Welcome to the October 8, 2008 issue

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As we said last week, we expected some action from the Federal Reserve, and this week we got it in spades. Today there was the fed funds rate cut, in a coordinated global action with the European Central Bank, Canada and others. Earlier the Fed announced that it would be buying commercial paper, becoming the buyer of last resort. There were other steps taken.

None of these steps prevented further sizable falls in the stock market. But taken together they are building the force that will change the direction of the market. We almost got there today before an avalanche of selling in the last half-hour. The selling looked very much like forced selling from margin calls. The next real test of the market will come on Friday, with Thursday being a Jewish holiday.

The market is very oversold. It is also cheap. The bears are acting as if the economy is moving into a deep recession. We believe the odds of one are very low. One reason for that view is the fact that the Federal Reserve is clearly willing to pull out all the stops to avoid a mega-recession. There was some indication in the credit markets today that the Fed’s actions are beginning to have some effect. We expect to see more. We believe we are very close to a market bottom. We expect the recovery period ahead to be extremely volatile for some months before the market regains its footing. We see the market as offering excellent opportunities after this credit-driven bear market.

There is no change in our recommended allocations

New Fund Ratings – For domestic stock funds, three funds are now rated Buy: Powershares HighYield Dividend Achievers (ETF), DJ Select Dividend Index (ETF) and Sequoia Fund. Two funds are now rated Hold: S&P Smallcap 600 Growth Index (ETF) and Berwyn Fund. Two funds are now rated Sell: Wells Fargo International Discovery and S&P 400 Growth Index (ETF). For international stock funds, UMB Scout International is now rated Buy. PowerShares International Dividend Achievers (ETF) is now rated Hold. Three funds are now rated Sell: American Century Global Growth, S&P Latin America 40 (ETF) and Fidelity Latin America.

Fidelity Latin America is in the Fidelity family Venturesome Portfolio. We will exchange the fund for Fidelity International Discovery.

The Stock Market –

The Bond Market –

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

The next Hotline is scheduled for Wednesday, October 15th at 7pm.

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