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Quarterly Commentary The closing months of 2007 proved challenging in many ways. Major banks and brokerage firms learned, much to their dismay, the lesson about chasing high returns without regard to high risk. Several CEO's paid the high price of dismissal with damaged reputations. Stock market indexes became highly volatile and many commodities climbed to record highs, bid up by commodity traders and rising demand around the world. On the domestic front probably the most egregious development was the collapse of the residential real estate market and its disastrous effects on those who unwittingly tied themselves to a home mortgage they could not afford to repay. The response has come on many fronts. The Federal Reserve Board has cut short term rates and extended extraordinary support to the faltering financial firms. The President has proposed and the Congress has enacted a system of tax rebates to boost consumer spending. Major mortgage lenders are at the beginning of a process which may help the ensnared home buyers. Ultimately, we believe, the terms on these endangered mortgages will have to be renegotiated to a level the home owner can actually afford. Anything short of that will create massive foreclosures, blighted communities and a seriously depressed economy. You can expect the stock market to remain volatile until a satisfactory solution is devised. Fortunately, the portfolios of Carr & Associates clients typically exhibit much less volatility than either the stock or bond market indexes and, over the ten years ended December 31, 2007, produced returns superior to both as well, with significantly less volatility. We have deliberately maintained some cash in client accounts to produce additional current income and to provide the funds for investment when the time is right. The chart below demonstrates the consistency of returns in Carr & Associates client portfolios compared to the roller-coaster ride of the S&P 500 stock index. The Lehman Government/Credit bond index has produced less volatile results, but returns from this index have been lower as well.
Prepared 03/17/08 |
