According to reports billions of dollars were pulled from stock markets worldwide and it looks like at this point investors are unsure where to park those funds for a long term. Portion of those funds went into US Treasury bonds (it’s good for F Fund) but where the rest of the cash will flow will depends on a lot of factors.

Some investors speculate that current sell-off is a beginning of 7-10% correction of the markets. Others tend to believe that it’s just a temporary “hiccup” and that markets will bounce back very soon. One way or another actual recovery might take a little bit longer because of hedge funds.

Note: hedge funds control large amount of private capital and allow to place “short-sells” i.e. earn profits when price drops. Ultimately those transactions “lag” the stock market and delay the recovery process.

Analyst also expect that Feds might start cutting interest rates in June-July time frame (FYI that generally gives boost to bond funds – F Fund in our case)

Coming down the pipe: 

-         Treasury Secretary Paulson started trip through Asia

-         Report on fourth quarter productivity should be issued on Tuesday (cost of labor expected to go up)

-         Fed should release survey of regional activity (aka “beige book”) on Wednesday

-         January trade gap estimations should be reported on Friday (trade gap expected to shrink a little bit)

Overall news and expectations that were released so far strategically aligned with our allocation for this week. Let’s see what will happen.