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Market & Economic Brief

November 19, 2008

WORLD MARKETS
After attempting a rally earlier in the month, U.S. stocks broke recent support levels and established fresh lows. Commodities and World REITs have also found new lows. Many international stock markets are still maintaining previous support levels. Intermediate term U.S. treasuries continue to rally in a flight to quality. The near term bias has again turned negative for stocks.

WORLD ECONOMY
The weekly leading and monthly coincident indexes we follow continue to weaken, suggesting more trouble ahead for the U.S. economy. Many European countries continue to report deteriorating economic conditions as well. China reported a dip in October retail sales but consumer spending has held up better than many other parts of their economy.

INFLATION DATA
Producer costs fell a record 2.8% in October, led by a huge decline in energy prices. Future inflation indicators we track also continue to decline.

U.S. RESIDENTIAL HOUSING
The Nat’l Association of Home Builders fell to its lowest level since 1985 in November. Home prices declined in 4 out of 5 cities during Q3. The FDIC has proposed using $24 bil. of the TARP funds to help stem foreclosures. The leading home price index we track rose slightly for August (the latest data available). Additional increases may signal a bottom in housing prices.

Our Market & Economic Outlook

Most economic and market data is historical in nature which offers limited value in terms of making investment decisions, especially when transitioning from the asset accumulation to the asset distribution phase of life. Fortunately, there are some indicators that have a historical record of signaling turns in economic conditions. At Dightman Capital, we attempt to blend historical and forward looking indicators to formulate our investment viewpoint.

U.S. Equities The stock market trend can usually be characterised as advancing, declining or moving sideways. Additional detail on the strength, magnitude and length of time for the trend helps determine the current state of U.S. stocks. A change in the direction of stocks prices usually do not correlate with changes in economic conditions. Generally stock market prices lead economic changes. Once the stock market character has changed, we would expect leading economic indicators to supporting or help explain the change.

U.S. Economic Growth
The intention is to signal business cycle peaks and troughs in advance or early in the change.

U.S. Inflation
The intention is to signal turns in the inflation cycle in advance or early in the change.

U.S. Residential Housing
The intention is to signal turns in the residential housing market in advance or early the change.

The Market & Economic Outlook is not presented as a reason to make changes to our portfolios. More often it is used as a reason not to take action. Stocks spend the majority of their time moving up. However, there may be conditions that warrant a more careful approach to making new investments as well as changes to the composition of exiting investment allocations, depending on the strategy being deployed.

Sources
Dightman Capital uses a variety of information sources when assessing market and economic conditions but the primary sources for the outlook on our website are:

For U.S. Equities http://www.investors.com/

For Economic Growth, Inflation, & Residential Housing http://www.businesscycle.com/