The Stock & Bond Markets -
The stock market is a forward looking indicator and we often find out 6-12 months after-the-fact why it began to decline or increase. It's clear the decline that began last summer anticipated the popping of the real estate and financing bubbles which continue to cause so much pain for so many Americans. My belief that we're seeing a bottom being built in the market is largely based on two variables: 1) the expectation (and investment bets) by sophisticated investors that the worst of the economic woes (aside from energy prices) is behind us; and 2) comments by the Federal Reserve that the next interest rate moves will be up along with the expectation that a lot of money (trillions) will be leaving the bond market and be invested in stocks. Our recommendation is to be diversified among industries, asset categories and geographically.

The bond market, as mentioned above, appears to be correcting as profit-taking as well as indications of increasing inflation and interest rates are leading bond investors to lighten up on their positions. Bill Gross, who manages more than $120 billion in bonds, believes inflation is likely to be a concern for the foreseeable future. This is not a market to vacate since things could get worse (consumer confidence is declining at record rates) but we encourage clients to stay in shorter-term issues issued by the government since, unlike many corporate bonds which have had their ratings slashed, U.S. Treasuries are considered the safest of all debt issues. Those concerned about inflation due to increasing food and energy prices should consider inflation-protected bonds.

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Real Estate -
A bottoming in the real estate market is too early to predict but new home sales did increase from March to April although selling prices are down 14% and sales volume is down 42% from last year's levels. The impact of declining markets is even creeping into the $5-10 million home market with prices declining in that sector 10-15% over the past 6 months. The only sector yet to be unscathed is the over $25 million homes in which sellers don't have to sell and buyers don't have to buy so there's not really a buyer's or seller's market issue to contend with which mortals like most of us have to contend.