Investors were hoping October 27th was the market low when the Dow Jones Industrial Average closed at 8175, but November continued the stampede out of any asset considered risky.  Stocks, corporate bonds, commodities, real estate, and anything in the international arena lost significant value, with the only safe haven being United States Treasury securities and the most highly rated mortgages.  By November 20th, the Dow had fallen another 19% during the month, bringing the year to date return to -43% while the 10-Year Treasury Bond was yielding 3.1%, its lowest yield on record, while short term Treasury bills were effectively yielding 0% as investors piled into risk-free securities.  For stock investors, the last trading days in November saw the Dow increase about 19%, which effectively saw both a bear and bull market during the same month.

Anyone who reads financial publications realizes any economic news recently has been extremely poor, from consumer confidence, retail sales, and the housing market (with each indicator suffering all-time low readings) to falling employment numbers and deflationary fears.  In fact, the National Bureau of Economic Research established the beginning of the recession as December 2007.

While the last year has been extremely painful for most investors, looking back may not prove beneficial in terms of future financial market performance.  Many statistics and historical trends point to improved returns:

•    Since World War II, the average recession has lasted 11 months and market bottoms tend to occur about half-way through the recession.  While this statistic would mark the end of the recession around October of 2008 and the market bottom around June, most economists expect this recession to be deeper and longer than an average recession.  That being the case, the November low could mark the stock market bottom.

•    Measured from the November 20th low, the 10-year annualized return of the S&P 500 is -2.7%, which matches the 10-year performance during the Great Depression, from 1929 to 1939.  There are few economists predicting the current economy equaling Great Depression conditions.

•    According to data from the Leuthold Group, since 1926 when trailing 10-year returns have been less than 1%, subsequent 10-year compounded annual returns have averaged 10.7%, in a range from 7.2% to 15.6%.

•    The normalized P/E at its November 20th low was 10.4 times, according to Leuthold, placing it in the bottom decile of valuations over the past 50 years.  The subsequent median 12-month return is 20.2% with a median 10-year return of 17.1%.

•    According to InsiderScore.com (a service which measures corporate insiders trading activity), insiders are buying stock at record high levels and selling stock at record low levels.

Past letters have urged participants to continue to take a long-term perspective when funding their retirement plans.  Markets tend to rebound sharply and at unexpected moments, so timing usually is not a prudent strategy.  Markets have acted irrationally over the past year, as forced selling and fear has predominated, while investing in company fundamentals, which eventually trumps all other approaches, has been a losing proposition.

NADART has provided many tools on its Web site, www.nadart.org, to help participants design their retirement contributions, from information regarding available investments to questionnaires to determine your individual risk tolerance.  If you have further questions you can call ourPlan Information Center at (800) 462-3278 or ask for me directly.  The Plan Information Specialist will transfer your call.

John Hensley – CFA
Director - Investments