Now that Spring has arrived things are starting to “feel” a little better, aren’t they? Spring brings a sense of fresh “new beginnings” with it.

Has that sense affected the economy and financial markets? After all, even as a storm raged over bonuses paid to AIG executives, the talk about deteriorating bank balance sheets seems to be ebbing. Last month, the media reported that new home purchases were up 4.7%. All this came on top of the recent rally in the stock market – the most dramatic rally in the last 70 years.

So are we looking at the end of the recession and a new beginning for stocks? Is the crisis easing up or – even better – drawing to a close?

We’ll offer our observations and suggestions in a minute. But first, a quick thought. If you remember, a few weeks back we spoke of the True, the Good and the Beautiful. It seems to have struck a chord with a lot of readers. Our thought is to continue to explore our economy and the markets in that light from time to time. (Let us know what you think.) With that in mind, we tackle the following from the point of view of the True:

• Are real estate values just about ready to turn up?
• Has a new bull market in stocks begun?
• The “no-brainer” opportunity that you won’t want to miss out on – and it’s got nothing to do with stocks or other investments.

Then we’ll move to the Good and ask a question that’s on a lot of people’s minds:

• Who really stands to benefit from the government’s bailouts? (It’s not just “Wall Street.” We’ll drill down and come up with some specifics.)

Finally we finish with something Beautiful for everyone. This letter will be short and (we hope) sweet. To start things off:

The relevant statistic would be the 40%+ drop in new home sales compared to last February (2008). The 4.7% increase in home sales in February over January is pretty meaningless. It’s surely not indicative of an easing of the decline in home prices, nor is it telling us that the overall economy is turning around. Don’t mind us if we prick the optimists’ little bubble. It’s simply that we can’t find any evidence for optimism in that data. So let’s move on.

Again, we’re not “doom and glooming” you. We love bull markets as much as the next guy. As you’ve heard us say, in Bear markets the objective is to lose as little as you can. Bull markets are where you make real money. The Bear market has already wiped out many people’s gains over the last 20 years, and then some. No one likes a bear market.

But all that won’t change the facts. The bottom line: we’re in a bear market rally. Some people, mostly professional traders, will make some money. But unless something radically changes, we’ll be seeing a turn for the worse at some point in the not too distant future. Jump in now and you may simply be caught in the downdraft. So before you throw money at stocks, take a deep breath and ask yourself, “What for?”

(If you want a more detailed analysis of how to determine bear market rallies, you can request a copy of a Special Bulletin we sent out to our clients a couple of weeks ago when the current rally began. Just e-mail us a request atresposito@lighthousewm.com.)

Conclusion: again, we’ve got no hard evidence of either a new bull market or an economic turnaround. It doesn’t mean things can’t change. But, sticking with the available evidence, to engage in “positive thinking” now is to engage in wishful thinking. And as we have found ourselves repeating more and more lately, hope is not a good investment strategy.

Not every bank is enthusiastically lending, but some are. Make some inquiries. Do some shopping. Think of it as if you were shopping for a new car. Find out what you can from the internet and from your local banks. At that point, you may want to approach your current bank – the one where you got your current mortgage, or the one where you have your bank accounts. Tell them you want to refinance and ask if they can offer you a better rate. Push a little. If they’re really looking for mortgage business, they’ll respond aggressively. If they’re not, they’ll just put you off.

With a little effort, you can get a deal. Consider this option especially if you’ve got some sort of adjustable rate mortgage. By refinancing now, you can lock in a low payment and not worry about it going up.

One last thing: don’t settle for paying lots of fees and points on the refinanced mortgage. You can get lower rates without having to “bribe” the bank by paying points – again, if they really are looking to sell you a mortgage, they will compete.

As for buying a new home (vs. refinancing), that’s not something you just run out and do just because mortgage rates happen to be low. For example, be careful about your purchase price. Don’t let someone sell you a home that’s too expensive, just because the monthly payments on a mortgage are low. If real estate values slip some more (and they may do that this year) you’ll wind up owing more on the home than it’s worth. If that’s not something you’re prepared for, don’t buy now.

A lesson: take what the market gives you. Even in a Bear market, some opportunities will appear – but you can’t force it. Refinancing is relatively easy for most people to pursue. You don’t need to be a professional trader to take advantage of it. Take action if it makes sense for you.

Now on to the Good and a touchy subject, but one that’s been on people’s minds:

As for the second group, there’s certainly enough to complain about. First, let’s state the obvious: taxpayer money is now being used by the government to provide funds to companies – mostly banks, but, increasingly, others like the auto industry – which made bad choices and/or were poorly managed in the past. Most recently, taxpayers are howling about the doling out of executive bonuses to those who managed these failed firms. It’s certainly understandable.

There’s also concern that taxpayer money will be used to “bail out” those who bought homes they couldn’t afford, or lied on their application to qualify for a mortgage, or simply took on a mortgage with terms beyond their ability to pay…or some combination thereof. Again, understandable.

While the debate continues, we turn our attention to economist and investment manager John Hussman. Mr. Hussman is rather unhappy with the whole approach the government continues to pursue. To summarize his thoughts:

Hussman’s been writing about this ever since the first bailouts were proposed. We encourage you to read his latest remarks and see if you agree. You’ll find them at:

We live in a world where people are quick to demand their “rights” but slow to accept responsibility. Take another look at Hussman’s main point: “The bondholders of distressed financial institutions – not the American public – should bear responsibility for the losses of those institutions.” We would be well within our “rights” to expect people – in this case bondholders of these troubled institutions – to accept responsibility for their actions. A world which values the Good is a world where rights and responsibilities are held in balance.

It’s one thing for the government to use taxpayer money for the purpose of providing stimulus to an economy – as long as it is for the sake of the common good. But when people are not expected to suffer the consequences of their actions, no good can come of it. All that does is encourage people to think about what they can “get away” with. A world where no one is expected to take responsibility for their actions is, whether we realize it or not, in a moral crisis. Given the extent of the financial damage already done during this financial crisis, can we afford to compound the effect by facilitating a moral crisis as well?

Now on to the Beautiful…

We suspect most of you won’t take to this one because it’s about opera. But stick with us and give it a shot. Yes opera is, for most of us, an acquired taste. Still, don’t run away; try this little sample using the miracle of the Internet. It only takes about 5minutes. Just click on this link:

If you want to know what the words mean, click on this link:

http://www.nomorelyrics.net/giacomo_puccini-lyrics/175668-che_gelida_manina-lyrics.html

(In fact, we suggest you print out the lyrics so you can follow along.)

Mimi (Mirells Freni) has been searching for a key she misplaced as Rudolfo’s (Pavorotti) hand touches hers. Rudolfo tells her how cold her delicate hand feels (“Che gelida manina”). Then he sings about who he is.

No one pulls the heart’s strings like the opera’s composer, Giacomo Puccini. Add Pavorotti and you’ve got a few minutes of heaven, crisis or no crisis. After you finish listening to Rudolfo, you can click on a link provided and listen as Mimi tells him about herself (“Si mi chiamano Mimi”). Of course, they fall madly in love.

When you’re done, you’ll know if you might, just might acquire a taste for this great art form. And if you do wind up liking opera, you’ll thank us. C’mon. You’ve got nothing to lose. Even if you still don’t like opera, you’ve got to admit this clip is something beautiful, yes?

Given the great challenges we face, and will continue to face, we think one of the best antidotes will be to fill our lives with beautiful things – the more the better. If it’s not opera, there’s a whole world of beauty you can explore. Give Spring a few more weeks and Mother Nature will join the fun.

Well, it’s time to celebrate Easter and Passover. The two don’t always come together, so this is a special year. Next time, we hope to bring a little more of the Beautiful into your lives. And we’ll begin to address perhaps the most urgent and important question we’ll all have to answer as this crisis continues: Are you prepared for what’s coming? Stay tuned.

Happy Easter and Happy Passover,

Richard S. Esposito, ChFC
Lighthouse Wealth Management LLC
405 Lexington Avenue, 26th Floor
New York, NY 10174
Tel: 212-907-6583/Fax: 866-924-1952

Email: resposito@lighthousewm.com