Welcome
to the October 29,
2008 issue
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We believe that yesterday’s 900-point rally and today’s
overall action are encouraging signs that the downward momentum of the bear
market has been broken. We have some months to go before the economic news
turns. Even so, we do not see yesterday’s rally as simply a vigorous
rally in a bear market. As we see it, the efforts of the Federal Reserve of
the Treasury are beginning produce the first hesitant results in their struggle
to thaw the credit markets and reverse the economy’s slide.
We see Tuesday’s rally as the market’s recognition that something
appears to be working. Today’s market response to the Fed rate cut to
1.0% should be seen in that light. Yes, the market closed off, dropping some
300-400 points in the last minutes of the session. A misunderstanding about
a GE statement caused that. It was not caused by the wholesale dumping of stocks
in the last half hour, as we have seen much too often this year.
In fact although the broad averages ended down, many more stocks advanced
than declined today. Even with the sell off the underlying tone of the market
was positive. Any positive market sentiment now is extremely fragile. But as
we have argued policy is on the market’s side. This is not the Fed’s
last rate cut. Further, there will be a strong stimulus package in place probably
before the year is out. Interest rate cuts are coming around the globe, including
China. Stocks are cheap. We see no reason to change our view 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, four funds are
now rated Hold: Russell 2000 Value (ETF), Royce 100, Wells Fargo Advantage
Small Cap Disciplined and S&P Small Cap 600 Value Index. Five funds are
now rated Sell: Artisan Mid Cap Value, Russell 2000, Vanguard Small Cap Value
ETF, Vanguard Small-Cap Value Index and Fidelity Value. For international stock
funds, Royce Global Value is now rated Sell.
Fidelity Value is in the Fidelity family Conservative portfolio. We will
switch the fund into Fidelity Mega Cap Stock. Royce Global Value is in the
Moneyletter Venturesome and Moderate portfolios. We will switch the fund into
Tweedy, Browne Global Value in both portfolios.
The Stock Market – It was significant that the dollar declined
sharply today and commodities rose sharply. The two are not unconnected. We
cannot see the dollar’s strength persisting considering our trade deficit.
The Bond Market –
The Select Portfolio – There is no change for this portfolio.
The next Hotline is scheduled for Wednesday, November 5th at 7pm.
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