KanalyBlog

Another Retest - Third Time The Charm?

Following another late day selloff, the S&P 500 closed within one point of its 2008 low at 850.  This is the third time the index has visited this support level in just over a month.  We have been writing that a bottoming process has been underway, and that S&P 840 had strong potential as a short term low for the market (for the Dow Jones Industrial Average, the support level is 7,882).

Many of the classic signs of market bottoms are present today.  For example, fewer and fewer stocks have reached new lows during the recent retests of the low.  On October 10th, the first time the S&P traded down to 840, over 90% of stocks traded that day made new yearly lows (2,900 stocks), and downside volume exceeded upside volume by a 16 to 1 margin.  Then on the November 13th retest, only 776 stocks made new yearly lows.  Today's retest?  Only 82 stocks made a new yearly low.  This positive divergence suggests the selling pressure is being exhausted.

Much of the breathtaking decline we have seen since August has been attributed to massive forced liquidation of mutual funds and hedge funds.  Data released over the weekend shed more light on just how substantial the flight from equities has been in the hedge fund world. According to Bloomberg, 38 hedge fund managers with over $1 billion in assets under management reported that selling and market declines cut the value of their equity holdings by 30% in the third quarter to $273 billion.  Several large managers cut their equity exposure by nearly 90% to raise cash for anticipated redemptions.

All of this cash will eventually find its way back into the market, fueling a strong rally.  With stocks off 45% from the high just 13 months ago, and nothing but awful economic news all around us, the market needs a catalyst to break the downtrend and entice some of that cash to come off the sidelines.  If the market is able to hold today's low, equities will be set for a relief rally that could take the S&P 500 to near 1,000.

For more information or to ask questions, e-mail us at kanaly@kanalytrust.com or visit us at www.kanaly.com.

Disclaimer

Weekly Market Update - November 10, 2008

Stocks endured yet another tumultuous week influenced by new data indicating the U.S. economy is in recession as well as sweeping changes in the political landscape following a historic election. After enjoying a 4% rally on Tuesday (the biggest election day rally in history), stocks proceeded to lose 10% over the next two days for the worst two-day decline since 1987. A modest rally on Friday left the major market indices down roughly 4% on the week.

 

While it may be tempting for some to blame the post-election market decline on Democratic domination at the polls, I would argue that the markets discounted the election result long before Tuesday’s events. Virtually every poll taken since mid-September indicated a solid Obama victory. In fact, the failure of the Democrats to capture a filibuster-proof 60 Senate seats is likely a relief to the markets. So what caused the mid-week market decline? First, the market had rallied nearly 20% from the October 27^th low over just six trading days, so traders simply booked profits. Second, fresh data indicated the economy is getting worse. Finally, fund redemptions continue to drive forced selling, increasing volatility and exacerbating the declines.

 

Weekly Economic Data

 

Economic data released last week pointed to an economy that is firmly in recession and is getting worse. The government reported that the U.S. lost 240,000 jobs in October, and increased the previous estimate of August and September job losses by 179,000. The economy has lost nearly 1.2 million jobs this year. The unemployment rate jumped to 6.5%, the highest level since March 1994. In addition, the ISM Non-Manufacturing Index (an indicator of the service economy), tumbled to its lowest reading ever.

News from the corporate sector was gloomy as well. Auto sales have fallen to the slowest pace since 1983. The automakers are attempting to force a government bailout, with General Motors stating that it may not have enough cash to survive through the end of the year. Monthly sales for retailers in October were the worst in eight years. And a Federal Reserve survey showed that bank lending standards are tighter than at any time since 1983.

 

Market Outlook

 

Amid the barrage of weak economic news, it is difficult to have much confidence in any significant near-term rally for stocks. In addition, uncertainty over the new Obama Administration’s policies and continued forced selling by hedge funds should result in high volatility into early 2009.

 

However, we continue to believe that October marked an important short-term low for the equity markets. Many of the factors that have historically indicated a market bottom are present today, including a selling climax on October 10^th. Sentiment has reached extreme levels, and the low valuations of many high quality stocks suggest much of the bad news has been priced into the markets. Unprecedented global stimulus, including additional central bank interest rate cuts last week and the weekend announcement of China's $586 billion stimulus plan, should allow the economy to recover late next year. 

The market continues a process of establishing a bottom. S&P 900 now becomes the level to watch as it marks a “higher low” following last week’s selloff. If S&P 900 holds, market psychology could improve and coax some of the massive cash sitting on the sidelines to move back into equities.

Whether the October low proves to be the ultimate low depends on the degree of improvement in the credit markets and the depth of the corporate earnings recession. As the answers to these questions remain skewed to the downside, we continue to recommend a defensive positioning for most portfolios.

 

For more information or to ask questions, e-mail us at kanaly@kanalytrust.comor visit us at www.kanaly.com.

Disclaimer

Weekly Market Update - November 3, 2008

Global stocks rallied strongly last week as panic selling began to ebb, the Federal Reserve lowered interest rates, and the credit crisis showed signs of easing. The S&P 500 posted its best weekly gain in 34 years, rising 10% to 968.75, while the Dow Jones Industrial Average climbed 11% to close on Halloween at 9,325.01. International markets rallied even more, with the MSCI Emerging Markets index up 20% for the week.

Last week’s rally did little, however, to dent the global bear market that accelerated in October. MSCI reports that 67 of its 68 global equity benchmarks declined in October, with 37 losing at least 20%. The S&P 500 lost 17% in October and is down 34% in 2008. This bear market has been so extensive that U.S. Treasuries at historically low yields was about the only safe place to hide. In fact, just 2% of the stocks in the S&P 500 are higher today than they were at the market peak over a year ago.

Weekly Economic Data

Economic data released last week was decidedly downbeat, highlighted by the first release of U.S. economic growth for the third quarter, which was estimated to have declined at a 0.3% annual rate. While this was slightly better than expected, the economy is clearly slowing at a rapid pace. Remember, as recently as August, economists forecast third quarter growth of over 3%. Consumer spending plunged 3.1%, the biggest drop since the 1980 recession, and consumer confidence (shown below) hit the lowest level (38.0) since the index was created in 1967.

In addition to the GDP report, the Case/Shiller index of housing prices showed the housing market continues to worsen as prices fell 16.6% from September 2007. Durable goods orders surprised with a 0.8% gain, but declined 1.1% excluding transportation equipment and higher defense spending. The Chicago Purchasing Managers Index came in less than expected at a weak 37.8.

In response to the weakening economy, the Fed voted unanimously to cut the Fed Funds rate by 50 basis points to 1.0%, as expected. The Fed retains an “easing bias” as it continues to be more worried about downside risks to growth rather than inflation. The Fed will likely remain accommodative for several months until the economy begins to recover and credit conditions improve.

The good news for the markets last week, other than the relief rally, was additional signs of improvement in the credit markets. The rise in Treasury yields indicates that efforts to bolster confidence may be working to thaw credit markets that have been frozen since the bankruptcy of Lehman Brothers on September 15. The Libor rate dropped to 2.86% this morning, continuing a move lower since peaking at 4.82% on October 10. We continue to watch for signs of improvement in the market for corporate and mortgage credit, areas that are critical for any economic recovery.

Market Outlook

The equity market successfully retested the October 10^th low on Monday of last week, closing just 8 points off the low before rallying into Halloween. With the markets putting some distance between current levels and the low (840 on the S&P 500 Index; 7,882 on the Dow), confidence is rising in a sustained rally. It is encouraging that stocks rallied in the face of weak economic data, suggesting that much of the bad news has been priced in. However, we believe this rally will prove to be just another bear market rally, similar to the one that ended this past May, given the tremendous de-leveraging that is occurring across the globe.

Stocks are likely to tread water until Tuesday’s election results are known. The markets are positioned for an Obama victory, but probably not for a Democrat-controlled Congress. On Friday, expect the employment report to have a significant impact (consensus is for a rise in the unemployment rate from 6.1% to 6.3% and a loss of 200,000 jobs in October).

For more information or to ask questions, e-mail us at kanaly@kanalytrust.comor visit us at www.kanaly.com.

Disclaimer

Nice Close with Positive Implications

Market action today was encouraging and supportive of our case that last Friday marked at least a short-term low for equities.  An early plunge of nearly 400 points on the Dow this morning gave way to an upward move of nearly 800 points.  Market internals were positive as well, as advancing stocks exceeding declining stocks by four to one, and upside volume exceeding downside volume by four to one.  In addition, the VIX (an index measuring the degree of fear in the market) hit an all-time high today, suggesting extreme pessimism.

One of the most accepted notions in the financial markets is that important lows eventually must be “retested” in order for market participants to have confidence that a market bottom will hold.  Most market bottoms are retested over a period of weeks or months; however, in this case it appears we have seen a retest in just four days.  Viewed in this context, the downside action following Monday’s historic gain was necessary and healthy, assuming Friday’s low was not violated.  

Only time will tell if the markets have put in a bottom.  However, today’s action has the potential to shift psychology to the positive, if only for the short term.  The critical market factors to watch for continued improvement remain firmly focused on the credit markets: that is, the LIBOR rate and credit spreads.

For more information or to ask questions, e-mail us at kanaly@kanalytrust.com or visit us at www.kanaly.com.

 

Disclaimer

Was the US Treasury's attempt to calm the markets a wise move?

In an unprecedented move on Friday morning, Treasury Secretary Henry Paulson announced several measures to help stabilize the markets. We feel that each of these measures is beneficial for market stability and short-term equity market recovery. We also believe that the full implications of these steps are unknown at this point. The details are not fully out to the markets and there are many questions as to the cost and ultimate impact in the coming months.

These steps come on the heels of some of the most significant market shifts in the last 50 years. The failure of Lehman Brothers, the merger of Merrill Lynch with Bank of America, the rescue package for AIG, and this Friday’s announcements are truly monumental, historical, and, in many ways, unprecedented.

The reaction from the markets has been very positive, with stock prices in the Us and worldwide surging. Whether this is a sustainable rebound or simply a huge bottoming rally will remain to be seen. In the Treasury markets prices are, of course, falling dramatically (higher yields) as the “flight to quality” trade finally begins to show rational behavior. The Treasury market has experienced both its historic rally and sell-off this week. The 10-yr moved from 3.4% to over 3.75% in Friday’s early trading activity. The 3-month T-bill, which has actually gone to negative yields as investor demand peaked, traded up almost 75 basis points in the first few hours of Friday morning.

At the very least, we expect volatility to continue in the near-term. The recommended measures were overdue, but certainly welcome. However, they are not free and they do not provide an easy fix to Wall Street woes. It took many years to get to this level of excess, and it won’t be over with a wave of the pocketbook from Washington. The current turmoil and crisis is clearly an event driven by a lack of confidence in the financial system. That confidence has now been restored – at least for now.  On the downside, the costs will be immense and the moves debated for years to come. Already chiming in is John Bogle, founder of Vanguard, who stated, “We're playing a game of casino capitalism, interfering with the way the market is working.  The government seems punch drunk. It doesn't seem systematic.”

Following is a brief summary of Friday’s announcements:

Money Fund Insurance

The US Treasury plans to use as much as $50 billion from the country's Exchange Stabilization Fund to temporarily protect investors from losses on money market mutual funds. The Treasury will insure, for one year, holdings of publicly offered money market funds that pay a fee to participate in the program. Retail and institutional funds are eligible, the department said today in a statement.  What is not known are the fees and costs to this program to the funds, and also how the plan is to be executed. This move was put in place to stop money market mutual funds from having “runs” on their asset bases as institutions moved to short-term Treasury securities. The Investment Company Institute reported on Friday that $169 billion had left money funds, with the vast majority of that being institutional players, not retail investors. In addition, there have been reports of near failure at several new funds, including the Putnam Institutional Prime Fund, which was closed and is now in process of liquidation.

Given the vital role that money market funds play in the smooth functioning of the overall credit and capital markets, as well as the retail panic more fund failures might have provoked, we think this move stabilizes the money fund industry, and money market funds in general, and provides a level of confidence that was needed to maintain pricing valuations.

Ban on Short Selling Financials

The SEC announced a temporary ban on the short-selling of financial companies' shares until October 2. The UK took a similar step on Friday. The list of US firms includes 800 companies. The SEC and the New York Attorney General’s office announced the start of investigations into whether investors illegally drove down the stock prices of financial firms. Additional SEC rules also took effect to halt manipulative trading. These rules address the options market regulations governing the prompt delivery of borrowed shares, impose penalties on brokers if their clients haven't delivered shares to buyers three days after a short sale, and make it a fraud for investors to lie to brokers about locating shares to be sold short.

A New “RTC”

Treasury Secretary Paulson also announced that US officials will establish a fund, reported to be $800 billion, to purchase failed loan assets. On Friday morning, Paulson described two steps:

First, to provide critical additional funding for the mortgage markets, the GSEs Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed securities (MBS).

Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program announced earlier this month. This will complement the capital provided by the GSEs and will help facilitate mortgage availability and affordability.

“These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for purchase by the GSEs or by the Treasury program,” said Paulson.

Liquidity Infusion

Over the past several days the Federal Reserve added tremendous liquidity to the market. According to the Fed, “The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks. The FOMC has authorized increases in the existing swap lines with the ECB and the Swiss National Bank. These larger facilities will now support the provision of US dollar liquidity in amounts of up to $110 billion by the ECB, an increase of $55 billion, and up to $27 billion by the Swiss National Bank, an increase of $15 billion. In addition, new swap facilities have been authorized with the Bank of Japan, the Bank of England, and the Bank of Canada. These facilities will support the provision of U.S. dollar liquidity in amounts of up to $60 billion by the Bank of Japan, $40 billion by the Bank of England, and $10 billion by the Bank of Canada.”

The amount of money infused to the system is staggering but needed in the near-term. Longer term it may disrupt the normal operations of monetary control and, of course, could be quite inflationary in nature.

Kanaly Trust's Investment Strategy

We believe the equity markets reached an important low Thursday morning as panic set in. Trading volume set records on successive days in excess of 10 billion shares and the Volatility Index reached a level (42) not seen since the market bottomed in 2002. However, major market bottoms are almost always retested prior to starting a bullish trend, meaning we should eventually revisit yesterday’s lows.  We expect the market to rally a limited amount from here (5%-7%) as short positions are covered, allowing an opportunity to raise additional cash. Should the markets successfully retest the lows, we would have more confidence that a market bottom has been reached and would consider a more aggressive allocation to equities at that time.

For more information or to ask questions, e-mail us at kanaly@kanalytrust.com or visit us at www.kanaly.com.

 

Disclaimer

Market Update

As Houston recovers from Hurricane Ike and the financial storm on Wall Street intensifies, I would like to provide an update regarding Kanaly's market thoughts.

First, Kanaly's investment professionals are fully engaged, with the ability to monitor markets and manage client portfolios. Second, client portfolios remain defensively positioned as we anticipated further dislocation among financial service organizations. We do not own shares in negative headline grabbing firms including Fannie Mae, Freddie Mac, Lehman, AIG, Washington Mutual, or Merrill Lynch. We do have some exposure to Buffet's Berkshire Hathaway, a firm likely to benefit from this turmoil. Furthermore, we do not see significant direct impacts on the portfolios from the bankruptcy of Lehman.

Events over the weekend certainly seem to be without precedent, however, we see some positive developments. Oil prices have come down substantially, relieving pressure on the economy. Bank of America has agreed to buy Merrill Lynch, suggesting that there is value in Wall Street firms and averting another large scale failure. Lehman was allowed to fail, rather than kept on life support by the government. The long-term emerging market demand theme remains intact despite a severe correction, and equity markets are displaying some signs of a bottom, though it is too soon to make that call.

Our portfolios are invested in financially strong companies that we expect will be meaningfully higher one year from now. We believe the best course of action is avoid panic and preserve cash for the inevitable opportunties that are coming. We will continue to watch for three key indicators of an improved market environment: lower credit spreads, improvement in the housing market, and classic signs of bottoming action in the equity market.

For more information or to ask questions, e-mail us at kanaly@kanalytrust.com or visit us at www.kanaly.com.

 

Disclaimer

July Market Update

July saw an easing to June’s market freefall, with the Dow (up 0.4%) and the S&P 500 (down 0.8%) slowing the decline that began last month. The Dow posted its first positive month since April, pulling the index out of bear market territory where it was for the majority of July.  Earnings season did little to bolster investor confidence, as second quarter numbers for S&P 500 companies indicated a growth rate of -20.4%.  Once the figure is finalized, it will mark the first time since Q2 2001 – Q1 2002 that the S&P 500 has recorded four consecutive quarters of negative growth.

 

Also impacting stocks in July were several releases of key economic data.  Driven by exports and government stimulus checks, second quarter GDP was reported to have grown at a 1.9% annual rate (0.5% below analyst estimates), following a weak 0.9% rate of growth during the first quarter.  The economy has proven to be surprisingly resilient in the face of several adversarial forces, including tighter credit, soaring energy prices, a tumbling housing sector, and consumer gloom.  The housing sector, while still declining, may be seeing a slowing to its dramatic downfall, as residential investment was shown to have declined a less severe 16% during the second quarter.  The labor market, however, showed signs of continued deterioration in July; unemployment increased to 5.7% during the month, a four year high, and the decline of 51,000 in jobs marked the seventh straight monthly decline for the US economy.  With inflation on the rise and wage data reflecting minimal increases, experts worry there may be a sharp drop in consumer spending in the coming months – a big detriment to the resiliency we have seen until this point.  Many see the situation for the US economy as bleak for the near future; recent performance has been largely propped up by increasing exports (up 9.2% this quarter) and stimulus checks, which may soon be wearing off.  Stronger fundamental indicators need to be restored before full confidence in the economy is warranted.

 

July saw a reversal of recent trends as the much-beleaguered financials led all sectors in the Russell 1000 at 6.0%.  The sector appeared to benefit from the SEC’s limit on short-selling Fannie Mae, Freddie Mac and 17 other large investment firms.  The oil and energy sectors, on the other hand, were the laggards across the capitalization spectrum, as oil was driven down from its near record highs in the $140s to the $120s. Consensus is mixed on whether this price correction is a momentary pause in oil’s climb higher, or whether there has been a fundamental shift in global demand.

 

International markets, both developed and emerging, continued their slump in July.  The story continues as it has for some time - weaker housing markets, weaker equity markets, higher consumer prices and high market volatility.  In contrast with prior months, however, crude oil prices and commodities in general slumped badly.  The MSCI EAFE index lost 3.2% and the MSCI Emerging Markets index lost 3.7% in July.    Small caps fared poorly, with the S&P/Citigroup EMI ex-US index losing 5.1% during July, as investors sought safety and greater transparency in larger cap stocks.  Within the MSCI EAFE index, energy and materials led the decline, falling 12.0% and 9.8%, respectively.  Financials rebounded slightly, gaining 0.4%, while health care was the best performing sector, gaining 2.8%.

 

The real issues for the economy are job growth and inflation. The employment data has been weakening for several months, and as of the start of July, the unemployment rate now stands at 5.7%. Economists and investors alike are focusing on the job markets because those will ultimately boost falling consumer confidence. A steadying in the employment picture can and will help the financial markets going forward. On the inflation front, both PPI and CPI have increased due to energy and agriculture price hikes. The positive news has been the reduction in crude oil prices by almost $20 from their high as demand in the US has slacked off. Even with the decline in oil, the inflation push will continue in the months to come and is high on the radar screen for the Federal Reserve.

 

The Fed remains on hold in its monetary policy after electing to keep rates unchanged on June 22. The Fed is not expected to move on rates until later in 2008, if at all. The tentative nature of the economy combined with the continued need for liquidity by institutional banks and brokers will keep the money tap running at a good clip, well into the last months of 2008. The Fed is attempting to balance enough money flow to maintain economic stability while not accelerating inflation. This balancing act will be very important to the markets in the months ahead.

 

For more information or to ask questions, e-mail us at kanaly@kanalytrust.com or visit us at www.kanaly.com.

 

Disclaimer

Market Update 6/11/08

The US economy has been helped by continued strength in the export sector. While most economists called for slowing, if not negative, GDP growth in the first quarter, the preliminary data showed a 0.6% increase. The final data for Q1 came in at a 0.9% increase. While the slowdown in housing and its ancillary industries has been a drag on growth, the weaker dollar has provided a backstop for the struggling economy. Economists are now starting to shift their recession bias towards more subtle slow growth in Q2; however the consensus remains for strong growth in Q3 and Q4.

Whether the economy has weathered a recession or not is essentially moot at this point; what is more important is a sustainable recovery into the later part of 2008. Without a doubt, the road ahead is not clear of all obstacles, including building inflationary pressures from rising energy prices in both crude oil and gasoline. While core (ex-food and energy) consumer price inflation is running at a year-on-year rate of approximately 2.4%, the overall rate, the one that we consumers deal with every day, is closing in on 4.0%. The rise in inflation is now being felt across many industries including trucking, airlines and chemical aggregates. As an example, Dow Chemical, which makes everything from paints to pharmaceuticals, announced an increase in prices of 20% across the board. Price increases such as this now have the Federal Reserve rethinking overall monetary policy.

The Federal Reserve lowered interest rates from 2.25% to 2.0% on April 30. This was the seventh interest rate cut they have made since September 2007. In many analysts’ view, it may be the last. The Fed’s willingness to provide significant amounts of liquidity through the reduction in the Fed fund rate and through other commercial auction processes, has seemingly provided the targeted stability the Fed governors sought. However, talk by Fed officials post the April rate cut has been much more cautious, with repeated discussion of the risk of inflation now in the market. In their April 30th statement, the Fed said,

“Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months.”

It appears now that fixed income investors believe the Fed’s work is done, and further rate cuts are less likely. Indeed, the probability for an unchanged rate decision at the Fed’s June 30th meeting now ranks near 90%, and just 8% for a 25 basis point cut.

Along with changes in Fed policy, has come a change in Treasury market activity. For many months, the 10-yr Treasury bond has maintained a steady yield near the 3.5% level. The thinking was that a continued “flight to quality” trade would remain in place during market turmoil and allow the Fed to continue to cut rates. As of the end of May, the 3.5% level was essentially abandoned overnight in favor of a 4%+ range. This came on the heels of an upwardly revised GDP and signals that the Fed had completed this cycle of rate cuts. The good news that can be read from such a move is that the fixed income community believes, right or wrong, that the credit crisis may be behind us. However, the early June downgrade of several large Street broker dealers, including Lehman Brothers, Merrill Lynch and Morgan Stanley, suggest there may be some further write downs ahead. In either case, the Treasury market has seen a significant shift which is also being reflected in the yield curve. The 2-yr / 10-yr Treasury spread, which had been as wide as 200 bps in mid-March, now sits at 135 bps at the end of May. Compared to the 25 bps spread in August 2007, the market has come a long way.

For more information or questions, e-mail us at kanaly@kanalytrust.com. Or you can visit us at www.kanaly.com.

Disclaimer

4/18/08 Market Update

U.S. stocks have rallied nearly 10% over the last month based on a handful of positive developments. First, the Federal Reserve-orchestrated buyout of Bear Stearns greatly reduced the probability of a financial system collapse. The President and Congress seemed committed to prevent a deep recession in this election year. In addition, many bank CEOs have expressed confidence that the worst of the credit market turmoil has passed. As a result, many investors expect that any recession will be short and shallow, with stronger economic growth just around the corner. Finally, first quarter corporate earnings, excluding GE’s surprising disappointment, have been better than expected from large companies such as Intel, IBM, Google, Caterpillar, JP Morgan, Honeywell, and Citigroup.

However, this may just be yet another bear market rally, and it is prudent to take a little off the table, based on the following:

• The credit markets continue to show signs of significant stress. This week's big news was that banks may be under-reporting their true borrowing costs in the LIBOR markets, resulting in a substantial rise in borrowing costs over the past few days. If banks continue to hoard cash, then the borrowers most in need of credit have no access. This leads to slower economic growth, and a long de-leveraging process.
• Data released this week indicates the housing market continues to deteriorate. Housing starts have plunged to the lowest level since 1991, and declined by double the rate expected by economists in March. Housing weakness triggered the credit market turmoil, so it is difficult to see the light at the end of the tunnel without some signs of stability in the housing market.
• Commodity price inflation shows no signs of slowing as crude oil touched a record $117 a barrel today. There is a global shortage of key commodities, subjecting consumers and corporations to higher cost burdens at a difficult time.
• Major stock indices are now trading at the top of a range that has persisted for much of 2008.

For more information or questions, e-mail us at kanaly@kanalytrust.com. Or you can visit us at www.kanaly.com.

Disclaimer

Market Update 3/11/08

   This morning the Federal Reserve announced plans to lend up to $200 billion to banks, and will accept both agency and private mortgage-backed securities. The markets are enthusiastically welcoming this news as it provides much-needed liquidity to credit markets that have been melting down in recent days. 

   This increases the odds that yesterday marked a successful retest of the January 23^rd low. We will see massive short-covering today, driving strong gains in the equity markets. However, before becoming more aggressive towards equities, we need to see if this action by the Fed is successful in restoring calm to the credit markets.

   This week, our Chairman Drew Kanaly was featured on CNBC "Squawk on the Street" and our Chief Investment Officer James Shelton was featured on CNBC "Worldwide Exchange" to discuss the latest news on the marketplace. Follow the links to hear what they had to say.

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