8.31.07

8.31.07

The stock market can be a very confusing place. On Tuesday the Fed released the minutes of their August 7th meeting. Because there was no mention of the sub-prime problem in the minutes, the street reacted in a negative way and took the market down big time. Ah, again it was irrational, the sub-prime was not a big problem as of August 7 so they would not been in a position to address it. Oops, after the close when it was clear that the information had been misinterpreted, it set the stage for a big up day on Wednesday. Sure enough it recouped all of its losses. With a nice up day on Friday, it managed to end the week mixed. The Dow, R2K, and SPX all gave back a little, while the COMP and the NDX both added respectable gains for the week.

            President Bush stated that the government will step in and help people to avoid foreclosure. The Fed chairman said they are aware and watching and will step in where necessary. We think the Fed will lower interest rates at their September meeting. Think about it. If they lower rates, the reset rate on ARMs (adjustable rate mortgages) will be lower and therefore a cost effective way for the Fed to help in resolving a big part of the sub-prime problem. And at the same time, it would speed up the turn around in the housing sector. And it won’t cost the taxpayers any money. Maybe that’s too easy a solution for the politicians to figure out.

            With the credit crunch behind us for the most part, it would seem that the market would be biased to the upside going into the holiday shortened week. History dictates however, that the month of September is the worst month for the three major indices. As always we will be alert to the daily happenings and keep you up to date with our read on the market.

            We are keeping our 50% exposure to the market but we are moving the whole amount into the NDX. The SPX has a large exposure to banks and brokers and we prefer to avoid those sectors at this time.

Till next time

The Staff at MTA