Welcome to the MONEYLETTER Hotline for February 20, 2008

The stock market has put on quite a show so far during this holiday-shortened week. Yesterday, on the back of some encouraging earnings we saw the market surge early only to drop like a rock as $100 oil made its presence felt to investors. Today, a poor (and worse than expected) consumer price report for January sent the market down sharply, only to see another reversal that left the indexes up and in positive territory for these two days. We have no explanation for the reversal, except for bargain hunting, which does not tell us much.

Later in the day, the Minutes of the Fed policy-making meeting held three weeks ago were released. The Minutes make very sober reading. The Fed was worried about the economy then, and nothing has happened since that would ease those worries. The only conclusion from reading the Minutes is that more easing is on the way. We are going to see rates well into the 2% range over the next few months.

The crux of the issue is to loosen the conditions that have tied credit into a knot. This is more easily said than done. Many on Wall Street are skeptical that it will be done before serious damage to the economy and the markets occurs. The Fed clearly is determined to do its best -- with Washington’s help -- to limit the damage. The actions being taken are very aggressive. We see the odds favoring the policymakers. In our opinion we are going through the worst now. We continue to believe that patience will be rewarded as we go through this year.

There is no change in our recommended allocations.

New Fund Ratings – For domestic stock funds, two funds are now rated Buy: Spectra N and Janus Mid Cap Value. Powershares Dynamic Mid Cap Growth is now rated Sell. For international stock funds, Fidelity Emerging Markets is now rated Buy. T. Rowe Price New Asia is now rated Hold.

The Economy – Oil at $100 is a huge rock standing in the way of the economy. The consumer is already under intense pressure with house prices falling and a very rocky market. The commodity experts have consistently told us that recent oil prices are too high. But so far the oil market has refused to listen. The Fed presented its members new forecasts for growth and, interpolating, it appears they are looking for minimal growth over the first half of this year, with a pickup in the last half. They see growth as still restrained next year. We are slightly more optimistic as we move into next year.

The Stock Market – The stock market continues to expect further stimulus, and is responding to that expectation. We believe the stock market is correct. We do not look for any major gains in the U.S. market for the immediate future, but as the credit crunch eases, we look for a more rewarding market. We continue to favor equities.

The Select Portfolio – There are no changes for this portfolio.

The next Hotline is scheduled for Wednesday, February 27th at 7 pm.

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