The Markets are now in a high risk, low reward situation.

This week John P. Hussman, Ph.D. reported an Unpleasant Skew. See:
http://www.hussman.net/wmc/wmc100405.htm

In summary John said, "The first crucial observation is that high risk market conditions like we observe at present come with an "unpleasant skew." If you look at overvalued, overbought, overbullish, hostile yield conditions of the past, you'll find that the most likely market outcome, in terms of raw probability, is a continued tendency for the market to achieve successive but slight marginal new highs. While this movement tends to be fairly muted in terms of overall progress, it can be somewhat excruciating for investors in a defensive position, because the market tends to pull back by a only a few percent, followed by bursts that recover that lost ground and achieve minor but widely celebrated new highs. That is the "unpleasant" part.

The "skew" part is that although the raw probability tends to favor slight successive new highs, the remaining probability tends to feature nearly vertical drops, typically well over 10% over a period of weeks. Frankly, I thought we had begun that process in the decline from the January highs, but much like we observed in early 2007, that initial decline was quickly recovered and followed by a restoration of overvalued, overbought, overbullish, hostile yield conditions. Eventually, of course, the outcome for investors was very bad, but that in no way rescued us from discomfort as the market approached its final peak in 2007. I suspect something similar is at work at present, but we will take our evidence as it comes.

Asset values have been written up over the past year, but the underlying cash flows clearly continue to deteriorate. Delinquency rates remain at record highs, while foreclosure rates have lagged, creating a massive shadow inventory of bad but unforeclosed mortgages in the U.S. financial system. "


World Outlook
A 20% improvement in sales after an 80% drop still leaves a company 76% lower this year. But the market prices the stocks much higher because the growth rate makes the stocks PEG seem like a great buy. It can be a very slow growth company that looks good only because the investors are short sighted and believe the stock hype Jim Cramer and others give them. The Baltic Dry index measures the health of world trade. It has shown a serious decline in the last few months and that no doubt is why Jim Cramer has been ignoring it of late. It means world trade is slowing,
http://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AIND


Economic Calendar
Finally American jobs are being created faster than they are being lost. See:
http://www.martincapital.com/chart-pgs/Pg_jobs.htm

However, below that chart is another chart that shows the high unemployment rate. What is not shown is that there are a greater percentage of Americans who have been unemployed now for more than a year than in any period since the Great Depression. That block of unemployed Americans will take a long time to re-absorb into the economy.
ISM non manufacturing index rose to 55.4% from 53% last month indicating services are expanding at an increased pace.
US Treasury prices slid on Monday with benchmark yields touching 4 percent for the first time in 10 months as inflation is anticipated. Inflation is better now than deflation.
Pending home sales- the National Association of Realtors said Monday its seasonally adjusted index of sales agreements rose 8.2 percent from January to a February reading of 97.6. January's reading was revised slightly downward to 90.2 to make the current month look better. This is still a good sign.

Yesterday
FOMC minutes were once again positive. In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the liquidity meltdown. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close June 30.


Wednesday, April 7:
Treasury 10-yr note auction

Thursday, April 8:
Unemployment claims
BOE rate announcement
ECB announcement

Friday, April 8:
Wholesale Trade Report



Market Outlook April 7
While the NYSE could be setting new highs this week the NYSE adjusted for volume being higher on recent declines than advances now has to rise about 1.6% just to reach the highs of last October and December. We agree with John Hussman from our stock market cash flow perspective that uses stock volume. In 2007 we saw as now that the slow ascension of new market highs were not supported by market volume. When corrected for lower volume on advances the market cash flow index was as now showing first flat and then declining lows and highs.

Obama and the democrat-socialists are setting the stage for short sellers of every breed to sweep in soon and attack American markets and currencies. The fact that George Soros funded the Obama campaign should have been enough cause for every American to vote against the Obama regime.

World Markets
Asian markets were up slightly over night; Shanghai down -0.3%, Hong Kong up 1.8%, India up 0.2%, and Japan up 0.1%.

European markets are currently down in the range from 0% to -0.5 % this morning about half way through their day.

Today US pre-market futures are down in a range -0.2% to -0.4% at 8:00 AM EST.

We have noticed that the greatest impediment to stock market profits is a portfolio under $100,000. Beyond $100,000 the investor costs go down and diversification begins to work. Below $6000 it is almost impossible for an investor to make money other than in an index fund (at best) and that has performed close to a net zero for the last ten years (even ignoring trading commissions).