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Congratulations! Check your pulse. Fog a mirror. You are alive. You have survived.

 “No Place to Hide” was the title of The Wall Street Journal Investing in Funds section dated November 3, 2008. According to this article, October’s losses were so deep and wide that the average diversified mutual fund of U.S. stocks was down 18.7% in October and through October 30^th was down 40% since the last peak in the Dow Jones Industrial Average on October 9, 2007.

What should we do now?  The stock market has plummeted, the economy is precarious and government intervention is questionable. The S&P 500 index of large U.S. companies is down over 25% from its peak on October 9, 2007 to a low on September 29, 2008.  We will leave the news reporting to the media, but what does it all mean to us?

August provided some positive news on the economic front. At the risk of sounding like a frenzied cable TV station reporter, I’ll summarize the economic reports as follows:  

U.S. economic growth was better than expected with second quarter Gross Domestic Product growing at a 3.3% annual rate, up from an estimated 1.9%.

Consumer spending rose 1.7% but that was influenced by tax rebate checks.

Consumer Disposable Income, which excludes the impact of tax rebates, rose 0.5% in July following a 0.3% increase in June.

We continue to be in challenging times in the stock market and world economy. I don’t mean to sugar coat anything, but we’ve been thru similar times before and we will face them again in the future. One mutual fund manager recently posted a cartoon in his newsletter with a picture of a man sitting on the ledge of a window of a skyscraper, as if he was getting ready to jump, with someone from inside the window shouting, “But, sir, many analysts consider this only a long-overdue correctional movement, following which the market will resume its upward course, with a rally expected to penetrate previous Dow Jones highs by the year’s end.” Why should this be funny?

Growl! The stock market entered bear level performance with a punishing performance in June that pushed the broad US stock market, depending on which index measure you want to use, down nearly 20% from October 2007 highs. .  Thru June 27^th the Dow Jones Industrial Average had its worst monthly performance for the month of June since 1930 and the Standard & Poor’s had its worst monthly performance since September 2002 (which, let us not forget, was followed by a 28.5% return in 2003).

Here is an interesting quiz just in time to take before summer vacation starts! Cover up the bottom of the page and check it afterwards for correct answers!

1. What percentage of current workers say they expect to retire at age 65 or older?
2. What percentage of retirees said they left the workforce earlier than planned?
3. What percentage of current workers say they expect to work for pay in some capacity after they retire?

May 2008

April was a great month for the stock market! In one month about half of the year-to-date loss thru March was erased! This shows how volatile the stock market can be in the short-run. I’m not sugarcoating the fact that we still have a stock market loss in 2008, but a rebound does provide some sense of relief.

The stock market ended the first three months of 2008 with nearly identical losses across all asset classes except real estate investment trusts, which eked out a slight gain.  The slight gain in real estate investment trusts may seem like a surprise to most people but remember that REIT’s are invested in commercial properties like office buildings and shopping centers and large apartment complexes, not individual residential houses, the latter of which have declined in value.

Bull or Bear?  According to a Bloomberg.com article, August Busch III, an AT&T board member since 1980, recently bought $2.27 million of shares of AT&T, his largest purchase on record.  “Chief executive officers, directors and other senior officials in corporate America are buying more of their companies’ shares than they’re selling for the first time since 1995, prompting growing confidence that the stock market is poised to rally for the rest of the year. 

“Commenting on the recent plunge in stock prices, a Barron's columnist made the following observations in his column appearing January 27:

"Poll ratings on President Bush's handling of the economy fell last week among the American voting public. Global investors' opinion of his stance toward Iraq dropped at least as much. With both of these constituencies turning nervous, stocks and the US dollar declined hard in a mutually reinforcing manner, dragging the stock gauges into the red for the young year. . .

The stock market ended 2007 with the most modest annual calendar returns we have seen in this decade. Times like this make it critically important to keep short-term investment returns in perspective relative to long-term averages and realistic future expectations.