April 20th Edition

Good Morning All,

During the heady pre inauguration days, I promised you a broad market rally that would last five to eight weeks and would be led by the technology sector. Well as things turned out, the predicted rally did not immediately make itself present, as the February pullback quickly proved by taking indexes significantly lower. It was only after this fear and loathing of all things investment related returned, that markets prepared themselves for the delayed upswing. On March 9th the fun began and the first week of the move took many by surprise. After four weeks, pundits were reporting that this had been the strongest such move since 1933; and after six weeks, the most powerful since 1938. For all but the "historically challenged" it need not be noted that these past events took place during the "Great Depression".

As we now enter week seven of our suggested time frame, it may be time to review what prompted the move and to question its strength and sustainability. First and foremost we must repeat the oldest of market truisms. "when everyone is bearish it means they have already sold and hold cash, when everyone is bullish, they hold stock and little cash". The former are potential buyers, the latter will one day be sellers. Remember also, that CASH is never a permanent, or even a near permanent position for investment managers.

Secondly, the market was waiting for a resolution to the "bad bank" problem; the government actions for which proved to be the March catalyst. These were the conditions that turned market sentiment and the follow-through of weeks two and three provided the all important momentum change. So what now?

As we begin week seven, the same old worries seem to be resurfacing, even though earnings reports have been less onerous than most thought. If it can be said that the fear of "systemic risk", ie. the bank failures, has been either mitigated or eliminated by time and timely actions on the part of government agencies....then the only thing left to worry about is a recession, and frankly speaking ...recessions do end. Thus today's early decline, or rout if you like, is most probably a serious bout of profit taking after the six week, nearly uninterrupted, runup. It may prove to be more than that but don't look for a retest of the old lows because we have come a long way. A careful view might be to step aside until the smoke clears, a more adventurous one might involve staying around for a blow off rally up to 1020 S&P 500.

Fear not , I will not reprint my stock list today...although you might wish to refer to it.

Commentary:

The recent media attention given to Iran, North Korea, Cuba and Venezuela would be humerous if it were not so serious to the radical right. NONE of these countries pose a threat to the United States. The combined might of China, Japan, Europe, Russia and the United States will oppose any perceived aggression of which the worst of them may dream. President Obama has taken great steps towards unifying this alliance of the powerful; and will be so accredited by history.

The most present danger to America and its President lies not from without.....but from within.