My Financial Notes for the week of 3/24/07 Please note: by no means is this a solicitation or recommendation of any security. These are my thoughts on financial markets put down in print in order to help ME organize my security selection process, gain insight into what the future holds, and analyze my past mistakes and successes. I am not a portfolio manager or trader. Although I work in financial markets (as an analyst for a financial data/ software company), I have absolutely no experience managing assets or portfolio risk of any kind.

The goal of this periodical is to evolve as a market operator through introspection. Indecision kills investments and trades. I will use this to help solidify my views on the markets and note the performance of those views.

Economy: The fed has taken some unprecedented steps to stabilize the economy. They have provided several rate cuts and infusion of credit; including very unusual (but not completely unprecedented) loans directly to brokerage arms of large banks and the acceptance of illiquid securities as collateral. Also worth mentioning was the FEDs assistance in helping JPM acquire Bear Stearns; and an odd interest rate cut, that happened out side the normal FED schedule. Some speculated this cut happened in order to prop the market higher just long enough to allowing for a Societe Generale trader to unload a 6 billion dollar loser with out causing ripples across the market. Some of this intervention causes the traditionalist, the Adam Smith-types, to call foul as the FED may be impeding the invisible hand of a free market system.

The recent events in the market leave me with a Sense of waiting for the next shoe to drop. Was bear stearns an isolated issue or just the beginning οf something much larger? I don't feel comfortable answering that question definitively yet. But I can start watching for the signals and the earmarks of either a soft landing or an economic free fall.

My best case scenerio...
Inflationary pressures caused by 6 years of rising comodities prices and a declining dollar begins to abait. The good news the US dollar, gold, and oil all hit the brakes started what could become a significant contraction late last week (time will tell).
There is some evidence to suggest that volatility (Market speak for fear or optimism) as of late has enabled speculators to push commodities like gold and oil to potential bubble busting levels.

Interventions of the fed were well played and instilled confidence in the market at just right time to prevent an overaction (at the cost of alittle inflation down the road). The stock market has rebounded abit and some very large hedge fund players are out raising capital to buy mortgage bonds on the cheap (suggesting a rebound in the credit markets). Earnings remain stable. The weak dollar reduces the trade deficit (around 7% year over year) and actually revives manufacturing (BMW announcedplans to open plants in the US).

My Worst Case Scenerio...