August 2008
The month of August was a good one for both stocks and bonds. The major equity indices recorded positive returns in the 1 - 2% range, and fixed-income securities generated similar returns as interest rates declined somewhat. Economic conditions in the US continued to be mixed, with news from the financial service sector troublesome in certain areas. Most notably, two major government related agencies tied to the home mortgage business, Fannie Mae and Freddie Mac, faced growing pressures due to deteriorating credit conditions. These agencies are instrumental in the functioning of the residential mortgage markets, thus any disruptions to their operations have important consequences. Moreover, the challenges facing these two companies reflect the difficulties being encountered by many other lending institutions. These credit related problems are significant, and will continue to exert pressure on economic activity, labor markets, and consumer spending for some time to come. Financial markets will likely remain volatile through this process, and we continue to favor high grade bonds and stocks of industry leading companies with superior financial strength.
