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COMMENTARY FOR INFINITY DOLLAR UNIT INVESTMENT TRUST FUND (UITF)
The Dollar Trust Maximizer posted an absolute year-to-date return of - .1870% and year-on-year return of .1554%, net of taxes and fees while the Infinity Dollar Long Term Bond Fund had an absolute return of .3361% since its inception date as of end of the third quarter of 2008. The second half of 2008 got off to an auspicious start as equity markets officially entered bear market territory, crude oil reached an all-time high of $147 per barrel, and US investment banks announced more writedowns. News of problems brewing in Fannie Mae and Freddie Mac broke out in mid-July, once again rocking the financial markets. The US government was quick to pledge support to the two government-sponsored entities, giving allowances to purchase equity and provide liquidity to the two companies. The government would go on to fully nayionalize the GSEs in September.
Financial institutions continued to dominate the headlines throughout the quarter, with weak 2Q earnings and additional writedowns keeping investors cautious. The IMF stated that the total writedowns may reach a total of $1 trillion, up from the previous estimate of $500 million. Rumors of mergers and takeovers swirled around prominent US investment banks until formal announcements wre made on September 15. Lehman Brothers filed for bankruptcy after merger talks with Bank of America and Barclays fell through. Bank of America then confirmed that it had reached an agreement to purchase Merrill Lynch for $44 billion. JP Morgan was also in action, agreeing to acquire Washington Mutual. The Federal Reserve increased its lending limit to banks while accepting a wider range of collateral. A consortium of Wall Street firms also agreed to create a $70 billion fund to provide liquidity if needed. In late September, the US Treasury and Federal Reserve outlined a massive $700 billion rescue package, dubbed the 'Troubled Assets Relief Program'. The project's goal was to purchase the toxic securities from banks and inject fresh capital into their balance sheets.
The Federal Reserve did not adjust its benchmark interest rate during the quarter, keeping it at 2%. It was the first time the Fed did not cut the Federal Funds rate this year. Also of note is that the Fed did not act according to market consensus, which was calling for a 25-50 bp cut to ease increasing market tension. Somewaht relegated to the background was the sharp drop in oil prices, which began the quarter at $145 per barrel before falling to as low as $90 per barrel in print at multi-year highs during the quarter, a result of rapidly increasing commodity prices from 2H07-2H08. US CPI and PPI reached highs of 5.6% and 9.8% respectively. Weak US labor numbers were also seen, with the unemployment rate reaching 6.1% as companies continued to cut jobs in the face of decreasing demand and economic activity. One bright spot was 2Q GDP, which came in at a robust 3.3%.
Philippine sovereign bonds once again experienced a volatile quarter. ROPs started bouncing back from their June lows as oil prices fell, stoking fears of runaway inflation. Local banks, awash with liquidity, started picking up bonds as yields got richer. The Philippine government announced plans to offload its holdings in Petron Corporation and PNOC-EC, aiming to generate up to $1 billion to help manage its fiscal position. An August budget surplus of P1.7 billion was also a welcome development. The country's 2009 US dollar borrowing program was announced, which was to be reduced to $2.6 billion from an original $2.9 billion. This gave hint to the government's healthy cash position, subsequently providing support to the ROPs. The events in the US during the last week of September, however, quelled the rally in Philippine sovereigns as the state of global credit markets once again came squarely into focus. Offshore accounts were seen unloading emerging market assets in an effort to generate liquidity as a premium for cash started to unfold.
The Dollar Trust Maximizer and Infinity Dollar Long Term Bond Fund will continue to be invested in short duration following the increasing concern on the global financial markets, which continue to be uncertain as we move into 4Q2008. We will still remain on the sideline as the health of financial institutions around the world becomes a main concern, with investors expecting governments in all continents to develop measures to maintain order, liquidity, and stability in the markets.
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