Market Statistics                   52 week
            Low High
Dow Jones +349.30   points +3.99% to 9093.24   6,547.05 13,058.20                                             
Nasdaq +79.35     points +4.21% to 1965.96   1,268.64 2,549.94
S&P 500 +38.88     points +4.13% to   979.26      676.53 1,426.63
Crude Oil +$3.47/barrel +5.37% to $68.05   $33.87 $145.29
Gold +$15.60/oz +1.66% to $952.80   $704.90 $1,001.80
10 Year Tsy +0.020% to 3.671%   2.04% 4.32%


















We could almost replicate our blog of last week.  It was another strong performance, in terms of how the markets reacted to continued “good news” on the earnings front. Even when there was disappointing earnings news, as with Microsoft and Amazon, the markets stayed remarkably resilient. Let’s remember however that earnings expectations were set  low to start with and so any improvement was likely to result in cash sitting on the sidelines being deployed into the equities markets.


 CIT obtained $3 billion  financing from it’s bondholders, giving it breathing space, rather than any long term security and  justified the Administrations strategy not  have it come under the “too big to fail category” with the resultant taxpayer rescue package.


In keeping with our “let’s not pop the champagne just yet” mentality, the economy at large, as well as the States  and the financial institutions , remain of great concern to us ,despite all the euphoria in the press this past week. We have spoken at length in previous blogs about the continued weakness of the consumer and the negative drag to any future growth, so we won’t repeat that here( we listed seven areas of concern only last week about the economy at large).


 Fed Chairman Bernanke’s testimony before the Senate Banking Committee this past week rightly addressed the concern of rising unemployment, which if not addressed, would inhibit any recovery, which, by general consensus was likely  to be modest, at best. One of the companies we feel  indicates which way the economy is going, is UPS. This past week, it’s CFO gave a sobering  indication of where the company was and is likely to go. In a conference call Kurt Kuehn stated that there was no material uptick in growth in July and questioned when business activity was likely to strengthen. He indicated that “The business environment in the third quarter should be similar to the second quarter”.


State tax collections, according to the Rockerfeller Institute of Government, fell 11.7% in the first quarter, compared to the same period last year, the sharpest decline since records began 46 years ago. Revenues declined in 47 of 50 states and an early look at the second quarter indicates a drop near 20%. This has significant implications for states in terms of cutting back on spending and/or raising local taxes.


From the Banking perspective ,we continue to be concerned, particularly with respect to the deteriorating quality in the  residential and commercial loan portfolios. We question whether the latter has been effectively addressed by the sector, in terms of adequate loan loss allowances to cover non performing loans.



Another 2009 milestone was reached this past week, as the Dow crossed the 9000 mark and more importantly, held there. With the huge gains of the past two weeks all of the major indexes are in positive territory for the year, with the tech laden Nasdaq the most impressive performer up 24.7% .Even with this, it is still 20.5% below it’s 52 week high. The Dow and S&P have even more ground to make up.

Goldman Sachs added to the positive mood in the markets, by raising it’s S&P forecast from 940 to 1060,based on earnings improvement driving a second half rally (the Index having passed the initial forecast anyway). We should also note an unusually large bearish options position was placed this past week, by one trader (believed to be $10 mill) fearing the S&P benchmark ETF could suffer significant losses between now and December.



As in the previous week, the commodity markets were beneficiaries, along with the stock market, of funds moving out of risk averse assets into these higher risk ones. Crude oil is now up 52.58% for the year while gold a much more modest 7.83%.




The market held up quite well this past week as money poured into equities and commodities. This coming week, however, will be a big test for the credit market ,with a record amount of new debt being offered ,amounting to $200 billion. If the increase in  risk appetite carries over from the past two weeks ,then we are going to see higher yields by week’s end.


John Jacobs.



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