TREES INVESTMENT COUNSEL VIEWPOINT (Q1 2008) 

Unquestionably, the past half year has been a doosey - enough to make any investor's head spin.  Economic and stock market turmoil continued this quarter as the credit and housing crises were again wreaking havoc.  Historically risk seeking institutions have been forced to deleverage and pare back risk, unwinding positions in the stock and bond markets with repercussions felt everywhere.

Not only did one of our country's most well-heeled (albeit risk loving) investment banks nearly go out of business over a weekend in March, remarkably it was only saved by the engineering of our federal government, which stepped in forcefully to calm the situation.  Imagine the state of the world markets had JP Morgan not bought Bear Stearns!  The fiscal and monetary stimulus provided by our government has been unprecedented, which speaks to the magnitude of the crisis at hand.  Interest rates have been cut dramatically by the Federal Reserve, borrowing facilities for banks and investment banks have been widely expanded, and $150 billion in tax rebates are on the way to pocketbooks just in time to fill gas tanks for summer trips.

Along with the turmoil, the corresponding market fluctuations have been the most volatile in many years.  More than half of the trading days this year have seen at least a 1% swing as investors are looking for the opportunity to turn positive, but keep being restrained by negative indicators and reports.  Polls indicate that most think we are in a recession and investor panic has moved money to the sidelines; dollars have flowed out of equity mutual funds and into low yielding money market funds.  As sentiment becomes constructive (recession or no recession) - and it will at some point - the money on the sidelines will jump back in to propel the bounce.

To date, pressure has been on the downside.  The Standard & Poor's fell close to 10% in the first quarter, continuing the negative momentum at the end of 2007.  Housing prices are dropping - precipitously in some areas - and foreclosures are widespread.  The townhouse Jackie is renting is apparently going into foreclosure - so it is hitting close to home (pun intended).  As some of you may have read in the Wall Street Journal, banks have even resorted to paying those in foreclosure to vacate the premise without trashing the property.  She is looking forward to that check!

As we stated last quarter, the silver lining is that we are finding value in high quality stocks and bonds and are taking action in the portfolios.  While it is painful to tolerate the downside swings, and we are not sure they are over, we see rick as the partner of opportunity.  Two years ago we saw little of either.

April 18, 2008