The bulls continued to dominate the stock market in early April. As a result, most major stock market indexes continued the ascent they began in mid March.

The catalyst for the bulls’ exuberance was elusive.

The U.S. economy continued to spurt along throughout the second quarter of 2007.

The real estate slowdown continued on its path as home sales and home prices continued to decline.

In addition, news about the sub prime loan meltdown throughout the second quarter appeared almost daily in the financial press and in many other main stream newspapers.

Sub prime loans are loans that are made available to borrowers with less than stellar credit and with little, if any, documentation to validate their incomes.

Many sub prime borrowers

chose option adjustable mortgage loans to finance their home purchases.

These loans offer borrowers the option to pay less than the interest only on their home mortgage loans. However, option adjustable loans have a reset provision that is usually triggered after one year or more. This reset provision stipulates that the borrower now has to pay significantly more than their original minimum payment.

During the second quarter of 2007 many of these loans reset and set the stage for significant increases in defaults and foreclosures on these mortgages.

Increased mortgage foreclosures in the sub prime and prime mortgage markets increased inventories of unsold homes and put continued pressure on home prices.

Against this backdrop, oil prices continued to escalate in the second quarter. Bond yields

continue to climb throughout the quarter as well, even though the Federal Reserve left short-term interest rates unchanged at their regular meetings in both May and June.

During June most major stock market indexes were range-bound, as investors became more cautious about the deteriorating real estate sector and the U.S. economy. In addition, higher interest rates and increasing inflationary pressures may continue to be a major headwind for the U.S. economy in the near future.

I remain cautious about what is ahead for the U.S. economy. I predict that energy prices and inflation will continue to rise.

As such, I remain committed to the energy and precious metals sectors as the core of my clients’ managed financial portfolios.