Welcome to the October 22, 2008 issue

View MONEYLETTER Hotline as a PDF (click icon):     
or keep reading...

What is it about Wednesdays in this bear market? We could almost repeat last week’s Hotline today, and it would fit perfectly. Stock markets sold off from Hong Kong to New York. Again the given reason was fear of a deep, deep recession.

Is the fear justified? It is obvious that the U.S. is in a recession. Britain is now in recession, and probably Europe is in recession. But a deep recession? The credit freeze has done its work, and the economic numbers coming out now are very bad. The numbers that will be coming out over the next month will not be better, maybe even worse.

Yet if the market looks ahead, as it normally does, it will see a further interest rate cut before the end of this month, and a stiff stimulus package early next year. How much of the selling is forced selling we do not know. Despite today’s huge loss, there was a technical straw to grasp, and that is the fact that the market managed to gain about 200 points in the last half hour. The pattern recently has been the opposite.

We reiterate the U.S. market is cheap. Stimulus is coming and has already come in the form of low gas prices. We remain convinced that significantly higher prices are ahead looking six months out.

There is no change in our recommended allocations

New Fund Ratings – For domestic stock funds, eight funds are now rated Buy: Yacktman Fund, Oakmark Equity & Income (closed), Needham Small Cap Growth, UMB Scout Stock, American Century Equity Income (closed), Tweedy, Browne Value, Vanguard Dividend Growth and Meridian Growth. Six funds are now rated Hold: S&P SmallCap 600 Index, Neuberger Berman Genesis, Morningstar Small Value, Russell 2000, Vanguard Small-Cap Value Index and Vanguard Small Cap Value ETF. Eight funds are now rated Sell: Russell 2000 Growth, Third Avenue Small Cap Value, Vanguard Small Cap Growth Index, Vanguard Extended Market Index, Vanguard Small Cap Growth ETF, TCW Small Cap Growth, Aegis Value and Royce Value. For international stock funds, four funds are now rated Buy: DJ Global Titans (ETF), Tweedy, Browne Global Value, Wintergreen Fund and Matthews Asia Growth & Income. UMB Scout International is now rated Hold. PowerShares International Dividend Achievers is now rated Sell.

Royce Value is in the Moneyletter Conservative portfolio. We will switch the fund into Royce Special Equity. Vanguard Small Cap Growth ETF is in all three Vanguard family portfolios. We will switch the fund into Vanguard Dividend Growth in all three portfolios. Vanguard Extended Market is also in all three Vanguard family portfolios. We will switch the fund into Vanguard Equity-Income in all three portfolios.

The Stock Market –

The Bond Market –

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

The next Hotline is scheduled for Wednesday, October 29th at 7pm.

Back