Welcome to the MONEYLETTER Hotline for March 12, 2008

The Fed stepped up to the plate yesterday and proposed some bold action. The result, as we all surely know by now, was a stunning advance of about 3-3/4% for the market. We surmise that much of the advance came from hedge funds scrambling to undo short positions on everything from blue chips to China market ETFs. It was a royal scramble.

We want to reiterate a point we have made before: hedge funds are major institutional players in global stock and bond markets. They are highly leveraged. They make their market-beating returns by being on margin. When things go bad, they are forced to sell, as their lenders demand more capital as backing for the margin loans. We believe that much of the outsized selling we have seen in the Asian funds is the result of hedge funds unwinding their margined positions in once hot markets, and perhaps even turning around and selling the same markets short. These games will continue until the markets settle down.

Meanwhile the market is wondering whether the medicine administered yesterday will take. We think it will, but it is by no means a full cure for the credit crunch. However, the new Fed lending facility will help. However, what is important for us is not the particulars of the Fed step, but that the Fed is willing to be bold. As we have said, the economy does not call for a recession. The Fed action illustrates that such is the Fed's position. The credit crunch is unique and the Fed is improvising in finding a solution. So far we believe that they are doing well. This is another reason why we continue to recommend patience.

There is no change in our recommended allocations.

New Fund Ratings – For domestic stock funds, two funds are now rated Buy: Royce Value and Neuberger Berman Partners. Three funds are now rated Hold: Fidelity Leveraged Company, Spectra N, and Kinetics Paradigm. Two funds are now rated Sell: Marsico 21st Century and Marsico Focus. For international stock funds, five funds are now rated Buy: T. Rowe Price Emerging Europe and Mediterranean, Driehaus Emerging Markets Growth (closed), SsgA Emerging Markets (closed), Vanguard Emerging Markets Stock Index, and Vanguard Emerging Markets ETF. Three funds are now rated Hold: Fidelity China Region, T. Rowe Price New Asia, and Guiness Atkinson China and Hong Kong.

The Economy – Friday's employment report with its job losses was the last straw, and market opinion now says recession. We concur. But this is mainly a recession of confidence. With forceful Fed action and the stimulus package we still look for a relatively mild and limited recession. So far the consumer is holding up relatively well. It is business confidence that needs bolstering.

The Stock Market – So far, so good for the follow-up to Tuesday's big rally. The bears will most certainly attempt to drive the market down over the rest of this week. If the market can hold we have a very good chance for a further rally. We also look for another rate cut next week. We continue to favor equities.

The Bond Market --

The Select Portfolio – Guiness Atkinson China and Hong Kong is to be sold and S&P Latin America 40 (ETF; Ticker ILF) is to be purchased with the proceeds.

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