The third quarter started with the bulls firmly in control. As such, most major stock market indexes charged ahead until mid July.

The bulls' rationale was un- clear as the housing market that had peaked in 2006 con- tinued its decline.

Home sales in many states continued their free-fall and home prices continued to plummet in the third quarter.

In mid July the stock market rally stopped abruptly as some hedge funds publicly stated that they had sustained sub- stantial losses in their sub- prime mortgage portfolios.

Starting in mid July, most ma- jor stock market indexes fell precipitously as the daily fi- nancial news continued to de- pict the real estate sector's de- terioration.

However, investors did bid up stocks in early August, antici- pating that the Federal Reserve

(the Fed) would lower interest rates at its regular scheduled meeting on August 8th.

The Fed disappointed inves- tors and left short-term interest rates unchanged.

The bears seized this moment, driving most major stock mar- ket indexes down significantly until August 17th, when the Fed announced it was drop- ping the discount rate 0.5%.

The Fed's decision to reduce the interest rate at its Òdiscount windowÓ between its regularly scheduled meetings was un- precedented. This decision emboldened investors to drive most stocks up significantly that day.

Against this back-drop, U.S. and global financial institu- tions, including banks and bro- kerage houses, publicly dis- closed that they were hemor- rhaging from the sub-prime delinquencies that made up a large part of their respective portfolios.

Economic pundits began to discuss the probability of a re- cession, stating that a recession ahead was more probable in light of the daily financial news.

From mid August through the end of September most stock markets regained their losses that began in mid July. Investors shunned the daily news, which continued to depict many finan- cial institutions' portfolios suf- fering billions of lost dollars, with no end in sight. The news also reported that mortgage de- faults had hit historic highs.

I am concerned about the poten- tial of a recession ahead and its impact on the price of many stocks.

Exchange Traded Funds (ETFs) are a large percentage of my cli- ents' managed financial assets. These ETFs are in the energy, grains and precious metals sec- tors. These three sectors should offer my clients positive returns as the recession unfolds ahead.