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Beware the Giant Tick-Infested Rodent

By Jeff Clark
Thursday, April 1, 2010

I knew there was something wrong.
 
"Come in," my friend John yelled at me from inside his house. "We're in the kitchen."
 
I opened the door and discovered my friends' meticulously perfect home had been replaced by a Beirut bomb target. Sofa cushions were on the floor. One leg of the antique rosewood dining table had collapsed. The table lay tilted, with one corner piercing into the hardwood floor below and the other pointed into the air – like the Titanic just before its final plunge.
 
The shattered remnants of a Baccarat vase sparkled from a pool of water that was slowly soaking into the 100-year-old Persian rug. In the hallway, droplets of deep red blood stained the carpet along one side, and a mixture of yellow and brown feces stained the other.
 
John was in the kitchen with his wife, Mary. Their faces were pale.
 
"What happened?" I asked.
 
"I opened the door to let the dogs out into the backyard," John began, "and then I came back upstairs to help Mary with the packing for our spring vacation. The next thing I know, all hell broke loose."
 
The dogs, two prize-winning golden retrievers, had chased a squirrel into the house.
 
"One minute, we're packing and looking forward to a pleasant vacation. The next minute, we're staring at $40,000 to $50,000 in damage."
 
There's no telling the chaos a nervous squirrel can cause.
 
Investors would do well to keep that thought in mind as we enter the second quarter of 2010.
 
The first quarter was like a relaxing springtime vacation. Outside of a couple rough weeks in late January, stocks have gone steadily higher. Each week finished with stocks slightly higher than the week before.
 
Investors are complacent and have no problem leaving the back door open so the dogs can play in the yard.
 
But there's a giant, tick-infested rodent lurking in the garden outside.
 
Beginning today, the Fed is supposed to end its quantitative easing program. The program allowed the Fed to use your tax dollars to buy about $1.3 trillion of mortgage-backed securities (MBS) from troubled banks.
 
That action provided an artificial stimulus to the market. It helped strengthen banks' balance sheets and it funneled liquidity into the economy.
 
Now we'll get to see how the markets work without the artificial stimulus.
 
Who knows? Maybe everything will be just fine. The markets will pick up the slack the Fed leaves behind, and investors can go on packing and looking forward to a pleasant vacation.
 
Or maybe the squirrel will destroy the house.
 
It wouldn't hurt to be insured against the latter, just in case.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Foreclosure worries wane... mortgage insurers MGIC, Old Republic, and Radian spike to new highs.
 
Gold heads for sixth straight quarterly climb... ends March above $1,110 per ounce.
 
Malaysian stocks soar... country fund EWM hits 18-month high.
 
Earnings today... CarMax.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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