The S&P 500 Index finished with its worst year since its creation in 1957 losing 38.5% of its value.The other equities markets and commodities followed with substantial losses of their own.Real estate prices continue to come down, but with their sticky nature probably have further to fall.Bonds were the only positive asset class in 2008 and over the past three years.There are a lot of things to be concerned about right now:the global slowdown, the jobs market, the housing market, the lack of credit, the lack of confidence, and potential deflation.However, there are also a lot of positives coming:huge monetary and fiscal stimulus, investor sentiment is extremely low, commodity prices are lower and there is a mountain of cash in short-term money funds and Treasuries that will eventually find its way back to the other asset classes as investors move out on the risk/reward continuum.According to estimates, there is an all-time high of approximately $9 trillion in short-term money funds equaling almost 75% of the market value of all U.S. companies.This capital probably won't be reallocated to the equities and real estate markets all at once, so we may not see a quick recovery, but things look good for long-term investors when the winds change.
Sectors
Quarter
1 year
3 years
Utilities
(10.9%)
(23.4%)
(2.5%)
Transportation
(16.5%)
(18.6%)
(7.2%)
Consumer Non-Cyclical
(16.9%)
(23.4%)
(0.9%)
Health Care
(21.0%)
(24.8%)
(7.2%)
Financial
(24.4%)
(32.5%)
(17.2%)
Technology
(27.2%)
(39.8%)
(12.2%)
Capital Goods
(27.4%)
(38.0%)
(9.7%)
Basic Materials
(28.7%)
(38.5%)
(7.8%)
Services
(29.6%)
(34.2%)
(15.1%)
Conglomerates
(31.7%)
(44.1%)
(14.1%)
Energy
(39.7%)
(49.1%)
(12.3%)
Consumer Cyclical
(40.4%)
(47.3%)
(20.6%)
That's just ugly.Not a single equity sector has generated a positive return over the past quarter, year or 3 years.Even defensive sectors like non-cyclicals, utilities and health care have lost tremendous amounts of value in the process.Consumer cyclicals and financials have been the worst performing sectors over the past 3 years.
Economy
Balance
Qtr, Ann
GDP
11,712
(0.5%)
Personal Consumption
8,261
(2.8%)
Non-Farm Jobs
-524k
-1,531k
US Leading Index
99.0
(5.2%)
M2 Money Supply
6,549
20.3%
Interest Rate Spread
3.14
GDP has turned negative losing .5% on an annualized basis in the latest quarter.Personal consumption turned sharply negative with the loss of jobs, the downturn in the real estate and equities markets and the ensuing lack of confidence.In the short-term, increases in government spending will have to replace some of the losses from the consumer sector.The money supply took a sharp turn up as the Fed pumps money into the economy.However, the velocity of money is turning down as financial institutions seem to be hoarding the capital to shore up their shaky balance sheets.The financial engine has to be stabilized to get capital flowing back into productive uses.
MSC Performance
Quarter
1 year
3 yrs
MSC Select
(23.0%)
(30.5%)
(0.7%)
Benchmark
(27.1%)
(37.3%)
(11.9%)
Relative Performance
4.2%
6.8%
11.2%
MSC Total
(15.1%)
(24.6%)
(3.1%)
Benchmark
(15.4%)
(28.8%)
(7.7%)
Relative Performance
0.3%
4.2%
4.6%
Select and Total have handily outperformed their benchmarks over all periods, but this doesn't provide much solace since returns have turned negative over the past 3 year period.We continue to reposition our investments in the face of this downturn; yet, we are ever mindful of our long-term philosophy and strategy.We also glory in our sufferings, because we know that suffering produces perseverance; perseverance, character; and character, hope.
Disclosures:Past performance does not guarantee future results.MSC performance figures are after all fees, commissions and expenses and also reflect the reinvestment of dividends.MSC Select is a portion of the total portfolio and is made up of only small-cap stock selections made by MSC.This segment of the portfolio may be volatile as the small-cap market sector is volatile.MSC Total represents a total portfolio that includes investments in the following sectors:large caps, small caps, international equities, real estate, bonds, and commodities.Although MSC Total is diversified over several different market sectors, it may also be volatile based upon the volatility of the individual market sectors, their correlation and the impact of the broader economy on the markets in general.The benchmark for the MSC Select portion is the Russell 2000 and the benchmark for MSC Total is a composite made up of the same market sectors and in the same weights as MSC Total.Both benchmarks are calculated after deducting the dual layer of investment management fees totaling 2.5% per year that the typical investment advisor charges.All MSC individual accounts are managed according to client specifications and with a view towards long-term capital appreciation.