Hardly anyone would disagree with the premise that Mr. Market has been unusually emotional these past three years.  But the last couple of weeks have demonstrated just how emotional investors can get after a prolonged bear market.  The drone of bad news has been like a vise, applying increasing emotional pressure almost by the hour.  One negative development after another has pounded stock values down and risk-averse investments up. 

You know from your July and August statements just how badly the markets mistreated long-term investors.  A few statistics from Credit Suisse First Boston help put the period into even better perspective.  A record $29 billion was removed from mutual funds in July 2002.  Stock funds experienced record outflows, while bond funds enjoyed record inflows.  Net outflows from equity funds in July 2002 were almost twice as large as those during September 2001, and more than five times larger than those during August 1998.  Every style of equity funds was affected by investors’ withdrawals in July. 

Often, the fear of the monster lurking in the darkness is greater than the actual sight of it.  The monster’s out, the U.S. is in recession.  The National Bureau of Economic Research on Monday said the U.S. entered a recession in March even though contraction did not actually show up until the third quarter.  A common definition of a recession is two consecutive quarters of economic contraction, but the NBER, considered the official arbiter, relies on a variety of factors to determine the state of the economy.  Most expect contraction in the fourth quarter of this year as well.  On that news the markets actually rallied for a couple of days. 

Economic News: Mostly good news this week pointing to continued recovery in the economy Wholesale inventories in the U.S. increased 0.2% in May to $302.62 billion on the largest monthly increase since November, the Commerce Department said Tuesday.  A consensus of analysts had projected a 0.1% increase.  Manufacturers are pushing the inventories from their shelves to those of wholesalers through “good deals”.   Meanwhile, wholesale sales slipped 0.1% from April to $229.82 billion. Analysts had expected a 0.3% increase for the month.