large swings in the market, making it nearly impossible to time the overall movement of the markets.  Some days the moves are up while other days they are down, so there is no clear way of knowing the direction of the markets on a day to day basis.  Some subsectors of the market, however, performed very well over the past quarter and over the first half of the year.  Examples include commodities (despite the recent pull back), High Yield fixed income, Emerging markets, and Technology.

As we move into the third quarter of 2009, there is still much uncertainty surrounding the economic state of the US and how long it will take before the economy turns around.  One major signal to investors about the health of the economy is the unemployment rate, which is currently high by US standards and will move higher before it lowers by any material amount.  This is not all bad, because employment is a lagging indicator of the overall economy.  For 2009, US GDP change is widely expected to be negative for the full year, with a very modest recovery during the second half of the year.  2010 is still expected to come in near zero for the overall GDP growth in the US as an economic recovery mounts.  Many investors worry about inflation, but predicting when it will occur and protecting against it is very difficult.  From our point of view inflation will not become an issue in the US for the next few quarters, provided the government does not flood the system with any more dollars and there remains interest in US government securities auctions from an international group of investors.  Investing in such a scenario can be very difficult, with many investments containing an unusual amount of risk.  The key is to remain nimble and active in buying, selling and hedging investments, and to remember that cash is a viable resting place even if it pays a low rate.

For the shortened trading week ending 7/2/09, the returns in our portfolio models were as follows:

	Last Week	Second Qtr 2009	Year to Date
S&P 500 WD (benchmark)	-2.41 %	15.99 %	1.30 %
Aggressive Model	-0.47 %	5.68 %	2.65 %
Growth Model	-0.27 %	4.88 %	2.60 %
Moderate Model	-0.07 %	2.23 %	0.89 %
Stable Model	-0.21 %	5.40 %	2.50 %

We made no changes to the model allocations over the course of the last week. We continue to search actively for quality investments that provide us with downside protection, and make allocations as they present themselves.  We continue on in wealth preservation mode and will remain so until regularity returns to the financial markets.

Economic Wrap Up: Last week was very negative from an economic news release point of view with all but two releases showing negative results and impacting the overall market negatively.  The two bright spots were factory orders and pending home sales, which both topped expectations and continued to fuel speculation about a bull market rally.  The negative news released last week, however, seems to oppose a continued rally and does so with some strength behind the numbers.  Employment was a downer for the markets last week with nonfarm payrolls falling by 467,000 during the month of June, while expectations were set for a decline of 367,000.  The unemployment figure for the US through the month of June shows the US having a current unemployment rate of 9.5 percent.  The two employment figures, combined with other data, hit the market very hard for what is typically a light trading day before a holiday weekend (broad markets fell by more than 3 percent on Thursday). Consumer confidence was released early last week to show much less confidence than expected – the release showed a figure of 49.3 while the market expected 55.3.  Perhaps this indicates skepticism creeping into the mind of the US consumer about the economic state of our country and how it will recover. The final piece of economic news released last week that had any real impact on the market was the Cash Shiller Home Price Index for the month of April, which showed a year-over-year decline of more than 18 percent for US home prices.  While an 18 percent decline in home values is nothing to scoff at, it does show that the downward trend is mellowing out a bit, and surely not falling as it was earlier this year.

This week is a “dead” week for economic news releases.  Only two releases could have even a remote impact on the markets: consumer credit on 7/8 and initial jobless claims on 7/9.  With the market looking for any good news it can find, should either those releases come in even remotely positive, the markets could trend higher for the day.  Consumer credit could be an interesting figure this time around because many of the banks say that they are lending money while many consumers are saying that they cannot get a loan from a bank to save their lives.  We are probably just seeing the effects of banks that tightened up their credit standards to the point where only consumers who would never need to borrow money would qualify for borrowing money, a situation which, historically, has been very bad for the US economy.

Weakness continued to be shown throughout the week last week as two of the three major broad market averages closed lower for the second week in a row, the first time we have seen back to back down weeks since the bear market rally started back in early March. The one major average which bucked the trend was the NASDAQ which managed to pull out a meager increase for the week thanks to a three day week ending rally of more than four percent. The broad indexes continue to trade in a fairly narrow trading range which was entered into at the beginning of May. Most of the stall in the rally can be attributed to uncertainty as to what the US consumer is going to make of the current situation and if they are going to buy into the scenario of the government being the white knight which saves the day. It seems that there is about an even balance between events and announcements that should be inherently good for the markets when compared to those which should have an adverse effect on it, thus leading to the daily sideways wondering we have been experiencing. One interesting thing of note in these markets is the lack of any real volume which is currently participating in market movements. There is typically a lull in trading volume as summer kicks off and many money managers take some time off, but this year the volume seems to be abnormally low of this time of year. When experiencing low volume there is an even more pronounced “herd” mentality every time something is released either positive or negative, thus leading to wide daily trading ranges. The VIX Index over the course of the low volume week last week decreased by almost 6 percent and is now safely into the upper level of the trading range seen prior to the market falling apart at the end of last year, meaning that the large daily movements in the market may be behind us and more normalized trading days could be to come.

On the international investment front one area of the world which has recently seen very nice returns could be in for a pretty choppy ride. With the military coup that took place on Sunday in Honduras the overall stability of the region could be in jeopardy especially with Venezuela, saber rattling about military action in the region. We are watching Latin America very closely to see if there is going to be an investment opportunity in the future of which we can take advantage. During the week last week the IMF was busy making many statements about a variety of countries as to the outlook which they expect for the rest of this year and 2010. Australia was one country which the IMF sees as performing better than expected when they released their last report in April, with revised expectations for GDP to be a negative .5 percent for 2009 when compared to the previously thought negative 1.4 percent. France also fell on the good graces of the IMF with the announcement that they think an economic recovery will begin to take place during early 2010. Both of the above mentioned countries are of particular interested to us as having a strong investment possibility because we could both benefit from an economic recovery in the counties as well as the probable continued decline in the US dollar. Weakness in the US dollar is still a theme which we see playing out for the remainder of the year and into 2010, in large part because of the amount of dollars which the US government has flooded the system with during their economic stimulus activity. The announcement last week by the Fed saying that they would not currently be growing their program under which the government can buy US treasuries, seems to have temporarily lessened the downward pressure which is on the US dollar, but in the long run there is still too many dollars in the system to keep both the currency and inflation rate where they are.

For the trading week ending 6/26/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-0.20 %	3.13 %
Aggressive Model	0.19 %	3.14 %
Growth Model	-0.10 %	2.87 %
Moderate Model	-0.33 %	0.95 %
Stable Model	-0.11 %	2.72 %

We currently remain in a very defensive position holding large positions in cash and or hedging positions to offset some of the market exposure which is currently in our models. We did make a move into one sector which we have been following for quite some time, that being pharmaceuticals (PHPIX). We used an indexed style mutual fund because it gives us the ability to trade back out without penalty should the sector move against us and we want to be out of the position. We continue to look at various sectors of the market for any signs of strength, but can find very few investments that do not look like the rally since the beginning of March has stalled out. Many of the recent industry and sector leaders are now lagging behind the broad indexes which is either a sign of new leadership in the rally or a rally that has run its course.

Economic Wrap Up: Last week the most anticipated and watched economic news release was the fed’s decision to keep interest rates in the current range. With this decision being what most people working on Wall Street thought was going to happen it was a relatively non market moving announcement. One announcement last week which was market moving was the durable goods orders for the month of May which was released on Wednesday the 24^th to show an increase in orders by 1.8 percent. The increase of 1.8 percent was significantly over market expectations, the market was looking for a decline of .9 percent, and is seen by some as a possible signal that manufacturing is going to begin to pick up in the US during the second half of 2009. The final GDP figures for the first quarter of 2009 were also released last week and came in slightly better than expected at negative 5.5 percent compared to the expected negative 5.7 percent. Wrapping up the week on Friday the 26^th Personal Income was shown to have risen by 1.4 percent during the month of May while the consensus on the street was for an increase of .3 percent, Personal Spending however did not come in better than expected. With income coming in better than expected and spending coming in as expected it lends one to wonder about if the confident US consumer that has their income rising really believes that things are going to be turning around for the better. If this was actually the thought then one would think that spending would also be increasing, which is something that we have not seen so far during this market rally.

This shortened trading week has a full weeks of economic news released packed in starting with consumer confidence and the home price indexes being released on Tuesday. As I have stated before the consumer confidence figures have little meaning if there is not a corresponding move in the consumer spending figures. Consumers can be as confident as they have ever been but if they are not spending any money the economic system is not going to work as it has in the past. On July 1^st construction spending (May), pending home sales (May) and automotive sales (June) are all released. The construction spending and pending home sales figures could clean a little insight in the housing sector which will probably show that it is in fact bottoming out, while the automotive sales figures will probably show that more people have purchased cars than expected in part due to all of the gimmicks that dealerships are currently running. Thursday, the last trading day of the week, holds what could be the largest of the economic news releases this week with the unemployment rate for the month of June being released. Expectations are for the rate to be 9.6 percent up from the previous reading of 9.4 percent. If the rate is shown to be over the psychological 10 percent barrier it could have very adverse effects on the overall markets, on the other hand if the rate comes in better than expected it could add fuel to the rally which for the moment appears to have stalled.

Last week, the likelihood of the broad markets rising, and ultimately extending the bear market rally, diminished.   All of the broad indexes closed lower for the week – the first showing of moderate weakness in many weeks. Looking at the markets, it currently looks like there is substantial downward risk coming into play because many of the economic points investors have recently been speaking about – signaling a bull market rally – have shown weakness. The sector of the market hit the hardest during the course of the previous week was the commodity and natural resources sector. The sector moved lower partly due to the surprise strengthening of the US dollar and partly because it is more probable that the economic recovery is going to be slower than initially anticipated. Not even gold was spared from last week’s downturn; this was somewhat surprising because, typically, when the market turns downward gold is one of the first things that moves up due to its perceived safety. Gold may have recently been driven up as a result of over speculation regarding what China is or is not purchasing and the overall worldwide demand for gold. Gold needs to see a pull-back from its speculative peak, which occurred near $1,000 per ounce. One good item to note about the decline last week was that it occurred with extremely low volume, with most of the large institutional money managers apparently waiting on the sidelines. The only day with above average volume was Friday, which correlated to quadruple witching in the options market, a day which typically sees volume spike upwards as options contracts come due and new ones are created.

Overall leadership of the markets appears to either have changed or be in the process of changing, with commodities and natural resources in the recent rally falling from the top spots and sectors such as health care, biotechnologies and pharmaceuticals rising. I am actively watching these emerging sectors for the right moment to make an investment and will move when the situation warrants.  One item I am watching very closely is the VIX indicator of  overall market volatility, which spiked upward during the first two trading days of last week and settled back down toward the end of the week. The move, which occurred at the beginning of the week, was quite significant (up 16 percent) and at the same time broke the downward trend it had been in since March of 2009. The VIX settled back down during the last three trading days of the week. Typically, once a downward trend has been broken, clusters of spikes soon follow. Hopefully, the VIX does not rise to such lofty levels as were seen last year as the market deteriorated, but it is a possibility.

On the political front last week, President Obama’s administration set out the basic guidelines for the financial industry regulation reform they will be seeking from congress. Most of the reform will have very little impact on the everyday consumer and is aimed at the large financial institutions to try to avoid a recurrence of our current economic situation. The tricky part of the new legislation will be establishing the correct amount of oversight without causing an undue burden to the industry as a whole. The vast majority of financial institutions had very little to do with the current economic situation, doing exactly what they should have been doing, while a few outlier firms caused the majority of the mess. Also on the political front, there has been little news regarding the possibility of Bernanke and Paulson having to testify under oath on Capitol Hill about the Merrill Lynch Bank of America sale. While the public should know the truth about what happened during the sale, it really does not have any effect on where things are now and what is being done about them. Even if Bank of America was pressured into closing the deal, was it really any more pressure than the government used when they forced banks to take TARP money?

For the trading week ending 6/19/09, the returns in FSI’s portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	-2.59 %	3.34 %
Aggressive Model	-5.62 %	2.94 %
Growth Model	-3.66 %	2.97 %
Moderate Model	-1.84 %	1.29 %
Stable Model	-2.82 %	2.84 %

Over the course of the week, as mentioned above, I was very actively moving out of investments with a lot of inherent market risk and moving toward the safety of the sidelines. The sold list is quite extensive and includes Direxion funds Latin America (DXZLX) and Emerging Markets (DXELX), Profunds China (UGPIX), Rydex Financial (RYFIX), Natural Resources (EWC, DNLAX, PGNAX) and half of the position in Direxion Funds Small Cap Bull Fund (DXRLX). These sales were made because of the way natural resources have recently been behaving; I rode them up very nicely, but felt that the downside risk was growing greater by the day and that it was time to take some profits and see if the natural resources return to a comfortable level, where it makes sense to buy in again. With the end of the trading week behind us, it looks like our move-out earlier in the week was very timely as commodities and natural resources have continued to decline. I am also actively watching my other holdings for any signs of true weakness and will make decisions on an individual holding basis as to whether I need to sell or hedge the positions with inverse funds. The bottom line is that I have moved toward safety in order to preserve wealth and will be actively looking for investments with a strong potential upside and a relatively low downside risk.

Economic Wrap Up: Last week, the economic news released had little direct impact on the overall market, but the combination of economic news and factors led investors to believe that the rally may in fact fail to materialize. Both the Producer Price Index (PPI) and the Consumer Price Index (CPI) releases last week showed that there is virtually no sign of inflation taking hold on the US economy. This lack of implied inflation is very good for the Federal Reserve, and I am sure they breathed a little sign of relief at the news, since they can now continue working on the issues at hand without the added wildcard of inflation being a problem, at least for now. Initial jobless claims came in a little higher than expect at 608,000 while the market had been expecting 604,000, but the difference was so small in the grand scheme of things that there was little adverse effect on the market. One figure released last week continued to indicate that the housing market could possibly bottom out. The housing starts figure of the month of May was released last Tuesday to show that there were 532,000 starts during the month; the release was almost a full ten percent above market expectations and in line with more optimistic expectations which continue to show a bottoming in the US housing market.

This week, there will be a few very key economic news releases scheduled – the most important being the Fed’s decision on interest rates, which is set to be released during the middle of the trading day on Wednesday. Most market participants expect the Fed to leave the rate alone, especially since data released last week showed that there was little cause for alarm from inflation. Critics of the Fed are calling for rates to be increased so that the money supply is tightened up a little, which should in turn help minimize the angst about inflation in the future. Another release that could have a meaningful impact on the market is the final GDP figure for the first quarter of 2009, which will be released on Thursday. The consensus is that the previously released negative 5.7 percent will stand unchanged; any deviations from this value could result in large movements of the broad markets. The final economic releases for the week are occurring on Friday and include both personal income and spending. These two figures will provide some insight into the mind of the US consumer and it will be interesting to see if spending has gone up with the previous increase in consumer confidence. If consumer confidence rises and yet consumers do not increase their spending, it could lead to a very interesting situation. This situation would be a very difficult situation for the Fed to get around because they really need to get consumers spending, whether they are confident in the system or not, in order for all of their recent stimulus actions to have the desired effects.

After the trading last week, it is safe to say that the rally that kept up speed since the beginning of March appears to have stalled out.  While many people in the financial world still call March 2009 the market turn, they are now saying it much more quietly, as the market looks like it could be rolling over.  There are many signs that the economy is much better than it once was, but just because the economy is better does not mean that the stock market will follow in lock-step.  In fact, we might see the economy recover during a time in which the overall level of the stock market declines, due to greedy investors who jumped into the market hoping to make quick money.  The recent string of events in the treasury auction markets, during which rates were increased in order to sell out the auction, seems to indicate that higher interest rates in the near future.  The rates do not necessarily have to be imposed by the Federal Reserve’s policy; the rates could move higher because of supply and demand changes in the treasury market.  Also on the treasury front, last week Russia announced that they are considering moving some of their reserves from US Treasuries to IMF Bonds, in order to diversify their holdings.  This announcement came a week before the BRIC countries (Brazil, Russia, India and China) were to meet in Russia to discuss, among other things, their currencies and reserves as they relate to the US dollar.  It looks like a few of the countries will push for fewer US dollar exchanges and more debt exchanges amongst themselves.  This could provide more security to their countries’ financial health, should the US continue to have economic troubles.  If the above mentioned moves materialize, it could spell a very difficult time for the US dollar, which in turn could greatly hamper the economic recovery in the US.

The automotive industry was in the news last week with the finalized merger/sale of Chrysler to Fiat.  Now we play the wait-and-see game to find out if the merger will benefit either party, or if Chrysler will end up with a bigger headache than they were bargaining for.  At least we know that the Dodge Viper line is still alive for the moment with the announcement of the Viper factory reopening in Detroit.  GM also made the news recently with the announcement of their Saab vehicle line being sold to Swedish luxury Super Sports car manufacturer Koenigsegg.

On the political front many new revelations have occurred over the previous week both in US politics as well and global politics. In the US, more heated discussion about healthcare reform has sent the investable healthcare sector on a yo-yo ride with HMOs performing well one day, then tanking the next on speculation as to what the reform will look like.  With the impending changes to the US system, investments in the space should be very cautious.  Also in the US, the Banking industry appears to be in for some sweeping regulatory changes, which President Obama will outline on Wednesday the 17^th.  On the global front, Iran is in a real mess as their political system relates to the recent elections.  The effect of the elections can be seen in the wide trading range of oil since the uncertainty over who won surfaced.  In the end, the election results probably matter very little since the country on the whole is run by Grand Ayatollah Khomeini.  Rounding out major political events impacting world markets is North Korea and the strong sanctions imposed on them by the United Nations last week.  Again, we see the uncertainty of North Korea’s desires most directly in the recent upward move in the price of oil.

With all of this uncertainty, it makes the current investment risk very difficult to determine.  Items such as gold, which are typically a safe haven in times of uncertainty, have recently come down in price; commodities (also considered relatively safe during uncertain times) have moved dramatically on the shifting value of world currencies, mainly the falling US dollar.  There appears to be almost nowhere to hide on down days in the markets.  Due to such circumstances we have decided to move back toward wealth preservation and have tightened up the stop out points on many of our holdings.  While this may increase the number of trades placed in our models, it should greatly limit our downside exposure to a possible double-dip recession.

For the trading week ending 6/12/09, the returns in our portfolio models were as follows:

	Last Week	Year to Date
S&P 500 WD (benchmark)	1.08 %	6.08 %
Aggressive Model	0.44 %	9.07 %
Growth Model	0.29 %	6.89 %
Moderate Model	0.12 %	3.19 %
Stable Model	0.20 %	5.82 %

We made one change in the portfolio models last week and that was to start moving out of our holding in Westcore Colorado Tax Exempt Fund (WTCOX).  With the current situation of many government auctions pushing up the yields in order to sell out, the current outstanding fixed income instruments are losing face value.  While this loss of face value would be recouped in the future if the instrument was held until maturity, between now and maturity the investment could continue to sustain losses.  WTCOX for the most part performed exactly as expected over the five plus months during which we used the fund.  The coming week could be very volatile for a variety of reasons and we are closely watching all of our holdings to see if we need to sell any in order to preserve the gains we have in many of our holdings.

Economic Wrap Up: Slow is a very good way to describe last week’s economic news releases.  Over the course of the week very few releases had any measurable effect on the broad markets: the most impactful release was the initial jobless claims for the previous week because it came in better than expected.  Retail sales figures from Thursday delivered exactly what the markets expected, having increased by 0.5 percent during the month of May.  One item that we found of interest but the market did not react to was how large the Treasury budget deficit was during May of 2009: $189.7 billion dollars.  The Treasury deficit is the difference between what the treasury took in during a given month and what they laid out (represented by the chart below).

*Data from the Financial Management Services (A Bureau of the US Department of Treasury) webpage.

In looking back to 1981, the current deficit is one of the largest we have ever seen in the US.  It really indicates just how vigorously the Treasury has poured money into the current economic situation.  The main question is: Can the Treasury continue spending in this manner with the current low levels of receipts?  We do not think that they can continue at the current rate without major consequences in the future when they have to unwind their positions.

This week will be moderately busy with many releases that could significantly impact the markets.  First up on Tuesday (6/16) is the building permits, housing starts and the Producer Price Index for May.  We will further see if the US housing market is turning around or if some of the past couple of months’ releases were anomalies.  On Wednesday the Consumer Price Index (CPI) for the month of May will be released.  This news release will provide a glimpse into the current inflationary event going on in the US; the Fed will watch this figure to see if any action will be needed on the inflation front.  Finally the initial jobless claims figure (6/18) could impact the markets, which expect a high level of claims this week relative to last week.

Financial Planning Tip: Bank and Credit Union Insurance Extended

It was recently announced that the $250,000 insurance coverage for FDIC covered bank accounts and NCUA covered credit union accounts will extend through December 31, 2013.  Previously, this level of coverage was set to expire December 31, 2009.

The $250,000 limit is permanent for IRAs and other certain retirement accounts.  On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and other certain retirement accounts, which will remain at $250,000 per depositor.

Insurance coverage can be increased if accounts are held in different categories of ownership, such as single owner accounts, retirement accounts, joint accounts, and revocable trust accounts.   Some account types can also provide increased insurance coverage.  For example, joint accounts (two or more persons) currently have $250,000 insurance coverage for each individual on the account.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government and insures more than $4 trillion of deposits in U.S. banks and thrift institutions.  The National Credit Union Administration (NCUA) is an independent federal agency that insures nearly 90 million account holders in all federally chartered credit unions and most state-chartered credit unions.