The Stock & Bond Markets -
First the good news: commodity prices have been declining with oil at a 3-month low and natural gas and other commodities trading at 6-month lows. This translates into lower costs of doing business (shipping products, groceries, running factories ...) as well as a break for consumers (who would have thought that gasoline under $4.20 per gallon would sound like a bargain?). The bad news is unemployment is at a 4-year high and many experts projecting even higher numbers into next year. This kind of conflicting news has resulted in a very volatile stock market and we continue to recommend broadly diversified accounts as well as dollar-cost-averaging for new investments.

Bonds continue to languish, not moving much in any direction while traders and investors alike try to read the Federal Reserve and economic tea leaves as to the future trend of interest rates. One interesting observation has to do with the 40% spread between 5- year U.S. Treasuries at 3% and FDIC-insured CDs at 5%. There are smaller spreads for shorter-term durations but for those looking to have insurance on invested amounts less than $100,000 and benefit from the banking industry's need for reserves, CDs offer an attractive option.

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Real Estate -
Home prices dropped a record 15.8% from a year ago, continuing their decline for the 22nd consecutive month. Meanwhile, mortgage application volume fell 14.1% to the lowest level of the year. What is especially troubling is that defaults and delinquencies are spreading up the food chain to higher quality borrowers. Those with good credit who did not have to verify their income when borrowing (called alt-A mortgages) have increased delinquencies 400% while prime borrowers (which account for most of he $12 trillion mortgage market) increased delinquencies by 200%. Jamie Dimon, chairman of JP Morgan, said he expected losses on prime loans to triple. The results could be an increase in defaults and foreclosures causing an even greater supply of homes on a market with record inventories. Eventually, this trend (like all trends) will end and opportunities to take advantage of another's misfortune will abound but it doesn't appear that time is now.