Global stock markets had the worst January in history.  The primary culprit of this market volatility heading into 2008 is the same culprit which precipitated market volatility last summer and fall, and will likely continue to create more market volatility in 2008. Financial institutions continue to take big hits from debt rooted in the U.S. mortgage sector (some companies are now announcing their third write-down).  It has become very apparent that U.S. economic growth is likely to remain sluggish – if not negative – over the next couple of quarters and companies are reporting lower earnings as a result. 

After cutting interest rates by 1.25% in January in the U.S., the Fed’s bias is likely to remain one of stimulating growth rather than restraining inflation (cutting interest rates even when inflation is rising). Not all investors may agree, so stock markets will likely trade up and down more on economic news than long-term fundamentals.  The world economy is better positioned to weather a U.S. consumer slowdown now than in the past.  The U.S. economy is no longer in the driver’s seat as China and India decouple their economy from the U.S. in this new era of globalization.  This theory is being tested, however, as international stocks sell off more than their North American counterparts. 

The MSCI World Index declined by 5.63% for the month. Although predicting the bottom has been elusive for many investors, it does appear that current stock prices can be an attractive entry point.  The ROI Global Retirement Fund declined by 5.78% for the month. The Fund benefited from investing in private placements and bonds, but some of the international investments performed poorly.
   
The ROI Global Retirement Fund has avoided investing in financial services companies (especially globally), has avoided the U.S. (at least a significant underweight) and has hedged the currency (at least partially).  This, in combination with working in best-in-class investment managers and investing in cash, bonds and private placements, has allowed the Net Asset Value (NAV) of the Funds to appreciate in 2007 despite significant volatility.   We are very proud that the Fund was the highest performing Fund in its category during 2007.

Going forward, many investors will be evaluating the strength (or lack thereof) of the U.S. economy. Investors will look at unemployment rates, Fed action (monetary policy), company earnings and Gross Domestic Product (GDP) to gather clues on the direction and viability of the U.S. economy. This will set the tone for the stock markets throughout 2008.  We believe an improving macro theme in the U.S. will lead to improved stock market returns during the later half of 2008.