"Today is the tomorrow you worried about yesterday."
- Unknown

It's human nature to lose confidence when you become seriously ill.  You feel worthless and it feels like anything you say is meaningless and everything you do is pointless.   Everything you do is just plain wrong!  Yes, that is ANIXIETY!  Anxiety robs you of your personality, kills your confidence and thus, you lose your identity.  Sound like a typical description of the US stock market!
The good news is your confidence and personality gradually return, building up in layers, until eventually you feel like the person you were before you became ill. In the end, you grow into a stronger person. So today is tomorrow - Nice.
This is a metaphor for how most people feel about the US stock market.  Everywhere you turn and everything you read increases your anxiety level.  "The loss of confidence is pervasive" is one of the headlines on Bloomberg this morning!  "Whether it's GM or C, warnings of possible bankruptcy and concerns about the banking system's fate reinforce the reluctance to take on risk of being a failure" - The Wall Street Journal.  Ok, so GM and C are done, therefore, I need to feel like a failure.  Not going to happen!  
After yesterday's -9.4% decline in the financial sector, the ETF is now down 50% year-to-date.  I get it - Citi and a few others are bankrupt and now owned by the government... but guess what, consumers are still shopping at WMT and a few other "cheep chic" stores.  WMT even said yesterday, ""We believe falling gas prices significantly boosted household disposable income in February and therefore allowed for both more trips and more spending towards discretionary categories."  
Over the past week there are some leading indicators that things might be bottoming, like retail sales, the move in copper prices and the news from the early cycle technology names.
Unfortunately, we are not in control of our own destiny any more.  Without the Chinese, we would likely go down a lot more.  How high does your anxiety level go, knowing that we need the Chinese to fund our deficits and without further stimulus, the global economy suffers?  Talk about a position of strength! The next politician who thinks he can bad mouth the Chinese or push them around needs to be given a "time out", like a child who hasn't learned discipline.  The Chinese own us!
This morning it looks like we are going to get a horrific jobs number with expectations that payrolls could decline by 650,000, the most in a generation.  Since the Chinese control us we need to think more like they do.  Someone in the Labor department needs to "make up" a really horrific number and get all of the bad news on the table so we can move on.  
Anticipating a really bad jobs number, early indication is that the dollar is declining, which will help to stabilize, if not allow the market to rally today.  That's been the US Strategy trade of 2009, US Dollar UP = SP500 DOWN. Reverse that intermediate Trend of US$ strength, and stocks find stability. That's how "re-flation" works.
Last night as I drove home from New Haven, I listened to a debate on Bloomberg Radio about whether Obama is to blame for the decline in the market this year.  He definitely didn't create this mess, but he was elected to fix it... and the market discounting mechanism suggests he's not getting the job done.  
I know my anxiety level increases knowing that we are dependent on the politics of Washington to get us out of this mess.  In the end, pointing fingers is a waste of time, I just want results!
At this point, it is hard to tell which sector is going to lead us out of the doldrums!  There is not a single sector in the S&P that looks good.  The "safe and boring" sectors like Consumer staples are not working in a down tape.  We are dependent on Washington to restore consumer confidence, which will help the discretionary names. Utilities are not going up as interest rates go up.  Healthcare is re-testing the lows and is in a cloud of uncertainty, but a rally from here would be very bullish. The Financials continue to be a toxic waste land. Energy and Materials are not going up unless the Chinese re-flate the global economy.  
That leaves us with Technology....  On a relative basis, Technology is starting to outperform more consistently, but most are closet industrials.  Who wants to own an industrial?
This unemployment report is due out in 30 minutes - it's time to get back on that Wall.
Function in disaster; finish in style...
Howard Penney
Managing Director



  • QQQQ - PowerShares NASDAQ 100 - We bought QQQQ on a down day on Monday.

  • SPY - SPDR S&P500- We bought the etf perhaps a smidgen early with the S&P500 at 715, yet will take it at a discount.  The market is also close to three standard deviations oversold.

  • CAF - Morgan Stanley China fund - The Shanghai Stock Exchange is up +20.4% for 2009 to-date. We're long China as a growth story, especially relative to other large economies. We believe the country's domestic appetite for raw materials will continue throughout 2009 as the country re-flates. From the initial stimulus package to cutting taxes, the Chinese have shown leadership and a proactive response to the credit crisis.

  • GLD - SPDR Gold- We bought gold last Thursday with the S&P500 in the red and gold down. We believe gold will re-find its bullish trend.

  • TIP - iShares TIPS- The U.S. government will have to continue to sell Treasuries at record levels to fund domestic stimulus programs. The Chinese will continue to be the largest buyer of U.S. Treasuries, albeit at a price.  The implication being that terms will have to be more compelling for foreign funders of U.S. debt, which is why long term rates are trending upwards. This is negative for both Treasuries and corporate bonds.

  • DVY - Dow Jones Select Dividend -We like DVY's high dividend yield of 5.85%.

  • VYM - Vanguard High Dividend Yield -VYM yields a healthy 4.31%, and tracks the FTSE/High Dividend Yield Index which is a benchmark of stocks issued by US companies that pay dividends that are higher than average.
  • EWY-iShares South Korea- Despite initial efforts by the Bank of Korea to weaken the Won to spur exports, Korea's new finance minister Yoon Jeung Hyun has proposed strengthening the Won to improve the domestic market. Yet South Korea is export-dependent economy. We see no catalyst in sight to drive external or internal demand to the levels necessary to stimulate recovery, especially with a stronger Won. South Korea's exports fell for a fourth month in February 17.1% Y/Y.

  • LQD -iShares Corporate Bonds- Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates in the back half of 2009 that bonds will give some of that move back. Moody's estimates US corporate bond default rates to climb to 15.1% in 2009, up from a previous 2009 estimate of 10.4%.

  • SHY -iShares 1-3 Year Treasury Bonds- On Thursday of last week we witnessed 2-Year Treasuries climb 10 bps to 1.09%. Anywhere north of +0.97% moves the bonds that trade on those yields into a negative intermediate "Trend." If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yield is inversely correlated to bond price, so the rising yield is bearish for Treasuries.

  • UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. The Euro is up versus the USD at $1.2678. The USD is down versus the Yen at 96.7040 and down versus the Pound at $1.4228 as of 6am today.