Last Week’s Highlights:

Stocks:                                Stability in prices

Bonds:                                10-yr Treasury back to 3.5%

Oil:                                     Lift again to $107 per barrel

Dollar:                                Fails to hold rally – Euro 1.58

Existing Home:                  Surprise strength

Consumer Conf.:               Surprise weakness

Economics This Week:

Date       Item                                   Est.         Comment

4/1         Auto Sales                         5 mil       Holding

4/4         Non-farm Payroll            -40k        Weakness in jobs

4/4         Unemployment                  5%         Uptick from Feb’s 4.8%

Signs of Life in Home Sales

Last week’s release of existing home sales data showed a 2.9% increase. This was the first increase in this critical real estate measurement in over a year. Also encouraging was a slight drop in home inventories to 9.6 months from the record high of 10.6 months set back in October. We are now back to inventory levels seen last August, and median prices are down -8% from a year ago and -15% from the peak. Lawrence Yun, NAR chief economist, said the gain is encouraging.  “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said.  “Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”

OK – that’s the good news

Source: National Assoc. of Realtors

Confidence Lost?

The bad news last week was an unexpected drop in the consumer confidence data. I’ve talked a great deal about this indicator over the last several months because of the strong link between consumer confidence and consumer spending. Given that consumer spending is two thirds of GDP, a capitulation by the consumer in the near-term would not help shorten the economic slowdown. The Confidence indicator came in at 64.5 (see Briefing chart below), its lowest level since 1973. Not only does this not bode well for spending, it also hurts the dollar’s value against the euro and the yen – at new lows again.

What appears to be happening is a classic “hunker down” mentality for consumers (this from my partial attendance in Psych 101 while in college). We see rising gas prices, we worry about the value of our homes, and we worry about the security of our jobs. These concerns impact our spending habits and our outlook about the future. This week, for example, we may see further signs of weakening in the employment data. When we start seeing job loss it can accelerate our concerns, which spirals us toward less spending. Even the government’s upcoming stimulus bribe (oops – I mean fiscal incentives) is now expected to go largely to savings and to paying down debt, not toward consuming/spending– surprise, surprise. I guess a simple cash handout at the expense of those who actually pay taxes is the easy thing to do in Washington these days.

A bit more courage and making the tax cuts permanent would have been a better choice. Do I sound bitter about the prospect of paying more taxes in the future? Good, now you know why this consumer’s confidence is down as well!  Hey we’re only two weeks from tax time! It’s not brain surgery to figure this one out.

Flight to Quality Continues

The massive move to the Treasury market remains well in place through all the talk of both recession and equity market volatility.  What is remarkable is that bond traders continue to believe that the power of slower economic growth (Fed easing and stability moves to bonds) outweighs the corrosive inflationary effects of such a dramatic monetary giveaway. Historically, the 10-yr Treasury has had a spread of close to 300 bps over CPI. Today, CPI stands at an annualized year-over-year rate of 4%. This would suggest the 10-yr should yield about 7%, not the current 3.5%. Even if one uses the current inflation-adjusted 10-yr TIPS spread of 2.5% as the market’s forecast of inflation, the Treasury should be about 5.5%.  So, are Treasuries overvalued? On the other hand, how do you value anything these days – it’s all about market psychology – just go ask Bear Stearns shareholders about valuation!

About Fortigent: Fortigent offers customized and private-labeled wealth management solutions to banks and trust companies, break-away brokers, and independent investment advisors. Focusing on advisors to the high net-worth marketplace, Fortigent allows these advisors to outsource a comprehensive “open architecture” wealth management platform, with a particular expertise in alternative investments. This includes investment consulting services such as Monte Carlo simulation, asset allocation and portfolio construction tools, objective “best of strategies” manager search and selection, and state-of-the-art consolidated performance reporting. Fortigent’s web-based portal interface allows access to proposal and rebalancing tools, client portfolio reporting and accounting, as well as industry articles, research papers, and other practice management and business development resources.

On the Net: Fortigent – http://www.Fortigent.com

The information provided is general in nature and is not intended to be, and should not be construed as, investment, legal or tax advice. Fortigent makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information. The information is subject to change and, although based upon information that Fortigent considers reliable, is not guaranteed as to accuracy or completeness.

Not FDIC Insured No Bank Guarantee May Lose Value

 (c) Fortigent, LLC

www.fortigent.com