Insightful Investing Newsletter July 2008
Happy 5th Birthday
It has been 5 years since the Insightful Investing Newsletter was first published in July of 2003. We hope that you have enjoyed reading the insights in our investment publication. More importantly, we trust that you received enough value that you will continue to read it in the future.
2nd Quarter 2008 Market Recap
The best thing we can say about the second quarter of 2008 is at least it was not as bad as the first quarter. Leading the bad news was the fact that the stock market had its worst June since the Great Depression. Since that occurred before the time of anyone that still works for a living, we do not have a lot of experience with that, but at least it gives the media something to talk about.
So what might have caused this misery for investors? Let us start with oil prices surging to over $140 per barrel. Combine that with the FED indicating that it is now more concerned with inflation than the health of the economy, and you have a recipe for a difficult summer. The cost of everything is going up, so it is not likely that earnings will follow the same path as oil and interest rates. Unfortunately that probably will continue in opposite directions for a while. That being said, now is the time to start thinking about where to redeploy your investments once the markets start to turn around. Unfortunately though, it might be a while so there is no need to hurry.
After a rough start to the year, growth stocks easily out distanced value stocks with Mid Cap Growth picking up 4.6% while Large Cap Value stocks were down 5.3%. That still left every equity category down for the year. Real Estate made an abrupt about face in June to more than wipe out earlier gains for 2008.
Bonds more or less held their own for the quarter remaining up slightly for the year, lead by a gain of 2% for Short Term Bonds, and 4% for Inflation Protected Bonds (TIPS). This is a clear sign that the financial markets are expecting higher inflation and higher interest rates.
The right place to be invested this quarter once again was commodities, an asset class which is best invested in by individual investors with ETFs. They are starting to look like the new Real Estate, or Technology. Hang on for a volatile ride, but be ready to jump ship on short notice.
Once again, the financial markets gave us an example of why it pays to have a well diversified portfolio.
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