Welcome to the May 14, 2008 issue

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The market has been basically flat since last week's Hotline but considering that oil reached a new closing high this week, flat is pretty good. But, underneath, the tone of the market has been encouraging. Why not? The economic reports continue to tell us that the economy is bending but not breaking. Again and again, the numbers that come out reinforce the message that the slowdown remains mild. As the Wall Street Journal front-page headline put it today, "Despite pain, economists begin dialing back dire forecasts."

The news flow from the market over this past week was encouraging on a number of fronts. First there were the economic reports on retail sales and April consumer inflation. Retail sales were down, but if one looked closely there were positives poking through here and there. The inflation report really was positive, though the usual skepticism met the numbers. Somehow inflation equals gas prices to many. Apart from the economic reports merger and acquisition activity is stirring. Hewlett-Packard and Microsoft were both on the prowl. It means someone sees value in U.S. companies. Finally, the mortgage market heavyweight, Freddie Mac, told us that the sky is not falling.

This is all encouraging news. Do not misunderstand. The economy's struggles will continue for months, but we have put one foot on the path to recovery. We continue to view equities as the top asset class for investment now.

There is no change in our recommended allocations.

New Fund Ratings — For domestic stock funds, three funds are now rated Buy: Fidelity Focused Stock, Morningstar Mid Growth, and T. Rowe Price New America. Three funds are now rated Hold: Fairholme Fund, Janus Research, and Vanguard Convertible Securities. Three funds are now rated Sell: American Century Select, American Century Ultra, and Janus Contrarian. For international stock funds, five funds are now rated Hold: Vanguard Emerging Markets Stock Index, Harbor International, Matthews Asia Growth & Income, Fidelity Emerging Markets, and Dreyfus Premier Emerging Markets. There are no other changes.

Janus Contrarian is in the Moneyletter Venturesome and Moderate portfolios. We will switch the fund into Heartland Value Plus in both portfolios.

The Economy — Despite oil prices inflation has slowed noticeably over the past three months. This is exactly what the Fed needs. It is too early to talk about rate increases.

The Stock Market —

The Bond Market —

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

The next Hotline is scheduled for Wednesday, May 21st at 7pm.

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