"We are in uncharted territory."

excerpts from this week's report:
Gary Crittenden
Chief Financial Officer, Citigroup

"For those who may be inclined to go along with the recent optimistic comments from the heads of several major investment banks (see last Thursday’s blog posting, “News Flash: Credit Crisis End in Sight”) and for those who might construe that last week’s impressive counter rally in the equity markets signals an end to the credit crisis and a resumption of the bull, the quote by Mr. Crittenden should put some real world perspective on the current situation. For the credit crisis and economy are intertwined a far greater degree than many investors may appreciate."

Investment Strategy Implications

"An undervalued market rally is one matter (see Expected Return Value Model in the report for more commentary on this point). But when it is accompanied by a return to complacency in the form of a lower VIX**, it behooves investors to take note, particularly when so much remains unclear.

Mr. Crittenden is right. And his comments are not exclusively related to Citigroup. The transformation of the credit creation machine at the core of the financial system (commercial and investment banks), within the “shadow” banking system (nonbank financial institutions, such as insurance companies, hedge funds and private equity), and the originate-to-distribute business model (not to mention the degree to which other securitized instruments..."

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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**click on image to enlarge.