The Morphine Rally

excerpts from this week's report:
"What a difference a week makes.



Panic set in last Monday as the Federal Reserve sponsored theft of Bear Stearns greeted investors. Billions to millions in a weekend. This week greets investors with the fanciful belief that mountains of liquidity will do the trick. While boodles of money will help alleviate the credit crisis, it will not, however, eliminate the source and core of the problem – excess amounts of credit and the deleveraging process..."

"Last week's debacle in the global markets, commodities, and metals should give every investor pause. Moreover, only three economic sectors managed a positive relative performance week with some (Energy, for example) turning in nasty down numbers for the week. Therefore, understanding the nature of this market rally is crucial to relative performance strength..."

Investment Strategy Implications

"The credit crisis is far from over. In fact, there’s a good chance that many additional cracks in the US financial structure will emerge in the coming months thereby producing more investor angst and the very real risk of spillover into the real economy*. That said, the severe undervaluation that developed over these past months along with high degrees of investor pessimism has set the stage for the rally equities are experiencing.

Equities should continue to close the valuation gap,..."

"...if the US economy were viewed as a sick person afflicted with a potentially seriously debilitating disease, the flood of liquidity looks more like morphine to help alleviate the pain..."

also in this week's report:

* Expected Return Valuation Model
* Moving Averages Scorecard
* Model Growth Portfolio
* Sectors and Styles Market Monitor
* Key US Economic Indicators

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