With all the verbal diarrhea being spouted by the talking heads on CNBC and other channels, I thought it most appropriate to limit my comments on the current market debacle to a few bullet points.

  1. The history of government interventions is a profitable one. In the last six completed bailouts dating from the rescue of the Penn Central Railroad in 1970, the Treasury ultimately garnered a slight profit.
  2. The situation faced by Lehman Brothers and other firms were as much a function of circumstance as bad management. Certainly there were mistakes made, but even in a perfect sphere of decision-making the firms that are no longer with us would still not likely be around.
  3. The situation we face today is certainty more grim than the crisis in 2002 (Worldcom debacle), 1998 (LTCM/Russian default) or the recession of 1990. However, valuations– especially in the credit markets–have never been more attractive. Those companies able to survive will reap enormous benefits from this market dislocation.
  4. As demonstrated by our politicians, individuals are programmed to act in their own best interest–and frequently do so even if it endangers the greater good.
  5. All things being equal, the advisors that manage the most diversified portfolios are often the ones that will live to fight another day.

The Monthly Index Report for October 2008

Index

Sept-08

QTD

YTD

Description
S&P 500 Index*

-9.2%

-9.0% -20.7% Large-cap stocks
DJIA*

-6.0%

-4.4%

-18.2%

Large-cap stocks
Nasdaq Comp.*

-12.1%

-9.2%

-21.5%

Large-cap tech stocks
Russell 1000 Growth

-11.6%

-12.3%

-20.3%

Large-cap growth stocks
Russell 1000 Value -7.4% -6.1%

-18.9%

Large-cap value stocks
Russell 2000 Growth

-11.3%

-7.0%

-15.3%

Small-cap growth stocks
Russell 2000 Value

-4.7%

-5.0%

-5.4%

Small-cap value stocks
EAFE

-14.4%

-20.5%

-28.9%

Europe, Australasia & Far East Index
Lehman Aggregate -1.3%

-0.5%

0.6%

U.S. Government Bonds
Lehman High Yield

-0.8%

-8.9%

-10.1%

High Yield Corporate Bonds
Calyon Financial Barclay Index**

0.1%

-4.3% 3.5% Managed Futures
3-mo. Treasury Bill*** 0.4% 1.1%

2.2%

All returns are estimates as of September 30, 2008. *Return numbers do not include dividends.

** Returns are estimates as of September 29, 2008.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at ben@searchingforalpha.com.