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August
did however, end with most major stock market indexes down
for the month, as the bears got the upper-hand again.
Helping the bears out at the end of August was the continuing
redemptions by many mutual fund investors exiting the stock
market after years of bruising losses.
August was the third month in a row that most mutual fund
companies had net out flows from their stock mutual funds.
Mutual fund redemptions cause mutual fund managers to sell
the stocks in their respective portfolios to meet the liquidity
needs of their shareholders. This process causes additional
downward pressure on stocks in a declining market.
The Treasury Bond market continued to reward investors throughout
July and August, as stock market investors stampeded to the
safety of U.S. Government Bonds as a flight to
safety. The environment of lackluster economic
and profit growth, and escalating world tensions focused on
the Middle East and the potential for all out
war with IRAQ, wetted many stock market "groupies" appetites
for plain vanilla safe U. S. Government Bonds.
The corporate bond market did not fair so well. High yield
(junk bond) investors were the big losers in July and August,
as investors shunned the bonds of all but the bluest
of the blue chip companies.
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September started out with most major stock market indexes
caught in a down-draft on September 3rd, the first trading
day after Labor Day. September is historically the worst month
of the year for the stock market.
Through most of September the bears had the upper-hand,
as most major stock market indexes declined to
new lows for 2002. There were a few stock market rallies that
were short-lived in early September.
Most of the economic news disseminated throughout September
depicted that the U.S. economy was continuing to remain
very anemic, with little visibility ahead about when the
economy would in fact rebound.
Throughout September, the geo-political tensions escalated
as President Bush threatened Iraq with an all out invasion.
The notion of investors about an all out war with Iraq
and its potential consequences on rising oil prices and escalating
the risk of terrorism, helped fuel the bears in the stock
market throughout September.
In September, stock market investors focused away from the
corporate scandals that proliferated a few months before.
The Congressional investigations and probes into corporate
malfeasance remained in the background throughout September.
Most major stock market indexes ended September near
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their
lows for 2002, and declining for the sixth month in a row.
The third quarter decline of 2002 for the stock market was
one of the worst quarterly declines in the past 50 years.
Bond investors however, had one of the best months for 2002
in September.
Treasury Bonds continued to be the biggest winner of all bond
classes as bond investors continued to shun the corporate
bond market fearing another Enron calamity.
I continue to remain very cautious about what is ahead for
the U.S. economy and the stock market for the time being,
and as such, remain underweighted in stocks.
U.S. short-term Treasury Bonds remain the largest weighting
of the investment portfolios that I manage for my
clients.
In addition, I continue to maintain a small weighting of gold
mine and energy stocks as a hedge against geo-political turmoil.
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