SECOND QUARTER 2008 NUMBERS TRICKLING IN 7/25/2008

The 2^nd Quarter 2008 economic and corporate earnings reports have begun to trickle in and present a mixed, though better than anticipated, picture. As a byproduct, the DOW is up nearly 500 points and the S&P 500 is up over 50 points from their mid-July lows, the price of a barrel of oil is down nearly 16%, unemployment has remained constant at 5.5% (below the 6% post-war average), the value of gold has reversed its recent climb to nearly $990 an ounce and is now trading at just over $926 – a movement of over 6%, and the value of the US dollar has strengthened. Corporate earnings have been mixed with some surprises coming from across the spectrum - some companies reporting higher than expected earnings and making positive adjustments to their annual guidance figures, with others reporting lower than expected results.

With all of this, the media continues its ‘gloom and doom’ portrayal of the economy, and the consumer is becoming more confused, perhaps even more concerned, than at any time in the last 10 years. In truth, the consumer, and the economy in general, have more to applaud from the second quarter than to bemoan. Second quarter Gross Domestic Product (GDP), the indicator of economic expansion or contraction, is now estimated between 2.5% and 3% - far beyond expectations, and obviously undermining recessionary concerns. Real interest rates have begun to rise slightly with the 10-year Treasury Note yield rising to 4.1% from its recent low of 3.8%; enough of an increase to stem general inflationary pressures, but not enough to make substantive changes in the cost of borrowing. While existing home sales fell by 2.6%, new housing starts increased by 9.1% and durable goods orders offered a surprising increase of another .8%.

Earlier this year, Goldman Sachs and Morgan Stanley both offered early summer price targets for oil at $150 per barrel. Though the oil markets came close to the $150 mark, they missed by almost $3, and it was an important miss. Now, Lehman Brothers, a venerable Wall Street firm of considerable influence, has announced a $90 per barrel target by January 2009. Such a decline would have tremendous impact in the stock markets, would reflect the US’s decreasing oil demand, and would likely signal a meaningful increase in the US dollar against the Euro and other foreign currencies.

It’s too early to celebrate, of course. The US economy has a long way to go before we can use words like ‘robust’ or ‘exciting’, but indications are that the worst is behind us. One of the sure signs that the markets have reached (or are near) relative lows, comes back to the consumer and the media. Consistently, when the news is dire and the talk around the water cooler is bleak, it has been a sign that the markets and economy have bottomed out. Serious investors start buying and sometimes fortunes are made. The inverse is just as true and often as obvious. When everyone is excited about the markets and people are doing whatever they can to buy, that’s when the professionals are starting to sell – it’s a sure sign that the markets have topped out.