Market Update

After a quick perusal of the Wall Street Journal this morning, I counted no less than four articles relating to the subprime mortgage mess. When you consider the damage done to the two Bear Stearn's hedge funds, by leveraging their purchases of securities consisting of subprime mortgage debt, you can understand why the media is all over this one. According to an article by Alan Abelson in Barrons, the combined total of the losses in these two funds is approximatey $20 billion. What is even more eye popping is the amount of leverage used. As of March 2007, the two funds had a total of $1.5 billion in investor money, and with those funds were able to purchase assets, some long and some short, which were valued at $20 billion. By June 30, 2007, after a bail out by Bear Stearns, the less leveraged High-Grade Structured Credit Strategies Fund had about $1.6 billion in value left, while its sibling, the High-Grade Structured Credit Strategies Enhanced Leverage Fund was wiped out.

On a brighter note, the Dow Jones Industrial Average cracked the 14,000 level by .41 of a point on Thursday, only to give back 149.3 points on Friday as investors fretted about corporate earnings. The Standard and Poor's 500 also closed in record territory on Thursday at 1,553.08, but also retrenched 18.98 points on Friday. At just past mid year, the Dow is up 11.14% and the S&P 500 is up 8.16% year to date. The NASDAQ is also up 11.27% so far this year, and many bulls feel the indices still have some strength left as speculation, evidenced by small investor trading, is practically nonexistent.

While economic growth has accelerated recently, core inflation in the CPI has been muted. The Federal Reserve is still somewhat uncertain about the direction of inflation, as demonstrated by the statement, "sustained moderation hasn't been convincingly demonstrated". Recently, the Bureau of Labor and Statistics issued new research, which suggests a slowdown in home ownership costs, in particular owner equvalent rent (OER), which is a measure how much a homeowner would receive for renting his home. OER makes up approximately 24% of the CPI, and the slowdown in housing has resulted in more homes being rented, which restrains the rate of increase in rents. If this new research holds up, then we could conceivable see more benign inflation statistics going forward. Now, if we could only find a way to restrain the rate of increase of the non-core components: FOOD and ENERGY!

John Kaighn is a Registered Investment Advisor with Jersey Benefits Advisors and writes articles on various business and investment information, ideas and opportunities. For more information about this and other topics you can visit Jersey Benefits Advisors and Internet Home Business Ideas and Opportunities