Welcome to the August 13, 2008 issue

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We think it possible that today may turn out to be an important day in the short-run performance of the market. For the first two days of this week the market continued its pounding of the financials and commodities, meaning any stocks associated with those sectors were sold hard. Today, the pounding of the financials continued but the commodity sector, speaking broadly, had a positive day. Clearly, what we have had over the past month is a repositioning of portfolios by the rapid responders of the market, the hedge funds.

It may be that we are coming to the end of the violent phase of the repositioning. The action today was interesting. A disappointing earnings report by Deere and the continued pounding of the financials helped drive the Dow down by about one hundred points. A bad day. But underneath, the small caps were all right. For example, the Russell 2000 was up 0.4% as were some other smaller cap indices. One day does not a trend make, but despite the negatives, buying was taking place.

As for our commodity allocation, we believe that what we have experienced is a very severe correction, as global growth slows. But growth continues. We expect commodity prices to resume a normal, rational advance in response. 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 Special Equity and Russell 2000 Growth. Eight funds are now rated Hold: S&P 400 Midcap Growth, Third Avenue Small Cap Value, Oakmark Equity & Income, Westport Select Cap R, American Century Heritage, Royce Low Priced Stock, Jordan Opportunity, and Fidelity Independence. Three funds are now rated Sell: Neuberger Berman MidCap Growth, Fidelity Growth Company and Fidelity Convertible Securities. For international stock funds, USAA World Growth is now rated Buy. Three funds are now rated Hold: Fidelity Latin America, DWS Latin America Equity S, and Claymore/BNY Bric. There are no other changes.

Fidelity Convertible Securities is in all three Fidelity family model portfolios. In the Fidelity Venturesome and Moderate portfolios we will switch the fund into Fidelity Focused Fund. In the Fidelity Conservative portfolio the switch will be into Fidelity Blue Chip Growth.

The Stock Market –

Bond Market –

The Select Portfolio – There are three switches for this portfolio. CGM Focus is to be sold and replaced by NASDAQ Biotechnology (ETF, Symbol IBB). S&P Latin America 40 (ETF) is to sold and replaced by Powershares Water Resources (ETF, Symbol PHO). T. Rowe Price New Era is to be sold and replaced by Heartland Value Plus (HRVIX).

The next Hotline is scheduled for Wednesday, August 20th at 7pm.

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