DeMarche Market Outlook Teleconference Comments

May 2008 Teleconference Summary

In our previous Market Teleconferences we called for another test by the Dow Jones Index by 11,500 with risk to 10,800 if the market didn’t hold at 11,500.

For the May 22 Teleconference we wanted to reiterate concerns that the effects of the Credit Crunch were not over, that the economy continued to slow, and that the economy is carrying the burden of too much debt (meaning debt in too many venues such as mortgages, credit cards, etc.). Recently inflation has been a concern, with certain indicators popping up and, as expected, reports on the consumer and housing/mortgage markets have been weaker.

Valuation continues to be moderate but, in our opinion far from cheap. Liquidity is not a primary concern (after the Bear Stearns bail out) but Liquidity and credit are different problems.

Our “bar chart” in the slides for this Market Outlook called for a rally top as the market approached 13,200. We advised reducing equity weightings further in discretionary accounts and staying with a Value bias as we await an indication of the end of the Bear Market.

We are looking for another leg down, starting in mid May or early June. We fully expect the market to test 11,500 again. This Bear Market is not over, nor do we expect to bottom in the relatively short term, in the next month or two.

Post Script: In this Teleconference we also announced several upcoming pooled funds. A Distressed Asset limited partnership and a pooled fund for the 4 primary styles of U. S. Equities. We know that they were pending “first ventures” for DeMarche Associates and DMS. The announcement was to inform all of our clients equally of these two new ventures.

April 2008 Teleconference Summary

On April 24, 2008 we hosted another Stock Market Outlook Teleconference.  We repeated the explanation of our approach, which focuses on valuation, liquidity, and stock market momentum.  We pointed out that valuation and liquidity had hardly changed from the prior Teleconference.  Momentum however was a different matter.  The market had dropped sharply following our February Teleconference, but by late April was enjoying a rally.

We said on April 24 we expected the rally to hold into mid to late May.  We thought the market was enjoying a respite following the Bear Stearns surprise and the intervention of the Federal Reserve in that matter.  However we noted that the credit crisis is far from over and that there were some signs of financial information manipulation coming out of Europe.  We speculated that the “next surprise” could come from Europe. 

We introduced a bar chart showing our expected stock market range for the next few months.  Using the Dow Jones index, we saw a high of 13,200 and low of 11,500.  From the April 22 close of 12,720, a drop to 11,500 represented a decline of       -9.6%.

Our portfolio strategy then for May/June was to reduce equity weightings (which we had already done for our discretionary clients), stay with a value bias (as we look for an end to the Bear Market), and look for another leg down between then and mid May – early June. 

In the long term, we reminded clients that Bear Markets are a good time to strategically think about fund restructuring and looking for depressed opportunities.  We urged clients to do their homework now, which would impact decisions made over the next few months.

February 2008 Teleconference Summary

Wednesday, February 6, 2008 we held another teleconference for our clients, updating our remarks.  We emphasized that we were now in a true bear market, and that a classic recession was becoming more and more possible, although it was not yet here.

We noted that we felt strongly that the market would test its intraday, January low of near 11,500, perhaps more than once.  The next major down-side support level was in area around 10,800.  We felt this would be a major support level for the market because the amount of time and the amount of trading volume that was spent between 10,000 and 11,000 earlier in the decade.

We reiterated that we felt that the primary economic negative was too much debt.  Debt everywhere.  With 10 to 15 major banks and credit card companies holding consumer debt, and with a small handful of financial institutions intertwined with multiple levels of mortgage debt, the risk of further surprise or disruption was still high.  Current credit tightening was already putting pressure on the consumer, either through mortgage restrictions or a tightening of credit card provisions, and any further major disruption would certainly be a key factor in the possible slide toward a recession.

Over the intermediate term, meaning the next few months as opposed to the next few weeks, we expected interest rates to be down across the board, more so on the shorter end than the longer end.  We said the dollar is building a base and will do well in the months ahead, and the Euro will begin to slide. 

December 2007 Teleconference Summary

The DJII (Dow Jones Industrial Index) closed at 13,232 on December 18, 2007.

On December 19, 2007 we had a Market Teleconference for our clients, which we do periodically.  The actions we discussed that day had already been implemented for our discretionary assignments. 

Our basic message then was that we were concerned about the Market and that we thought the price level of 12,500 on the DJII was a crucial support point.  We said that if the Market broke that level we felt we would be in a true Bear Market (loosely defined as a greater than 10% Market correction).  Although Growth had been outperforming Value for the previous 6 – 12 months, we said that our bias toward Value should continue until, or whether, the issue of a Bear Market was clear.

Of course, those issues have been resolved.  The Market tested 12,500 several times in early January 2008, ultimately breaking through on the down side throwing us into, by our definition, a true Bear Market.  The great volatility on Tuesday, January 22, 2008, reached an interim daily low on the DJII of 11,508.