The Stock & Bond Markets -
A puzzling question (and even stranger conclusion) was discussed In a recent New York Times article regarding the respected chairman of Citigroup's executive committee and former Treasury Secretary, Robert Rubin. The question had to do with the ability of the U.S. to continue as the dominant economic force in the world given that "China had become a global factory, Brazil the world's farmer and India its back office." The response suggested the U.S. was still the world's manager and financier but failed to take into account the unprecedented "screw up" in the financial markets by the biggest banks that could total $265 billion. It's these kinds of mistakes that caused the U.S. to lose it's leadership position in other industries (i.e. China, Brazil, India) and a failure to fix a broken financial model may soon cause those industries we do control to be assumed by other world players. I'm not a fatalist but a realist and optimist that believes there's still time for new solutions to exiting problems. In the meantime, I'm advising clients to keep larger than normal cash positions and maintain diversified portfolios that also include international allocations.

As I advised in the January newsletter, "bonds have been [and continue to be] a mixed bag. Treasuries have been going up in value based on the expectation of lower rates and demand for the kind of quality only Treasuries can provide (the government is the only debtor than can print money to cover the debt). Many other types of bonds have been declining in reaction to their quality ratings declining or expected decline. Bond investors should stick with the highest quality bonds only and stay with short-mid term maturities."

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Real Estate -
Prices for U.S. homes showed broad-based declines in the prices of existing single family homes for the 11th consecutive month of negative returns. Even New York City, which had been immune to much of the decline (thanks to ridiculous bonuses paid to many Wall Street executives while their clients lost money), has seen cracks in underlying values with rents going down as much 7% in some areas. "We've reached another grim milestone in the housing market" according to Robert Shiller who's S&P/Case-Shiller Home Price Index showed an average annual decline of 7.7% across the 20-city index measured. Miami had the weakest market with declines of 15.5% followed by San Diego at 13.4%. Still, this scenario creates opportunities and those with knowledge, cash and nerves of steel may begin to see some opportunities.