MARKET OUTLOOK
Since
August of last year, panic has been in the air. Every two months
or so, the markets have swooned. It seems each time the indices
have moved lower, mortgage related stocks have been decimated.
With more bad news on the mortgage front and a falling stock market,
we sense investors are panicking.
What we have
experienced from clients since last August, have been questions
about the stock market, but in fact, they were really not asking
us about the market. They seemed to have their minds made up.
We would hear, "There is no hope for the American economy
and the market!"
No matter
how convincing history is in favoring reward over risk, fear overrides
history.
We remember
well, John Templeton, founder of the Templeton Funds, wise counsel,
"Bull markets are born on pessimism, grow on skepticism,
peak on optimism, and die on euphoria."
The sentiment
that rules the market today is confusion and fear. We have seen
these periods before - they arrive and hold Wall Street hostage
for a period of time. Then investors slowly regain their composure.
The key question is at what point will the market discount the
worst that can be seen ahead. At some level the market will be
saying "enough is enough."
We are in
the middle to late stages of a huge financial crisis. Many Americans
have been living beyond their means. The idea that one could refinance
their way to prosperity forever has come to a logical conclusion.
The Federal
Reserve and the Federal Government will continue to intervene
to stop the cycle of margin calls and falling collateral prices.
The Fed's focus will be to prevent a recession or should one develop
to ensure it is mild. The Federal Reserve's efforts will likely
be the catalyst for improvement in investor's sentiment and the
market.
Steve Noroian
ECONOMIC OUTLOOK

The
state of the U.S. economy deteriorated further during the first
quarter of 2008. For the most part, economic data has painted
a weak picture in the near term, with consumers fearful that a
recession is in the works. However, the Gross Domestic Product
data for the fourth quarter of 2007 remained positive.
Over the last
two quarters consumer confidence, defined as attitudes toward
current and expected economic conditions, has weakened. The most
recent reading for March plunged to a five year low, the lowest
since before the invasion of Iraq in 2003. But, consumer confidence
is considered a lagging indicator.
The rapid
decline of the brokerage firm Bear Stearns was a hit to the already
fragile financial industry and further weakened economic confidence.
Importantly, representatives from the Securities & Exchange
Commission, the Department of the Treasury and the Federal Reserve
put together a deal with JP Morgan. Treasury Secretary Henry Paulson
emphasized the importance of government entities working to "protect
the integrity of the financial system". Not since the demise
of Long Term Capital Management in 1998, have government bodies
rallied so quickly to participate in a financial rescue.
There were
some positive economic developments recently reported. Surprisingly,
for the month of February, most of the housing data was higher
than consensus expectations. Although both housing starts and
new home sales were lower than last month, the numbers of new
housing units started and sold were higher than the street expected.
In addition, existing home sales reported the first monthly increase
in seven months. The positive data is encouraging and provides
hope that the housing market may be starting to bottom.
Also, the
core Consumer Price Index, a key inflation indicator, has been
vacillating month to month. This data seems in tune with the Federal
Reserve's belief that inflation will moderate in coming quarters.
The overall
market successfully tested its January low, but it is unclear
whether the testing has been completed.
Debbie Mitchell
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