Market Data: Week Ending 7/23/2010

Market Index	2009 Close	7/23 Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,424.62	3.24%	-0.03%
S&P 500	1115.1	1,102.66	3.55%	-1.13%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	2.99%	0.07%	-0.86%
5 yr T-note Yld		1.73%	0.06%
5 yr infl adj Note		0.30%	0.04%
Implied 5 yr Inflation %		1.43%	0.02%
2 yr T-note Yld	1.14%	0.58%	0.00%	-0.56%
2-10 Yr Slope	2.70%	2.41%	0.07%	-0.29%
90 day T-bill Yld		0.15%	0.00%
Gold ($/oz)	$1,096.95	$1,187.80	-0.03%	8.28%
WTI Oil ($/brl)	$79.36	$78.98	3.91%	-0.48%
VIX "Worry Index"	21.68	23.47	-10.59%	8.26%
Credit Spreads		7/23 Close	Week Change
Inv Grade Credit Idx		4.58%	-0.16%
Low Grade Credit Idx		8.60%	-0.35%
Markit CDX Inv Grd Idx		108	-4.42%
Markit CDX Mid Grd Idx		154	-6.10%

Obsolete, or Modern Portfolio Theory?

Deciding what asset allocation to recommend is a challenging undertaking. The majority of my peers rely completely on modern portfolio theory (MPT), the credibility factor is high with this approach. I am certainly not going to disagree with MPT. Never-the-less, I decided a couple of years ago that it was time to step back and review the tool and my results with MPT. The outcome was to realize that the buck stops with me. Not someone's excellent theory or someone's excellent software. Just me, right or wrong. My training on the other hand is to employ a tool, based on MPT theory, that has the credibility my name does not. After all, the brand matters in a world that values form over substance.

Economic Condition Review Q2 2010

The following is my macro economic review. It is work that I will update at least semi annually. I have not included a review of the size of government debt. The default is that it is too great and is a gigantic concern. There is no doubt. How the concern will be manifested is a more urgent question. Most observers are certain it will  be high inflation. That is logical. However, the force or forces that bring the change on are not known. It could be a bond market crisis or more simply a loss of tolerance of low rates and interest rates forced to rise in order to attract buyers (the so-called bond vigilante's). It could be a populist movement creating an opportunity for a free market action or several other possibilities. The point is, inflation is going to be an unwanted guest in our world, and we don't know when it will arrive or how long it will stay. Economist, Mark Thoma, is optimistic that the Fed has the tools and the skill to pilot us through either inflation or deflation. We'll see. All we can do is keep our eyes open to warning signs like bond market spreads and currency exchange rates for starters. That is what I do in my weekly Market Data post's and the daily currency graph's on the left column.

Market Data: Week Ending 7/16/2010

Market Index	2009 Close	7/16   Close	Week Change	Simple YTD %
Dow Industrials Avg	10428.05	10,097.90	-0.98%	-3.17%
S&P 500	1115.1	1,064.88	-1.21%	-4.72%
Fed Funds Rate	0.25%	0.25%	0%	0%
10 yr T-bond Yld	3.85%	2.92%	-0.13%	-0.93%
5 yr T-note Yld		1.67%	-0.17%
5 yr infl adj Note		0.26%	-0.06%
Implied 5 yr Inflation %		1.41%	-0.11%
2 yr T-note Yld	1.14%	0.58%	-0.04%	-0.56%
2-10 Yr Slope	2.70%	2.34%	-0.09%	-0.36%
90 day T-bill Yld		0.15%	0.00%
Gold ($/oz)	$1,096.95	$1,188.20	-1.82%	8.32%
WTI Oil ($/brl)	$79.36	$76.01	-0.11%	-4.22%
VIX "Worry Index"	21.68	26.25	5.08%	21.08%
Credit Spreads		7/16   Close	Week Change
Inv Grade Credit Idx		4.61%	-0.13%
Low Grade Credit Idx		8.74%	-0.21%
Markit CDX Inv Grd Idx		108	-4.42%
Markit CDX Mid Grd Idx		155	-5.49%

June 2010 Consumer Price Index

On a seasonally adjusted basis, the CPI-U declined 0.1 percent in June after falling 0.2 percent in May. The index for all items less food and energy increased 0.2 percent in June after increasing 0.1 percent in May.

By components, energy component dropped 2.9 percent, equaling the May decrease. Gasoline fell 4.5 percent after a 5.2 percent decrease the previous month. Food prices overall were flat for the last two months.

Bumping up the core rate was a number of components. Apparel jumped 0.8 percent after a string of weak months. Medical care gained 0.3 percent. Used cars and tobacco both were up significantly for June.

Year-on-year, overall CPI inflation eased to 1.1 percent (seasonally adjusted) from 2.0 percent in May. The core rate in June remained at 1.0 percent. On an unadjusted year-ago basis, the headline number was up 1.1 percent in June while the core was up 0.9 percent.