Welcome to the MONEYLETTER Hotline for February 27, 2008

For this week at least, the battle between the skeptics and the policymakers is going the policymakers' way. The economic news has, by-and-large, been rotten. The wholesale price rise in January was something of a shock. If it were just oil it would be one thing, but it was more than oil. Inflation is now poking its nose under the tent. Normally, we would see the market plunge given the news, and there was selling, but it was trumped by IBM's announcement that another huge buyback of its shares is in the works.

While the U.S. market has been acting surprisingly well, the Fed, in our opinion, has been giving the market even more reason to act well. Our interpretation of two speeches by Chairman Bernanke and Vice-Chairman Kohn this week is that the Fed is prepared to go the extra mile to prevent a downward spiral from developing. We do not think that the financial commentary does justice to the determination of the Fed. Interest rates are going lower, and we would not be surprised to see a 2.0% short-term rate during the next few months.

We see this as ultimately good news for the market. The economy is retreating, but ever so slowly. So long as the economy holds close to zero growth, plus or minus, low interest rates will allow the market to recover. 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: Fidelity Convertible Securities and Royce Premier (closed). For international stock funds, two funds are rated Hold: Powerhares Golden Dragon and FTSE Xinhua China 25.

The Economy – Bernanke and Kohn made clear that they are concerned about downside risks to the Fed's forecast of a gradual pickup after midyear and into next year. Right now that is their major concern -- to insure against further trouble. The housing news continues dreadful. On the other hand, business investment is holding its own so far. January new investment orders were down, but only some after December's large increase. So far we have not seen the usual negative pre-recession numbers. We see the economy holding close to zero over the next 4-5 months.

The Stock Market – It is unrealistic to expect major market gains while the economic outlook remains so murky. But once the first signs of improvement appear, we expect a strong market rally. The signs could appear any time over the next few months. We believe the domestic market presents attractive opportunities. We continue to favor equities.

The Bond Market --

The Select Portfolio – Shares of T. Rowe Price New Asia are now to be sold. They are to be replaced by Claymore/BNY BRIC (ETF, Ticker:EEB)

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