The bears regained their upper-hand in early July and as such, most major stock market indexes went into a free fall. The flame that ignited the sell-off of stocks in early July was the economic news being disseminated to the public depicting the rise of inflationary pressures building in the U.S. economy.

Stock market investors were concerned that the Federal Reserve (Fed) might again start to raise short-term interest rates at its next regularly scheduled meeting in early August.

The Fed had paused on raising short-term interest rates at its June 29th meeting after it had raised short-term interest rates seventeen times in a row since June of 2004.

The Fed tried to keep inflation in check by raising short-term interest rates in an attempt to temper the growth of the U.S. economy. The irony of the Fed’s actions, raising short-term interest rates relentlessly since

June of 2004, is that long-term interest rates dictated by bond investors didn’t follow the Fed’s cue.

Mortgage interest rates have moved up about 1% point since June of 2004 slowing the housing market, but still remained relatively low in July by historic comparisons.

The stock market regained its upward momentum in mid July. Investors were emboldened by the rhetoric of the Fed’s new chairman, Mr. Bernard Bernanke. He stated that the Fed would remain on hold at its next meeting on August 8th.

Many economic pundits in July predicted that the slowing U.S. economy would have a soft landing (Goldilocks Economy) and therefore corporate profits could continue to grow, albeit at a slower pace.

Stock market investors were bullish from mid July to the end of September, hoping that the Fed would stay on hold leaving

short-term interest rates unchanged at its August 8th and September 29th meetings.

Against this backdrop, the robust housing sector continued to implode throughout the third quarter of 2006. The labor market remained lackluster, and the geo political tensions remained in high gear as the War in Iraq and Afghanistan continued voraciously, and the nuclear standoff with Iran and North Korea continued to escalate.

I remain committed to the energy and precious metals sectors as the core assets for the assets that I manage for my clients. However, stock prices in these sectors have retreated significantly in the third quarter and might cotinue to in the near future.

If these assets continue to decline in price, I may harvest some profits for my clients to protect the value of their portfolios.