UP, DOWN, AND SIDEWAYS 5/30/2008

You've got to love this market. It is the very embodiment of the dictum 'the only thing consistent is change'.

Only a few weeks ago the US dollar was gaining ground against foreign currencies, the price of oil and gold was backing off of their recent high's, the national media used the 'R' word - recession - at virtually every opportunity and the domestic stock market was gaining respectable ground - that is all so last week! Current, we're facing daily swings in the DOW, other major market indexes, and the price of oil and gold are either back on the rise or falling sharply - you choose. The US Dollar is facing tremendous pressure and even the national media is recognizing that the US economy may well avoid an actual recession.

The good news though, is that it appears that we have avoided an actual recession. We may be wrong, but the evidence is strongly in our favor. Though there are some pretty important voices that disagree, even they can’t agree on the depth or breadth of a recessionary cycle they suppose us to be. What is certain is that 1st quarter GDP growth was just revised to .9% and domestic inventory levels of manufactured goods fell by 14% - that means there’s not a lot of excess inventory to absorb in coming calendar quarters and jobs are less threatened in the near term. The number of jobless workers is still low in historic terms, and there doesn’t appear to be any meaningful increase in personal income levels; bad news to some, good news to the economy as it relates to thwarting inflationary pressures.

It is critical that US monetary policy makes an aggressive shift to strengthen the dollar and that our federal executive and legislative branches adopt an energy policy that dramatically lessens our dependence on foreign oil, for that matter, fossil fuels of any kind. These policy initiatives, reportedly in the works, would continue to fuel an otherwise healthy US economy. Brian Wesbury, a noted economist and regular contributor to The Wall Street Journal and CNBC, speaking recently at an assembly in Salt Lake City, proclaimed ‘the US economy is in great shape!’ And he’s right, but it may be hard to feel that at home when you’re paying four dollars or more for fuel, or when you see the value of your investment portfolio gyrate daily.

For several months we have felt that investors need to maintain a fairly conservative, or cautious, stance in their various investment accounts. As the markets have advanced well beyond the lows seen earlier this year and recently even tested the 13,000 level in the DOW, some have asked if it is time to take a more assertive posture and increase the equities exposure in their portfolios. For the most part, our response has been 'not quite yet', suggesting that some of the recent gains could well give way to inflation concerns and other economic uncertainties.

We've continued to assert that we'll likely continue to exercise caution until we think the market has digested most of the meaningful economic data gathered and reported for the 1st and 2nd quarters of the year. When it appears that there is little downside risk in the equities markets it will be time to take a more ambitious investment position. That may not signal a dramatic or immediate upswing in market values, but it will allow investors to renter the market and be well poised for the eventual rise in equities.

As daring as it may sound, there are numerous market forecasters, heretofore very ‘bearish’, that are calling for the DOW to ascend to 15,000 by year’s end. If you consider that our nation will have finally completed a long and arduous presidential election, that the Federal Reserve may well have increased short term interest rates by then, and that we’ll have seen the real economic results of the first half of the year, a 15,000 DOW might not be unrealistic. We can only hope!

Rick Haskell – Signature Wealth Management