4/6/2008 - Market Declines Are Not Fun But They Are Normal

Equity Overview

The first quarter came to a close this past Monday and it was a quarter few investors will miss. The S&P 500 (Large Cap), S&P 400 (Mid Cap), Russell 2000 (Small Cap), MSCI EAFE (Int’l), MSCI EM (Int’l Emerging Markets) and the NASDAQ Composite all finished the quarter down in excess of 9%.

More specifically, the average U.S. diversified stock fund lost 10.11%. Value stocks (although held up by dismal financial stocks) still managed to outpace growth-----by losing less.

Unlike the past year, International markets offered no help for a balanced equity portfolio with world equity funds falling by an average of 9.6%. Latin America (highlighted by Mexico and Chile) performed the best, (off by just over 3%) while prior standouts China and India declined by 24% and 27% respectively.

Commodity Glut

Gold ended the quarter with a thud at $934 per troy ounce after briefly eclipsing the $1,000 mark during the quarter; however the price is still up 41% over the last 12 months. Similarly, oil, which closed the March 31, 2007 quarter at $66 per barrel, closed at $106. Even the price of agricultural grains (soy, wheat, & corn) has exploded by more than doubling over the past year. Commodities could be the next bubble as speculators and retail investors have now entered the fray. (Meanwhile professionals and commercial players have exited)

Key Rate Update

Federal Funds rate stands at 2.38% with prime rate following at 5.25%. Prime rate has now dropped a full 3% in just one year. The discount rate has been slashed by an unprecedented 3.75% in just one year to 2.50%. The 90 day T-bill yields just 1.22%. The ten-year Treasury note yields 3.39% and the twenty-year bond yields 4.22%. Fidelity Money Market has a seven-day yield of 3.03%. Stocks appear to be attractive on a pure risk reward basis.

A History Lesson Reminder