AIA Advocate for Absolute Returns

In This Issue:

Feds Ease The Mortgage Threat, But Create New Problems
Housing Is Now More Political Than Ever
Top-Yielding CDs Blast Treasury Returns
India's Outsourcing Stocks Are Again Attractive
The Bottom Line This Week

Two weeks ago, investors were inclined to ignore moderately bad news because they were focused on what looked like a coming economic recovery. Last Thursday, however, the optimism evaporated when the unemployment rate jumped unexpectedly. Rumors of additional problems with insolvent hedge funds added to the angst, as did growing worries about the king-sized problems at Fannie Mae and Freddie Mac.

Investors put it all together and decided the outlook wasn't as encouraging as they first thought. In fact, it was starting to look as if a further economic slowdown could be in the works.

When the new forecast made the rounds, the market dropped 345 points. We had a tepid 33 point rebound on Friday, but it fell into the faint praise category which actually deepened the gloom. When the final bell rang for the week, the Dow and the Nasdaq were down 2.8% and 4.7% respectively.

Over the weekend, however, the outlook went from dead black to positively upbeat when Treasury Secretary Paulson announced his benevolent agency would rescue Fannie and Freddie. On Monday, jubilant investors pushed the market back up 290 points.

In This Issue:

Tensions Between The U.S. And Russia Are Serious
Oil And Commodities React To The Threat
Defense Stocks Look Even Better Than Last Week
And So Does The Dollar
Inflation vs Deflation Contest Heats Up
But Inflation Should End Up With The Gold
The Bottom Line This Week

Last week the stock market revealed that it has more underlying strength than world events would seem to justify. If the market is once again acting as a leading indicator of the future, the outlook is brighter than is generally supposed.

Despite the fact that a new cold war seems to be underway, the Dow was only off 0.3% last week. The Nasdaq declined 1.5%. The market dropped 242 points when it reopened on Monday, but it regained nearly half the loss on Tuesday and Wednesday.

Our feeling is that investors want to be buyers and can only be held back by disturbing news. That's a big difference from a bear market mentality when bad news drives prices and good news is ignored.

In This Issue:

Surprise! Oil Prices Can Plunge As Well As Soar
Russia-Georgia Conflict Shows Oil Retreat Has Legs
The Dollar Is Rebounding By Default
We Know We've Said This Before, But "Buy The Bargains"
The Bottom Line This Week

Last week, the stock market continued to make the big swings that started several days earlier. This time, however, we were delighted to see that the pattern was skewed towards the positive. Thanks to a 332 point gain on Tuesday and another 303 point jump on Friday, the Dow and the Nasdaq ended the week up 3.6% and 4.5% respectively.

Those were very nice numbers for a five day period, especially since poor economic news –and the Russian/Georgian war- continued to dominate the headlines. However, none of it could overcome the enthusiasm investors had for the recent plunge in oil prices that brought the magic $100 level within sight. If oil gets that low we will see rejoicing on both Wall Street and on Main Street. We might even raise a glass ourselves.

Meanwhile, Mother Market is testing our resolve. After rising 49 points on Monday, stocks dropped 250 points through Wednesday. More gyrations are undoubtedly on the way.

In This Issue:

Many Americans Are In A Funk
If Everything Is So Bad, Where's The Recession?
The Fed's Rescues Come With A Price
A Lending Conflict Is In The Making
And A Weaker Dollar May Be On The Way
DNA Checks Are Not Just For Crooks
The Bottom Line This Week

The bear picked himself up off the mat last week after having been knocked flat by the bull a few days earlier.

As it turned out, the nasty fellow should have taken the full count to get back more of his strength. The best he could do with his rebound was push the Dow back a miniscule 1.1%. Nasdaq actually rose 1.2%.

When the market reopened this week, we got a dramatic demonstration about how important oil prices have become on Wall Street. On Monday oil ticked up fractionally, and the Dow dropped 240 points. Then on Tuesday, oil dropped back down and the Dow shot up 267 points. The uptrend continued the next day with a 186 point gain.