Welcome to the MONEYLETTER Hotline for November 7, 2007

The market was doused by a bucket of cold water thrown over its head before it started this morning by the news that China is considering diversifying its monetary reserves. With that the down trending dollar continued down, while the other major currency, the euro, continued moving up. A weaker dollar is fine for exports, but there are negatives to that positive. One negative is that oil is priced in dollars, as the dollar weakens oil becomes less expensive in non-dollar currencies, in turn increasing demand outside the U.S. That is the last thing we need with oil now flirting with $100.

A too-weak dollar is only one negative the market is dealing with. Another major one is the outlook for the U.S. economy, for at least this quarter and next. The credit woes and the mortgage mess are combining to hit the economy right now. Wall Street looks for a very slow economy over the next five months. We go along.

Under the circumstances, there is not much of a case to be made for the short-term domestic market outlook, as far as we can see. In fact, there was a touch of capitulation in the market today. But once again, some perspective is called for. Growth continues in Asia, if a little slower, as we go through our problems.

Export demand for our goods will remain strong. The latest employment numbers show hiring remained sturdy last month, credit woes and all. The one wild card is oil. Right now, we are inclined to look through the market's problems, looking six months ahead. But uncertainty is great and we are watching the situation closely. This is no time to be stubborn.

There is no change in our recommended allocations.

New Fund Ratings – For domestic stock funds, Powershares QQQ (ETF) is now rated Buy. Brandywine Advisors is now rated Hold. There are no changes for international stock funds.

The Economy – Last Friday's employment report was stronger than expected. At least through last month, business was hiring. This is important. The economy needs the consumer to hold firm in the face of weakness elsewhere. As we have said, we see a weak economy over the next six months, acting better in the last half of next year.

The Stock Market – We have been looking for a flattish, choppy market for the rest of this year and on to the first months of next year. We still hold to that outlook. Oil may worsen that outlook. We need to see oil retreat. We expect it will.

The Select Portfolio – There is no change for this portfolio.

More articles...