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Market Commentary

03/08/2009 --- Twelve-Year Lows (Like The One Set March 2) Have Marked Market Bottoms

The S&P 500 closed February with its worst 6-month return since June of 1932. That happened to be the market bottom of the Great Depression.

This past week, stocks broke 12-year lows. In other words, investments made in the index 12 years ago now have no gains or losses. According to JPMorgan's Thomas Lee, that has only happened twice before. One time it marked the exact bottom of the market to the day (December 6, 1974) while the other time the market bottom came exactly three months later. In fact the market proceeded to surge 73% in two months and 134% in a year. A sample size of two does not a trend make, but this shows you the potential recovery that could be around the corner.

03/01/2009 --- Those Who Made Correct Market Calls In 2000 & 2007 Make New Contrarian Forecast

In 2000, investment management firm GMO predicted that large companies (such as the firms in the S&P 500) would have a 10-year real return of -2% per year (see figure 6). The result? The S&P 500 has produced a return of about -7% per year since 2000. GMO also predicted real estate and emerging markets would return approximately 9% per year. It turns out that all three forecasts were very accurate. GMO was negative on large companies at a time when everyone else was loading up on them.

In June of 2007 (see figure 9), GMO was high on cash, U.S. government bonds, and TIPs. They predicted negative returns for real estate and all stock categories. Again, their forecast was very accurate.

So what is GMO predicting for the next seven years? Once again, they are going against the crowd. GMO is high on the assets currently being shunned (stocks will average 7-11% per year) and is negative on today's popular investments (government bonds and short-term Treasuries). Please note that these are 7-year forecasts and GMO accurately notes that there is often a large overshoot on the downside when a bubble bursts. For more details, see GMO's 7-Year Asset Class Forecast published on January 24, 2009.

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