Welcome to the June 18, 2008 issue

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Last week it was inflation spooking the market, this week it is earnings. Most of the problems of these past few days have come from the financial sector. While this has been true for most of this week, Federal Express’ earnings report and outlook was partly responsible for today’s poor action. Federal Express is taken as a bellwether of the economy.

Earnings report season will soon be upon us and expect more gloomy earnings reports, and probably outlooks as well. But, if our outlook is correct, we will be at the nadir of lower earnings reports over the next month. Wall Street however is not looking ahead, and reports such as Fed Ex’s simply feed the pessimism that is now building. With pessimism rising, any good news is dismissed or ignored. For example, the market is now more relaxed about the prospect of a near-term turn to higher rates.

As we argued last week, higher rates now make little sense. But that was last week. This week rates have faded from view, replaced by earnings and oil prices as the worry of the week. Be prepared; this is the world we will live in until the economy takes a turn for the better over the course of the second half of this year. Until then, the market will continue to be volatile and remaining essentially flat. We continue to favor stock funds.

There is no change in our recommended allocations.

New Fund Ratings – For domestic stock funds, Berwyn Fund is now rated Buy. Four funds are now rated Sell: Old Mutual Growth, Janus Research, Vanguard Dividend Appreciation Index, and Vanguard Dividend Appreciation ETF. For international stock funds, two funds are rated Hold: Harding Loevner Emerging Market and T. Rowe Price Emerging Market Stocks. There are no other changes.

Janus Research is in the MONEYLETTER Venturesome and Conservative portfolios. In the Venturesome portfolio we will switch the fund into Fidelity Independence. In the Conservative portfolio, the switch will be into Heartland Value Plus. Vanguard Dividend Appreciation is in all three Vanguard family portfolios. We will switch the fund into Vanguard Extended Market Index in all three portfolios.

The Economy – Oil (and now the floods) present an inflationary problem. But the Fed will be reluctant to act unless and until we get bad news in core prices. We see growth picking up as we move into the fall.

The Stock Market –

Bond Market --

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

The next Hotline is scheduled for Wednesday, June 25 at 7pm.

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