Dorion-Gray Retirement Planning
Weekly Market Commentary
July 6, 2009

Technically Speaking

Due to a lack of corporate news last week, all eyes turned to economic reports. Two of the most widely watched reports – ISM manufacturing and employment failed to live up to expectations and sent the markets down for the week.

The ISM manufacturing index improved slightly, but remained negative with a reading of 45 compared to 43 in May. The reading for new orders declined from 51 (slightly positive) to 49 (slightly negative). (Readings that exceed 50 indicate growth.)

Both household employment and payroll measures of jobs fell by about the average of the past two months. Expect the employment picture to continue weakening as businesses both large and small prepare for increased taxes and the increasing costs associated with ever expanding regulation.

The only key report due this week was just released, the Institute for Supply Management's services index rose to 47 in June from 44 in May. Economists polled by Thomson Reuters had expected a reading of 45.5. A slightly positive sign.

However, oil has dropped about $9/ per barrel in a little over a week on the growing belief that the global economy won't be strong enough to lift demand for energy as much as had been expected.

Due to conflicting signs about the short term direction of our economy, we continue to expect to see the market moving slightly lower and volatility remaining quite high as the market based on the S&P 500 moves from between 875 and 913 over the next few trading sessions.

The Markets

Now that we’ve passed the halfway mark in 2009, let’s review what transpired in the financial markets.

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not available.

STOCK MARKETS SOAR

The carnage of 2008 and the first quarter of 2009 was followed by a blistering bull run in the second quarter. According to The Wall Street Journal, every country in the Dow Jones Global Index experienced a positive return in the second quarter. Here are some of the winners.

Country Returns Based on the Dow Jones Global Indexes

Ranked by U.S. Dollar Performance

Winners

Source: Dow Jones Indexes

Other Notables

Source: Dow Jones Indexes

Overall, the Dow Jones Global Index, excluding the U.S., rose 27.4 % during the quarter, as indicated in the box score above. Notice that many of the top performing stock markets in the second quarter were in emerging countries.

CREDIT MARKETS DIVERGED

In 2008, investors fled to the relative safety of U.S. government securities and this helped propel the Morningstar Long-Term US Government Bond index to a 28 % gain. In the second quarter of 2009, some investors decided it was time to reverse that trade and put money back to work in the stock market. As a result, stock prices rose and the Morningstar index dropped about 9 % in the second quarter and 15 % for the first six months of the year. While government bonds declined in value, corporate bonds rose as investors reached for extra yield. The Morningstar Long-Term Corporate Bond index rose almost 10 % in the second quarter while the Merrill Lynch High-Yield Bond index rose an astounding 23 %.

The paradoxical lesson here is that “you may pay a high price for safety.” In 2008, seeking shelter in Treasury securities paid off. In 2009, it was a different story as many investors decided to move further out on the risk spectrum. Whether this latest move to add risk ultimately pays off is yet to be determined.

COMMODITIES WERE MIXED

The DJ-UBS Commodity Index rose a solid 12 % for the quarter.

While many commodities showed solid gains in the second quarter, some of them are still down substantially from their highs in 2008. In order for the commodities rally to continue, we may need to see definitive signs that the worldwide economy is on a new growth track. The odds of that happening seem to be slipping a bit here recently, especially in light of the weak June U.S. employment report.

THE DOLLAR FINALLY CRACKED…A BIT

For some time, a small but vocal group of critics has warned that the government’s massive stimulus program and expansionary monetary policy will lead to a debasement of the dollar. In the second quarter, we finally saw a crack in the dollar’s armor. According to The Wall Street Journal, the dollar dropped 5.3 % against the euro, 2.7 % against the Japanese yen and 14.7 % against the British pound. It also fell 5.5 % against a trade-weighted basket of currencies tracked by J.P. Morgan Chase.

As the worldwide economy started to stabilize (albeit at a low level) in the second quarter, currency investors began to focus on the super-low government interest rates in the U.S. That may have been one factor in the recent weakness in the dollar. If worldwide economic growth resumes, that could put continued pressure on the dollar. If the economy goes into another tailspin or the financial markets take it on the chin again, we could see the dollar strengthen as a flight to safety resumes. In other words, so goes the economy, so goes the dollar.

SUMMARY

As the quarter drew to a close, most investors save for a small group of fringe pundits; felt the risk of financial Armageddon was now off the table. Again, as we have been saying all along, everything still points toward a re-evaluation of risk being the major cause of the stock rebound in the second quarter. With that said, it is too soon to flash the all-clear signal. It took us over 30 years to get the country into this financial mess and it may take us years to get out of it.

OF INTEREST

Ten Percent Or More – The S&P 500 stock index has produced positive double-digit calendar year performances on a total return basis 58 percent of the time over the past half-century (i.e., 1959-2008) but only three of the past nine years (2000-08) have generated total return gains of at least 10 percent (Source: BTN Research).

Take It Back – If the 10 U.S. banks that received permission from the Treasury Department on June 9 to repay their TARP funds actually do repay the $68 billion they have received, that would bring the total amount repaid back to Uncle Sam to $70 billion, representing 35 percent of all TARP funds paid out to more than 600 banks nationwide (Source: Treasury Department, BTN Research).

Don’t Be Late – The 2000-02 bear market bottomed on Oct. 9, 2002. The S&P 500 gained 101 percent (not counting the impact of reinvested dividends) over the next five years after that Oct. 9, 2002, low close. The S&P 500 gained 62 percent over the five years beginning Nov. 9, 2002 (i.e., one month after the bear market ended). The S&P 500 gained 52 percent over the five years beginning Jan. 9, 2003 (i.e., three months after the bear market ended). The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market (Source: BTN Research).

Changes On The Horizon – Regulatory oversight changes proposed by President Obama on June 17 may lead to the elimination of the Office of Thrift Supervision (OTS), an agency of the Treasury Department that was established in 1989 as a result of the nation’s savings and loan crisis. The OTS has been the primary regulator of federal savings associations, aka thrifts (Source: Office of Thrift Supervision, BTN Research).

Weekly Focus – Think About It

“Freedom has its life in the hearts, the actions, the spirit of men and so it must be daily earned and refreshed - else like a flower cut from its life-giving roots, it will wither and die.”

-- Dwight D. Eisenhower

Best regards,

The Dorion-Gray Team

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Advisory services offered through Dorion-Gray Financial Services, Inc.

A SEC Registered Investment Advisory Firm.

Dorion-Gray Retirement Planning is a trade name of Dorion-Gray Financial Services, Inc.

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* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Past performance does not guarantee future results.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.