March 14, 2009 – The markets got a reprieve this week, despite the fact that the negative economic data kept streaming in. The catalyst for stocks came from the financial services industry where Citigroup said it earned a profit in the first two months of 2009, and Bank of America was reportedly regaining some footing. As a result, the DJIA gained 9% on the week, the Nasdaq gained 10.6% and the Samp;P gained 10.7%.

This is good news, but major concerns persist. Unemployment data continued to show that more Americans are losing jobs and expectations are that this trend will continue at least through the first half of 2009. A direct consequence of job losses is that consumer spending is going to continue to taper off. The US economy has come to be so dependent on consumer spending that this is going to have materially negative impact on GDP. To be sure, it doesnrsquo;t look like US exports are making up any of the slack.

So the outlook for the corporate sector, and earnings continues to be shaky at best, which has led Wall Street to recalibrate earnings expectations lower on what seems to have been a daily basis. Another elephant in the room, which is a major concern is that China is becoming more openly critical about the mounting US debt. Pundits reacted quickly suggesting that China lsquo;wouldnrsquo;t darersquo; sell its US debt holdings because it would be too damaging to its own assets. Letrsquo;s assume that is correct. It will be damaging enough to the US plan of attack if China determines that it doesnrsquo;t have an appetite to purchase any more of our debt ndash; a reasonable position, especially if we continue to devalue their holdings at our printing presses.

We wouldnrsquo;t be taking the rallies in the markets this week as any signal that the worst is over, given the fact that there are just so many very real things that could go very wrong in our attempt to get the US economy back on the rails. We fully expect that the dollar is setting up for a crash at some point in 2010 if the earth sun and moon donrsquo;t perfectly align under Obamarsquo;s stimulus plan. And it is by no means clear when Americans are going to find any footing again ndash; if ever. For now, they are faced with increasing job losses, record credit debt and the prospects of inflation if we are right about the outlook for the dollar.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; US Debt – Chinarsquo;s Premier express concerns about the levels of US debt, and the security of Chinarsquo;s assets invested in the US. Wen Jiabao said the US should ldquo;honor its wordsrdquo; and ldquo;stay a credible nation and ensure the safety of Chinese assets.rdquo;

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Wholesale Inventories ndash; Wholesale inventories fell 0.7% in January, marking the fifth straight month of declines.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Budget Deficit ndash; The federal deficit hit $765 billion in the first five months of the budget year. The administrationrsquo;s target is $1.75 trillion for the entire year. The deficit for February alone was $192.8 billion, a record for the month.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Trade Deficit – The US trade deficit for January narrowed a bit narrower than forecast to $36 billion, a decline of 9.7% on a month-over-month basis and the lowest level since October 2002. This was an improvement, but economists and the Street will likely look at the imports side of the equation negatively. US imports fell 6.7% to $160.9 billion (lowest since 2005) indicating that the US consumer is weak. Our take is that, while it is bad news the consumer is weak, the pullback in consumer spending on imports is a good thing for the economy and desperately needed if it is going to get healthy again. Consumers need to get back to healthier personal balance sheets and the only way to do this is to spend less, pay down debt and save more.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Household Net Worth – the Fed reported that household net worth has fallen by 9% in the October-December period of 2008, from the previous quarter, which is the biggest decline on record since 1951. The decline represented about $5.1 trillion, leaving the total at $51.48 trillion at year end. The Fed estimated that stock holdings value fell by 23%.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Profit Warnings ndash; McDonaldrsquo;s, United Technologies

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Markets ndash; Hedge Funds ndash; Hedge Fund Research said that about 920 funds, or 12%, closed last year, and about 70% of hedge funds lost money in 2008, meaning that they canrsquo;t collect performance fees until the losses are recouped.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Job Cuts ndash; McClatchy (1,600 jobs), Eastman Chemical (up to 300 jobs), United Technologies (11,600 jobs), Witchita Eagle (14 jobs), National Semiconductor (1,725 jobs), Grady Health System (150 jobs), Miami Herald (about 175 jobs), Belo (150 jobs), Advanced Energy Industries (about 300 jobs), Finnair (laying off 700), Sunoco (750 jobs),

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Job Cuts ndash; Hedge Funds ndash; the Options Group reported that hedge funds may cut 20,000 jobs this year, about 14% of the industryrsquo;s total jobs

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Weekly Jobless Claims ndash; Weekly claims rose to 654,000 (more than expected) while continuing claims rose by 193,000 to 5.3 million.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Unemployment Rate ndash; States ndash; Connecticutrsquo;s unemployment rate hit 7.3% in January, Oklahoma hit 5.6%, South Carolina hit 10.4%, Colorado hit 6.6%, Kansas hit 6.4%, North Carolina hit 9.7%, Nebraska hit 4.3%, Maine hit 7.8%, Alabama hit 7.8%, California hit 10.1%, Puerto Rico hit 13%, Michigan hit 11.6%, Virginia hit 6.4%,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Closing the Doors ndash; Lowersquo;s is closing its distribution center in North Carolina at the end of the year,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Chapter 11 ndash; Fleetwood,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Chapter 7 ndash; Meadowbrook Farms,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Credit Card Delinquencies ndash; Declined in Q4 by 11% on a Y/Y basis to 1.21%.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Consumer Credit Debt ndash; Average borrower debt increased by 1.96% to $5,729 from $5,619 on a Y/Y basis

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Ratings Downgrades ndash; Fitch cut Nissan, Fitch cut Visteon, Moodyrsquo;s cut Clear Channel, Moodyrsquo;s cut Merck, Fitch cut Cemex, Moodyrsquo;s cut Phoenix, Fitch cut Berkshire Hathaway, Samp;P cut MGIC Investment, Moodyrsquo;s cut AK Steel, Fitch cut Dow Chemical, Fitch cut American Airlines,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Airlines ndash; American Airlines is cutting its US capacity by 9% this year and its international capacity by 2.5%, Delta is cutting its international flights by an additional 10% starting in September,

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Financial Sector ndash; Financial institutions have reported $1.2 trillion on losses and have cut more than 284,000 jobs since the US subprime mortgage market collapsed.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Financial Sector ndash; Hedge Funds ndash; Investors pulled out a total of $11 billion from hedge funds in February, which were about a third of what redemptions were in January, according to Eurekahedge Pte.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Housing Sector – RealtyTrac reported that foreclosures rose by 30% in February on a Y/Y basis, and are up 6% since January. The Mortgage Bankers Association said recently that almost 12% of all mortgage holders are delinquent.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Retail Sales – Retail sales in February fell for the seventh time in eight months, down 0.1%, according to the Commerce Department.

middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; KROCK is switching to a top 40 format. nbsp;

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