The Stock & Bond Markets -
There appears to be a "compression" of opinions on Wall Street in which those expecting a decline and those expecting a continuation from recent stock market highs are digging in their heels and becoming more polarized in their positions (sounds like Washington). On the positive side, the market has shown surprising resilience due to earnings strength, takeover activity and modest inflation numbers. Still, the implosion resulting from the real estate market (housing and its related industries like Home Depot) and constrained consumer spending seem to be suggesting limited upside. Even CEOs are getting more pessimistic according to recent figures released by the Conference Board indicating the biggest drop in optimism within their own industries since December 2000, three months before the dot com crash which lasted 3 years. So, as always, we are preaching and practicing diversification to our clients.

Federal Reserve Chairman Ben Bernanke continues to be concerned by inflation and remains reluctant to lower the Federal Funds rate. The likelihood of an increase seems remote, however, so bonds continue to be an asset category we believe makes sense for a portion of investor's portfolios.

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Real Estate Bubble? -
"It's a tidal wave of trouble" according to Standard & Poor's and that position is echoed in the results/expectations of the country's largest homebuilders. Foreclosures jumped 87% from the same time last year. Lennar, the biggest U.S. homebuilder, reported a 37% revenue decline for the quarter, the biggest in 10 years. DR Horton, the second biggest, stated "the value of houses ordered plunged 47%" while "the average home price slid 12%" and expected to report "significant asset impairments" (we don't know exactly what that means but it doesn't sound good). At some point, buying opportunities will exist but we advise clients against trying to pick a bottom, otherwise known as trying to catch a falling knife.