| The opinions referenced above are those of the Mark Bavoso as of 3/17/08 and are subject to change at any time due to changes in market or economic conditions and may not necessarily come to pass. These comments are not necessarily representative of the opinions and views of the firm as a whole. The comments should not be construed as recommendations, but as an illustration of broader themes. Diversification does not eliminate the risk of loss. Past performance is no guarantee of future results. Good morning. This is Mark Bavoso, portfolio manager and managing director of Van Kampen Assets Management, and I wanted to make some comments relating to current market actions and what we've been experiencing within the last year in the markets, but more specifically focus on what we're seeing here more recently. It's important to understand that we manage the Van Kampen Asset Allocation Funds and are very, very strong proponents of portfolio diversification in all market environments. It just appears to me in these types of market environments, portfolio diversification is just such an important feature to have embedded in your portfolios.
Now having said that, we're going through extraordinary times in both the equity and fixed-income markets and I don't want to try to soft-pedal that or distract you from that thought. The real message in my comments today gets back to looking at these market activities as opportunities and trying to deliver information to investors that's designed to allow for some opportunistic activity in portfolios, not simply reacting more defensively. So let me walk you through some general thoughts on what we see happening.
My first year of investing in the stock market was in 1983, so I've been through a number of different cycles similar to the one we're going through now, although no two cycles is ever the same and no two cycles ever feel exactly the same. The pattern of activity that comes during those cycles does share some similarity. Typically you're coming off of a couple of years of extraordinary activity. Those couple of years are followed by little issues that start to crop up in terms of either excesses in a market or events that were unexpected. They generally have very little impact on the markets when they first start to crop up. Those activities then begin to build over time and different sectors or different esoteric parts of the market begin to get impacted. Then over time the issues grow while growth slows and the market impact across asset class and geography tends to become much more pronounced, ending oftentimes with some sort of a cataclysmic event that leads to sort of the final over-discounting of the markets.
So those are the types of patterns we've seen and if you look at the current environment, where do we stack up in terms of that historic pattern. Well, if you think about the recession of 2001, all of the liquidity that was injected globally in terms of recovering and part of that was done because of the nature of the global economy slowing, part of that was done due to a one-time extraordinary event in the 9/11 terrorist attacks there were a lot of reasons why that liquidity was allowed to ease so dramatically, almost irrelevant. The fact of the matter is it did.
And so we ended up with very, very low global interest rates for an extended period of time. As we began to recover, both in the US and globally, we then had another extraordinary circumstance where emerging markets for the first time in their history were beginning to dramatically transition into consumer markets. So not only did China, Brazil, India and other large populations around the world begin to enjoy the benefits of capitalism and consumerism, but the globe's supply of raw materials had to support that activity.
So we came out of the recession of '01, we had very easy credit, we had dramatic growth in both the recovery in the US markets and Europe, as well as this new source of growth in emerging markets that we hadn't seen before. So between 2003 and 2006, the recovery was in full steam and the activity and demand for products was about as high as it could possibly be. Again, looking historically, that's typically when excesses build and credit and borrowing discipline begins to fade. And that's exactly what we saw towards the tail end of the recovery cycle.
In 2007 and 2008 following on the heels of that very strong 2003-2006 growth period, we began to see the markets demand a price to be paid for those excesses and those weaker disciplines in terms of credit and lending. And so what we've been going through now in '07 and '08 spurred to a certain extent the global housing correction but also just by excesses in the system, is the correction off those extremes that really began with the original easing and low credit costs back in '01 and '02. So where do we find ourselves today?
In our view, we've gone through quite an extended period now of corrections off of the recovery. We have US corporations and in fact global corporations still maintaining very good discipline, very solid balance sheets. But we do have the financial services and housing sectors in a period of difficulty. And so to us, the events that have been occurring in the last, say, six months Countrywide Financial, Bear Stearns, the trading issues at SocGen, the French bank, and others are all emblematic of what you need to see towards the tail end of these cycles.
Now oftentimes, they will end with one or two very major surprises in the marketplace that are completely unpredictable. But the sense is that you're getting closer to the end of this corrective phase than you are sort of in the throes of a next major move down. Remember, the equity markets might be correcting but the fixed-income markets are rallying as investors flee to quality and flee to income. So a couple of messages on what we would suggest doing from this point forward.
No. 1, we would look to continue to diversify the portfolios not only across asset classes stocks and bonds but also across geography, across sector and importantly across quality. A more diversified portfolio obviously gives you a greater degree of insulation against a single asset class's volatility. But we'd also begin to look at some of these asset classes that have been correcting now for quite a period of time and think about diversified ways to begin to layer positions into the portfolio to take advantage of some of the softness in these sectors.
We would suggest over the next six to eight months to begin thinking about exposing portfolios to some of the consumer discretionary space, some of perhaps the housing-related areas and even further down the road, financials as they now begin their what we consider kind of last leg of correction here over the course of 2008. So we would want to be more opportunistic in looking at some of these sectors but always, always, always thinking about placing these positions in portfolios that are highly diversified and very insulated against single-event risk.
The final comment I'll make today is to not confuse analytical analysis with emotional response. Typically at the tail end of market corrections as we're seeing in global equity markets, the emotional response will trump the analytical analysis, the analytical views of what the markets are valued at. I would argue that we're now beginning to get into the emotional stage where investors become very, very concerned about what they don't know as opposed to studying what they do know. So keep in mind as you look at your portfolio and you look at opportunities to invest in some of these heavily discounted areas towards the tail end of 2008 and 2009, look to be investing for the next three to five years and think about how these asset class opportunities participate in your overall portfolio's return, again maintaining a highly diversified portfolio but looking opportunistically for ways to enhance your long-term returns as you move into sectors that are offering, in our view, relatively attractive discounts for the longer term.
We will continue to maintain highly diversified portfolios in the Van Kampen Asset Allocation product line. But we will also be looking, as you should, at opportunities going forward to invest in new asset classes for the next leg up. Again, this has been Mark Bavoso, managing director and portfolio manager of Van Kampen Asset Management and I thank you for your attention today.
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