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Prieur Perspective: A Silver Lining for the Housing Market?


Affordability, stability both on the upswing.

"Down, down, deeper and down." So goes the chorus of a Status Quo song, but it's eerily starting to sound like the stock markets' anthem.

Another week and another plunge of equities on fears about the intensity of the global recession, and renewed skepticism regarding the beleaguered financial sector. And, yet again, flight-to-safety trades such as the US dollar (at a 3-year high) and government bonds took center stage.

Our family yesterday celebrated my son's eighth birthday. While the kids were amusing themselves in pirate garb, the parents engaged in a more subdued deliberation about the exhausting stream of ugly news on the financial front. Interestingly, never in a career of 26 years have I had so many people sympathizing with my "day job" as an investment manager. Will the arrival of food parcels at my front door perhaps herald a bottom in the stock market?

Back to the past week's action on the markets. Globally, stocks were generally in the red, as summarized by the week's movements of the MSCI Global Index (-7.1%, YTD -24.2%) and the MSCI Emerging Markets Index (-2.2%, YTD -13.9%). As far as mature markets are concerned, European countries like Italy (+15.6%), Denmark (-11.7%), Belgium (-10.0%) and Holland (-9.2%) were on the receiving end of the selling orders.

The FTSE Eurofirst 300 Index touched the lowest level in its 12-year history, whereas the Japanese Nikkei 225 Average (-5.2%) came to within a stone's throw of a 26-year low.

But a few bourses also put up a good show, mostly among emerging markets. The Russian Trading System Index (+5.8%) and Chinese Shanghai Composite Index (+5.3%) brought some joy to investors, while Eastern European markets like Poland (+2.9%) and Romania (+2.3%) rebounded. (Click here to access a complete list of global stock market index movements, in local currency terms, as supplied by Emerginvest.)

As shown in the table below, the major US indices suffered another miserable week, recording 8 losing weeks out of 9 in 2009, and falling to 12-year lows. The Dow Jones Industrial Index's 2009 year-to-date decline of 24.5% is by far the worst start to a year after 44 trading days since 1900. According to Bespoke, there have been 19 previous years where the Dow was down 5% or more at this point, and only 4 of those years ultimately finished in positive territory.

The Dow is currently down by 53.2% since its peak of October 2007. Chart of the Day points out that since 1896, only the bear market that started in 1929 has produced a larger slump.

On the exchange-traded fund (ETF) front, John Nyaradi (Wall Street Sector Selector) reports that "all things short" was again the theme of the week, with ProShares Short Financial (SEF) leading the way with a gain of 18.1%. Other inverse leaders were ProShares Short Russell 2000 (RWM) (+10.0%) and ProShares Short MidCap 400 (MYY) (+9.3%).

Among "long" ETFs, the notable leaders were iShares MSCI Taiwan Index (EWT) (+5.0%) and US Oil (USO) (+3.5%).
No positions in stocks mentioned.
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