Bull Markets Last Longer

by greg howell (314.854.5607 direct)

HOPE:
While the markets continue to decline and the end seems to never get here, I wanted to give you a little hope. I have talked with a lot of clients and the overwhelming question seems to be: "Should I hang on because if I do, my account is going to end up being zero?"

PLEASE TAKE3 MINUTES TO LOOK AT THIS ATTACHMENT (it will hopefully give you calming effect to what you are reading in the papers and seeing on TV).

HISTORY:
Go back over just the past 40 years (to 1968).....the 2 worst down(Bear) markets have been 1973-1974 (when the S&P 500 fell 43% over 21months), and 2000-2003 (when the S&P 500 fell 43% over 30 months). We are currently in the 14 month of this Bear market and the S&P 500 is down about 28% since Jan.

LOOK AT WHAT HAPPENED AFTER THE S&P 500 STOPPED DECLINING - from 1974-1976 the market went up 86%!!!!! After the tech bubble in 2004-2007 the market soared 91% over the next 5 years.

We WILL have another Bull (UP) market......It WILL come.....you just have to ride out the bear markets to enjoy and reap the benefits.

With the being said, if you can't take any more pain, then call me and we can discuss the appropriate options.

Also - If you know of anyone who is asking you questions about what they should do and you don't feel comfortable giving advice, please pass my name along to them. I would love to help any of your friends or family.

Gregory R. Howell
Vice President-Wealth Management
Financial Advisor
citi smith barney
101 S. Hanley Road, Suite 600 Clayton, MO 63105
Tel: 314.854.5607 Direct 800.325.0630 Toll Free
314.854.5606 Fax
For account access or market information please access my website at
http://fa.smithbarney.com/greghowell
Bull_Markets_have_lasted_longer%5B1%5D.pdf

How did we get here?

Where did all of this reckless mortgage lending behavior come from? What started us down the path of loaning money to those who were previously unloanable (is that a word)?

During the dot.com bailout, in 2001, the Fed lowered key interest rates to historic lows. This was an attempt to revive the economy that had been destroyed by the dot.com run up.

Homeowners, armed with historically low mortgage rates, began purchasing properties as if they were playing monopoly. Prices of real estate soared. Investors bought larger, more expensive properties with little money down. In 2005, 7.1 M properties were bought in the US. 40% of them were non-owner-occupied!!!

Wall Street investment banks bundled risky mortgages, packaged them into bonds, and sold them to banks and investors. Bond-rating agencies gave these investments high ratings.

But the subprime borrowers began defaulting on their loans -- some because their adjustable rate mortgages adjusted upward, some because they simply were "bad pay" from the beginning.

Like a house of cards, these defaulting borrowers created a series of events that sent housing prices downward. Banks and brokerages that had borrowed money to boost the impact of those investments had to race to raise capital.

Some, like Merrill Lynch, were forced to sell. Others, like Lehman Brothers, weren't so lucky. "These firms closed their eyes and made very bad bets on risky securities that they didn't truly understand," says Jeremy Siegel, finance professor at the University of Pennsylvania's Wharton business school. "Investments that they did not have to make led to their demise."

More on this soon...

Fed: Emergency cut

The Federal Reserve, working in coordination with other central banks worldwide, enacted an emergency interest rate cut on Wednesday. The Fed lowered its fed funds rate by half of a percentage point to 1.5%.

By lowering this rate, money gets pumped into the economy because borrowing costs go down. In their statement the Fed said, "The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability."

Rate cuts by the Fed always lead to concerns about inflation. Although inflation has been high, the Fed believes that the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.

This aggressive action by the Federal Reserve is the latest attempt to get the economy turned around. For more information about the St. Louis housing market, call me at 314 267 2636.