Welcome to the MONEYLETTER Hotline for November 28, 2007

Last week's Hotline concluded by our saying that we expect interest rate cuts either this year or early next from a reluctant Fed. In the last two days, the Fed has played out that scenario. Today, the Fed sent a message through its Vice Chairman Donald Kohn that more action was coming. The result was a big 300-point gain for the Dow. Yesterday, the reluctant Fed made its appearance when two Fed bank presidents spoke and implied the Fed had done enough. To the markets' relief Kohn corrected that view.

Where are we now? We see the rally of the last two days as a bounce from a deeply oversold condition. The selling we have seen – including Monday's – was the result of fear that the economy was sliding, dragged down by the ailing and worsening financial sector. The investment by Abu Dhabi of $7.5 billion in Citibank, and now Kohn's speech acknowledging that credit conditions have worsened, have told the markets that we are probably safe from a financial free-fall.

But the credit markets have not suddenly returned to normal and the housing crisis has not vanished overnight. The economy is headed for a very slow period, and that will take its toll on profits. But at least we know the Fed is "pragmatic and flexible" as Kohn said. For the markets, both here and abroad, and for us, that is extremely reassuring.

There is no change in our (new) recommended allocations.

New Fund Ratings – For domestic stock funds, four funds are now rated Buy: Marsico Focus, Fidelity Contrafund (closed), American Century Select (closed), and Neuberger Berman Genesis (closed). Eight funds are now rated Hold: Old Mutual Growth, Neuberger Berman Manhattan, Sit Small Cap Growth, TCW Small Cap Growth, Artisan Midcap, Janus Venture, Fidelity Aggressive Growth, and Kinetics Small Cap Opportunity. Fidelity Convertible Securities is now rated Sell. For international stock funds, Claymore/BNY BRIC (ETF) is now rated Buy.

Fidelity Convertible Securities is in all three Fidelity family portfolios. We will switch the fund into Fidelity Trend in all three portfolios.

The Economy – The Fed’s Beige Book told us what we already know, that the economy is slowing down. October’s existing home sales were down, and the inventory of homes for sale is very high. Investment new orders were down. This is a sector the Fed is concerned about. The good news is that consumers appear to be spending in the opening days of the holiday season. We have our doubts this will continue. The economy will be struggling to grow in the immediate months ahead.

The Stock Market – We see the action of the past two days as important in that it reversed the downward momentum of the domestic market. From now on our market will depend on the Fed for the oxygen to prevent a downturn. The economic news will generally not be supportive. We still expect a flat, choppy market for some months.

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

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