The Stock & Bond Markets -
When even the Chairman of the Federal Reserve, Ben Bernanke, says we're likely in a recession, it's time to take notice. The Federal Reserve (along with JP Morgan) rescued Bear Stearns from creating a financial panic unlike any seen since the Great Depression. Stock prices in the U.S. fell more during the 1st quarter of 2008 than in any quarter since 2002. Much of this is known but the question is always "what's next?" The answer appears to depend on where - in Europe, for example, there's improving business confidence in Germany, France and Belgium whereas consumer confidence is at it's lowest level since 1973 when Nixon was in the White House. What makes the current economic situation more troubling than the dot.com meltdown that kicked off he century and eliminated over $7 trillion in market value is that leverage is involved this time. Instead of having a $100,000 IRA tied up in $100,000 of technology stocks that come crashing down, many have borrowed to have $100,000 investments in $1,000,000 real estate assets come crashing down (while their costs for borrowing went up) so they're now have a complete loss of their investment and then some. This impacts the ability and willingness to spend and drive the economy up as well as limiting the ability to fund retirement (or college) accounts. As in the past, this too shall end and the outlook brighten but the current situation is likely to improve later rather than sooner. We advise broad investment diversification and a fair amount of cash for both protection against declines and available for investing as the situation improves.

My opinion with respect to the bond market hasn't changed all year - 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. It's worth noting that bonds are the only liquid asset class that has gone up in value this year.

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Real Estate -
There are signs the real estate market may be in the beginning phase of stabilizing although home prices declined by 11% in another year-over-year record decline. Even Manhattan, which had been immune to declines experienced elsewhere around the country, saw the value of apartments decline by 34% in the first quarter of 2008, the biggest decline in 18 years. On the other hand, sales of "existing" homes rose for the first time in 7 months. Although most news is negative, some is positive. This may be a good time to be paying close attention to some situations that are "too good" to pass up for those with plenty of assets, staying power and patience should they make purchases prior to the final bottom in the market.