1 December 2007IRF NASDAQ Price Index Since the bottom of the near-recession at the end of 2003, the stock market has seen a relatively steady rise in value with the NASDAQ index more than doubling and the DOW reaching new all-time highs. Recently, the stock market experienced a 10%+ correction as worries about the subprime mortgage mess spread concerns about the viability of much of the nation’s financial sector and the health of the overall macro economy from reduced consumer spending. Since then, all of the key stock markets have experience a substantial rebound, regaining over half of their November losses. However, the euphoria over mortgage bailout programs and recent tolerable signs of national economic growth may be short- lived. The real test will occur in 2008 when foreclosures peak next summer and the consumer adjusts further to the burdens of mortgage resets, excessive credit card debt, and high energy prices.

2 December 2007IRF Weekly Initial Claims for Unemployment One of the signs of a slowing economy has been the trend towards higher and higher weekly levels of new initial claims for unemployment compensation. These claims are now running about 35,000 per week more than at their lows in 2005 and Still, the level is below the 375,000 claims per week that would be indicative of a recession. After the holiday season is over, this statistic will be important to watch carefully as we all try to access whether the national economy will be able to escape the mortgage market crises and housing market correction without going into a recession. If we surpass on a regularly basis 350,000 new claims per week, it will be a good indication that we may be unable to dodge the bullet.

3 December 2007IRF M1 - Money Supply The recent erratic nature of the money supply numbers have made this indicator somewhat more unreliable than in the past. Much of this erratic nature stems from the FED’s inability to accurately seasonally adjust their own numbers. However, the numbers as they are do provide us with some usefully insights into the present and future, if read them carefully. The general slowdown in money growth since 2005 coincides with the FED’s general tightening of credit. The most recent data also confirms that the slowdown in the U.S. economy is real, but not catastrophic. Declines in M1 greater than 3% would be a signal to Americans to brace themselves for harder times to come. But, growth in M1 has been ranging from about -2% to +2%, modest growth to be sure, but not sufficiently low to be alarming. As with initial claims, it will be important to watch what happens to M1 during the first quarter of 2008.

4 December 2007IRF Value of The Dollar – Major Currencies Concerns over the fall in the dollar have been excessive. There are plenty of good things about a lower dollar. It has already greatly stimulated U.S. exports to record highs. Of course, were the dollar to fall too far or too fast it could have negative implications. The former would be inflationary, while the latter could reek havoc in the nation’s (and perhaps the world’s) financial markets. As dramatic as the decline in the dollar has been in the last few years, it is not nearly so dramatic as the 50% fall in the dollar in mid 1980s which was actually orchestrated by the G- 7 nations to correct a significantly overvalued dollar. Note that the decline in the dollar closely coincides with U.S. borrowing abroad, borrowing to cover federal government deficits and consumer and corporate dissavings. Finally, the world has had its fill of dollar denominated assets and until America becomes a net saver again, the dollar will continue to be in disfavor.