Hello! I was down in Mexico for a few weeks so I haven’t had a chance to send an economic update. Even though I am not an equity strategist, I think the Dow bottomed on March 9th (at 6,566 points) and that we will continue to zigzag our way for the next few months but will be with an improving trend. I still expect the economy (GDP) to contract for the next few months (second quarter of 09) but it is already showing some positive signs.

The next step will be to keep a CLOSE eye on the results of the stress tests being released May 4th. Will all the banks pass (which I don’t think would provide any clarity) or would some fail and be required to raise capital? Being on the trading floor I can tell you that I can’t imagine that any of these banks could raise capital via investors (no appetite at this point). We shall see!

Employment/Housing numbers as of Thursday below…

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Treasury prices dropped Wednesday when investors sold government debt as the Dow Jones and S&P 500 gained ground for most of the trading day. However, equities experienced a sharp reversal in the last hour of the trading day when the Dow dropped from 8,041 at 2:15 pm to close in the red 45 minutes later at 7,886 (a 155 points swing and a 83 point drop from the previous day). The Dow reversal was primarily driven by a drop in financial stocks as companies like Wells Fargo, which had risen as much as 9.00% for the day, turned around and closed with a 3.40% drop in value. Wells’ drop took place in spite of announcing yesterday morning higher than expected earnings per share (67 cents vs. 39 cents) and not having any other significant news for the rest of the day. A flight-to-safety move as a result of this sudden drop in equities did not take place and Treasuries continued trading lower for the rest of the day. The 5-year note dropped 5/32s to yield 1.89% while the benchmark 10-year note lost 11/32s for a 2.94% yield. The long bond also dropped in value slightly over 1 point 3/32s to yield 3.80%

Market participants are reacting to the Initial Jobless Claims report released this morning. The 10-year Treasury has dropped 1/32s to yield 2.94% while the 30-year Treasury is now trading flat yielding 3.80%. For the record, the Department of Labor released its weekly Initial Jobless Claims report in which claims rose 27,000 from the previous week to 640,000, just in line with expectations. Continuing claims, however, increased 93,000 to 6.137 million and exceeding analysts’ estimates of a 6.120 million report. However, the less volatile 4-week average number of initial claims could be leveling off (it has been near the 650k mark for the third straight week) reporting a slight a decrease of 4,250 from the previous week to 646,750. Additionally, the Existing Home Sales report will be released at 9:00 am. This report is considered a good indicator of activity in the housing sector and sets the mood for what investors can expect tomorrow as it precedes the New Home Sales report. Existing home sales can be highly dependent on mortgage rates and therefore, the Fed is hoping they could increase in the near future as the 0-0.25% overnight lending rate, coupled with their recent purchase of Treasury securities, holding mortgage rates at low levels which could attract potential homebuyers that have been staying in the sidelines as a result of the economic contraction. This report will be released at 9:00 am CDT and is expected to be 4.65 million for the month of March.

In other economic news, the Treasury will announce details of the 2, 5 and 7-year note auctions as well as an $8 billion 5 year TIPs auction. The auctions are scheduled to take place Monday, Tuesday and Wednesday of next week and will all settle April 30th. Also, Minneapolis Federal Reserve Bank President Gary Stern will speak at 10:45 am CDT at Shaping Global Financial Reform: A Symposium for Private and Public Sector Leaders in Washington, D.C.