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