In March 2000 the US stock markets reached peaks with stock valuations much higher than the earnings powers of the quoted companies could justify. Since then stock prices have generally fallen, so far fairly modestly for traditional stocks, but quite catastrophically for "new economy" stocks. Inevitably, what happens in the US markets is reflected everywhere else in the world, especially since the other great single economic power, Japan, has been in its own bear market for over ten years.

Despite quite long and meaningful rallies in stock markets, the underlying fundamentals of the US and of the world 's economies do not look encouraging for a strong recovery. The US economy is out of balance, both with regard to its international trade and its internal rate of private sector spending compared with income. INSAM's view is that a return to some degree of balance is needed before growth can be resumed, and that will require time. Thus we see the bear market conditions lasting for at least a number of months, maybe longer.

The reaction of the private investor in this environment needs three elements:

	protection of core assets by the choice of safe but sure investment instruments;
	deployment of non-core assets into instruments that can produce gains even in a bear market;
	a readiness to re-enter the stock market, directly or via investment funds, when the real signs of a recovery of markets and of the underlying economy appear.

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