Welcome to the August 6, 2008 issue

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Three factors determined the market developments since the last Hotline. One was earnings season, which is not over. Another was the continued fall in oil prices, leading to a general dumping of commodity stocks. Finally, there was yesterday’s Fed meeting where the Fed punted again as far as interest rates were concerned. The week was also full of the usual early month economic reports, but do not think the reports, important as they are, had much effect on the market. The reports, such as the employment report, were generally, but not uniformly, better than expected. They helped create the conditions for the rally of the past two days. But the rally was more a creature of oil than anything else, in our opinion.

The significance of the July economic data for us is that is shows the economy continuing to move ahead despite the tough conditions it faces. We saw growth last quarter, and there is every good reason we will see meaningful growth again this quarter. A fair amount of credit has to go to the stimulus package. But the stimulus should have faded by the last quarter. Growth will begin to slow and the market will be worrying about the first half of next year. We expect the elections will bring out talk of another stimulus package. It will be needed. Meanwhile global growth continues with lower oil an important positive for Asia. We continue to favor equities.

There is no change in our recommended asset allocation.

New Fund Ratings – For domestic stock funds, three funds are now rated Buy: T. Rowe Price Small Cap Value, TCW Small Cap Growth and Royce 100. Five funds are now rated Hold: Janus Enterprise, Janus Orion, Fidelity Leveraged Co., Artisan Mid Cap Value and Fidelity Growth Co. Three funds are now rated Sell: Vanguard Convertible Securities, Brandywine Advisors and Morningstar Mid Growth. For international stock funds, Harbor International is now rated Buy. Fidelity Worldwide is now rated Hold. Driehaus International Discovery is now rated Sell. There are no other changes.

Vanguard Convertible Securities is in all three Vanguard model portfolios. In the Vanguard Venturesome and Moderate portfolios we will switch the fund into Vanguard Small Cap Growth ETF. In the Conservative portfolio we will switch into Vanguard PRIMECAP Core. Brandywine Advisors is in the Moneyletter Conservative portfolio. We will switch the fund into Royce Value.

The Economy –

The Stock Market –

Bond Market –

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

The next Hotline is scheduled for Wednesday, August 13th at 7pm.

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