Weekly Economic Update

Quote of the week. “A clever man commits no minor blunders.” – Johann Wolfgang von Goethe

Fed holds rates, stocks soar. Stocks were already rallying Tuesday as the Federal Reserve issued a confident opinion on the economy. Explaining its decision to leave interest rates alone, the Fed said that “economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports.” While conceding that inflation “has been high”, the Fed also felt it would ease later in 2008. The big three indexes gained almost 3% on the day.¹

Woes at Citigroup, Fannie Mae. Fannie Mae reduced its dividend by 86% on Friday in the wake of its fourth straight quarterly loss ($2.51 per share).² Thursday, Citigroup moved to buy back or help clients sell $19.5 billion in auction-rate debt, and faced $100 million in fines to settle regulatory claims.³

Dollar gains, oil falls. After the European Central Bank held interest rates at 4.25% in response to inflation, the dollar rocketed north and oil prices went south again. Oil futures fell to $115.20 on the New York Mercantile Exchange Friday afternoon, the lowest close since May 1. ^{4, 5}

Pending home sales up 5.3%. This was some great news from the real estate sector, courtesy of the National Association of Realtors. June pending home sales were still 12% below June 2007 levels.⁶

Big gains. The core indexes rallied nicely last week, helped by surprising earnings reports, the Fed statement and falling oil prices. The S&P 500 rose more than 2.8% and has gained 6.7% since July 15; the NASDAQ gained almost 4.5% for the week, and the DJIA rose 3.6%. ⁷

% Change	Y-T-D	1-Year	5-Yr Avg
DJIA	-11.54	-16.39	+5.53
NASDAQ	-8.98	-8.24	+9.37
S&P 500	-11.72	-15.52	+6.52

(Source: CNBC.com, CNNMoney.com, 8/8/08) ^{8, 9}

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.

Last week’s riddle: Is it legal in Wales for a man to marry his widow’s sister?

Answer: No, because the man is dead – it is not legal or possible.

These views are those of Peter Montoya Inc., , and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

Citations. ¹ cbsnews.com/stories/2008/08/05/business/main4323232.shtml [8/5/08]

² bloomberg.com/apps/news?pid=20601103&sid=a1Q.uMr71kSY&refer=news [8/8/08]

³ chron.com/disp/story.mpl/business/5931313.html [8/7/08]

⁴ money.cnn.com/2008/08/08/markets/oil/?postversion=2008080810 [8/8/08]

⁵ guardian.co.uk/business/2008/aug/08/interestrates.bankofenglandgovernor [8/8/08]

⁶ ap.google.com/article/ALeqM5jYhsxaJOLCURko2JR8R6NUDHRW2wD92DG9BO4 [8/7/08]

⁷ bloomberg.com/apps/news?pid=20601103&sid=aYTzJVf6lua4&refer=news [8/8/08]

⁸ cnbc.com/id/26097567 [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F07&mode=add&symb=DJIA [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F03&mode=add&symb=DJIA [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F07&mode=add&symb=COMP [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F03&mode=add&symb=COMP [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F07&mode=add&symb=SPX [8/8/08]

⁹ money.cnn.com/quote/historical/historical.html?pg=hi&close_date=8%2F8%2F03&mode=add&symb=SPX [8/8/08]