6.1.07

6.1.07

 The stock market got what it hoped for on Friday as a batch of economic data painted a picture of growth and moderating inflation.  However, it was slow to capitalize on that news as it kept a watchful eye on the Treasury market where the yield on the benchmark 10-year note came within striking distance of 5.00%.By the end of the day, though, the bulls had scored another victory as each of the major indices logged a modest gain that got the month of June off to a positive start. The foundation for the positive showing was built on a stronger than expected 157K increase in May non-farm payrolls, a lower than expected 0.1% increase in core-PCE, which is the Fed's favorite inflation indicator, and a reading of 55.0 on the ISM Index that suggested the manufacturing sector remains in growth mode (50.0 is the dividing line between contraction and expansion).

There were other sources of support, too, on the corporate front.  In particular, Dell (DELL 27.30, +0.39) posted better than expected first quarter results, Wal-Mart (WMT 49.47, +1.87) announced a $15 billion share repurchase plan, and the Bancroft family is reportedly now open to considering a buyout offer for Dow Jones (DJ 61.20, +7.89) from Rupert Murdoch's News Corp. (NWS.A 24.22, +0.59).

The combination of these developments succeeded in keeping selling efforts in check, as did the expectation that Monday will be highlighted by another round of deal making.

An important event that seems to have escaped some investor’s attention was the Chinese Government. They have raised the tax on market transactions to triple what it had been. This would be a strong  signal that they are afraid that a “bubble” is occurring and they want to slow it down. Their market gave back 6.5% on the news. If  China goes into a market correction, all other markets around the world will follow suit.

We issued a PPP alert after the close of the market on May 30^th. We have taken the most conservative action and moved to an all cash position as of the close on May 31^st. Those of you who are more aggressive and want to keep some exposure may want to cut back to a 50 beta.  We are quite nervous in here and the market is trying to tell us something, but it is not clear what the message is. Next week will help us figure it out. For now, better safe than sorry.

Till next week

The MTA staff