The End of the Beginning

·        Despite a strong rally last week, October was one of the worst months in history for the S&P 500, which declined (16.8%).  The (32.8%) year-to-date decline in the Index includes reinvested dividends. The MSCI EAFE Index is down (43.5%) for the year-to-date, and most Emerging Market indexes are down more than 50%, including China, which is off 67%.

·        Although politicians maybe reluctant to use the “R” word, there is no doubt the U.S. is in a steep recession.  Real GDP in the fourth quarter is likely to contract at a 5% annual rate or worse.  The current period is experiencing the steepest fall in economic activity, as the credit crunch is in full force.  Most banks have belatedly tightened their lending standards.