Market Summary 2Q2008

Over the past 50 years, there have been nine “bear” market cycles. A “bear” market is one with a 20% or more drop in value. This decade, we have had the misfortune of having two bear markets.

The explanations Wall Street analysts give for the current bear market cycle sound like bad breakfast foods. I can just here them saying, “Mr. Chairman, we don’t want Mortgage Meltdown, Credit Crunch or Real Estate Bubbles again this morning. Just a cup of Over Priced Oil.”

For the 2nd quarter of 2008, the S&P 500 was down 2.7% and nearly 12% for the year-to-date. International markets faired about the same with the MSCI EAFE index falling 1.9% and 10.6% year-to-date. The bond market, normally a safe haven during times of trouble, also fell 1% for the second quarter and is up just 1.1% year to date. Ok, so maybe cash was safe…not really. Money markets are currently paying about 2% and inflation is running over 4%.

So what has performed well in 2008? A portfolio of TIPS, commodities, energy and Brazilian stocks would have been a nice combination. Although the declines are unwelcome, the current market cycle is terrific for diversified long-term investors. Equities are priced lower today in relative terms than they have been in many years. However, if you have a short-term need to liquidate, you may be disappointed six months from now.