Welcome to the September 10, 2008 issue

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If you like volatility, this was the week for you. On Monday the markets gave two cheers for the Fannie and Freddie takeover by the Treasury. On Tuesday stocks were not only sold, they were tossed out the window like confetti. The S&P 500 had it worst day since February 2007.

What is causing the selling? There is more than one reason, but an important part of the selling puzzle, where we see numerous stocks being sold in apparent disregard of their compelling valuations, is that hedge funds are being forced to sell to meet redemptions or (worse) actually liquidating.

Poor performance has elicited the inevitable response. It is no use to attempt to impose rationality on what has been happening in the market these past days. It is a storm that must be lived through and will pass. We ourselves believe that the takeover of Fannie Mae and Freddie Mac will turn out to be positive for the economy, and therefore the stock market. The positive is to permit the slow improvement in the housing market that we have seen the past few months to continue.

The period we are now in will prove to be a test for the economy as the stimulus effect fades. The question is the consumer. The decline in oil prices helps. Another question regards the boom in US exports. Here too the drop in energy prices, lowering inflation, will help. We continue cautiously positive on the outlook for equities. Stocks remain the asset of choice.

There is no change in our recommended allocations.

New Fund Ratings – For domestic stock funds, Needham Small Cap Growth is now rated Buy. Powershares QQQ (ETF) is now rated Hold. Janus Twenty is now rated Sell. For international stock funds, three funds are now rated Buy: Matthews Asia Growth & Income, Wintergreen Fund and Allianz NFJ International Value. Two funds are rated Hold: T. Rowe Price Global Stock and S&P Latin America 40 (ETF). Three funds are rated Sell: Claymore/BNY BRIC, T. Rowe Price Latin America, and Fidelity China Region. There are no other changes.

T. Rowe Price Latin America is in the Moneyletter Venturesome portfolio. We will replace the fund with Matthews Asia Growth & Income. Fidelity China Region is also in the Moneyletter Venturesome portfolio. Its replacement will be Fidelity Worldwide.

The Stock Market –

The Bond Market –

The Select Portfolio – Rydex Energy Services (ETF) is to be sold and replaced by Aston/Tamro Small Cap N.

The next Hotline is scheduled for Wednesday, September 17 at 7pm.

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