No Losing Years.  No Years Less Than 37% Return.

When looking at the markets collectively, there is certainly no shortage of questions: When will the housing market bottom? When will the energy bull market come to an end or correct? What is the biggest problem facing our economy -- inflation, the credit crisis, or the housing market? No wonder many of the markets have experienced a significant decline or slowdown in upside momentum.

The general consensus seems to believe that we will see improvements in the credit crisis as time goes by. Comments made on Tuesday from Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and JPMorgan Chase & Co Chief Executive Jamie Dimon were definitely encouraging in regards to the credit crisis. Bernanke announced that the Fed would continue to keep the lending window open going into 2009. Paulson expressed concern that inflation is a much more serious economic problem than the credit crisis. Finally, Dimon was encouraged that the U.S. is a very resourceful and resilient nation. He mentioned that he is seeing improvements in the credit crisis, although it is far from over.

Another one of the big arguments about the economy has been centered on whether or not we are in a recession. The textbook definition of a recession requires that the economy experiences a negative growth rate for a period of time. We measure the growth rate through the gross domestic product (GDP) report. The Q1 2008 GDP Final report came out as expected at +1.0%, indicating that the economy has continued to grow (barely) through the 1st Quarter of this year. The bottom line is that the economy is not growing as robustly as it was previously, and can be considered to be in a recessionary cycle. The economic data is a lagging indicator, and doesn't confirm a recessionary cycle is in play until well after the fact. I have heard commentary from various analysts that the individual economic concern will continue to pressure the markets, as retail sales decline and the percentage of spending on food and energy increases. The consumer credit has also been rising significantly as inflation has been pressuring the economy. It is no surprise that the consumer confidence has plummeted to shockingly low levels of 50.4 versus 57.2 the previous month, with the added financial pressures. Although the news sounds bleak with reason, it is believed that consumers tend to have a much longer delay in trusting that the economy is improving. Therefore, the consumer confidence numbers tend to be the worst as the economic conditions improve.

Last Friday's Monthly Unemployment report came out as expected, showing a decline of 62K non-farm payrolls. The unemployment rate came out at as expected at 5.5%. The continued pressure in the job market is expected to come primarily from the financial sector. Historically speaking, an unemployment rate of 5.5% is still relatively low in this type of recessionary environment. The weekly jobless claims numbers have also been on the rise week after week.

Many analysts believe that high prices are here to stay, but we are due for a correction. We have experienced a correction in many of the commodity markets this week, but the long-term trend is clearly intact and could withstand a rather large correction before becoming a bear market. The inflation pressures are predominantly a result of high energy and input prices. Next week's producer price index (PPI) and consumer price index (CPI) numbers will continue to help us measure the rate of inflation present. PPI is expected to come out +1.3%. CPI is expected to come out +.7%. The financial woes are expected to help contain inflation pressures, due to an expected decline in demand for physical goods.

Over the past few weeks, there has been a high-inverse correlation between a sell-off in the stock market and a rally in energy prices. And continued woes with financial companies keep coming to the forefront. Over and over again, we continue to hear that any sort of trend-changing rally in stocks cannot be possible, without a bottom in the financial sector. Just as in January and April, the stock indexes are experiencing a lot of pressure as we prepare ourselves for a barrage of negative earnings reports from financial companies. Included at the forefront right now are the financial woes of Fannie Mae and Freddie Mac. According to comments made by former St. Louis Federal Reserve President William Poole, the odds are increasing that the U.S. will have to decide whether or not to bail out Fannie Mae and Freddie Mac. They are becoming ever-more insolvent as a result of the housing slump. On the contrary, Paulson has been assured by regulators that the entities have enough capital. The contrary information is further leading to uncertainty and skepticism in the marketplace.

Finally, the housing market and manufacturing industry seem to be improving a bit, if you look at the recent data. The new home and existing home sales came out better than expected at 512K and 4.99 million homes respectively. It is important to note that the new homes sales did decline from the previous month though. However, we must keep in mind that this is the peak season for buying a home. The bearish factors include the continued decline in housing prices. That decline and the weaker job market have caused foreclosure filings to jump 53% in June. Also, the number of homes on the market continues to remain high, with more than 10 months of supply on the market.

Technical Update for September Ten-Year Notes:
Near-Term Trend: Higher
Long-Term Trend: Sideways
Support: 113-28.0
Resistance: 115-28.0
From looking at the weekly chart at the bottom, the downtrending channel in the TY note appears to be testing major resistance. Considering the extreme oversold stochastics, this could become a good buy in the market if the TY were to rally through the 115-28.0 to 116-05.0 area resistance on the weekly chart.

If you cannot view the September Ten-Year Notes chart, go here.

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