The Stock & Bond Markets -
In my September 2007 newsletter, I stated that the market looked shaky and insecure investors should have as much as 50% in cash. I'm not bragging since some of my forecasts have been mis-timed including my prediction that the real estate bubble would burst 2 years before it actually happened. The real question is "now what?" and, since I'm feeling particularly smug as I write this month's newsletter, here goes: the worst is over for the stock market, the bond rally is largely over since the Federal Reserve has indicated it would stop lowering rates, consumer spending will continue to deteriorate, unemployment will continue to increase, wages won't keep pace with rising inflation, the real estate market will get worse before it gets better and, lastly, we'll know who the new administration will be in November 2008 which will result in a huge (but temporary) increase in the demand for champagne. Bold predictions but, unlike shareholders of companies with chief executives walking away with millions after making bad predictions and choices, none of you readers have to pay a penny for my commentary - still, if you must, feel free to write me in a year and tell me how wrong I was (again?).

My opinion with respect to the bond market hasn't changed all year so I'll copy-and-paste until there's something new. Bonds have been and continue to be a mixed bag. Treasuries (both the "regular" and "inflation-protection" types) 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.

CELEBRATING 28 YEARS
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Real Estate -
Homes lost their values at the fastest pace in over 20 years. Foreclosures are up over 112% from last year's levels with the California, Nevada and Arizona as the top 3 states in the nation - leading the way was Stockton California with 1 in every 30 homes in foreclosure followed by the Riverside/San Bernardino region with 1 in 38. The situation in new homes (as opposed to existing homes) isn't much better with sales down 37% from March 2007 and purchases at the lowest level in 17 years. A light at the end of the tunnel was highlighted in a recent Fidelity Investments survey in which many millionaire households indicated plans to increase investing in the stock and real estate markets. Since they tend to lead rather than follow trends, this is a good sign from my perspective. Like I've said before (as have others), trying to predict a bottom is like trying to catch a falling knife.