Welcome to the November 19, 2008 issue

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If it is Wednesday we should expect a bone-crushing decline in the markets, and this Wednesday lived up to its billing. Was there any particular reason for the selling? We do not think so. Yes, the economic news was grim, but it was not totally unexpected.

But there are three developments going on now which surely set investors teeth on edge. First is the debate in Congress over help for the auto industry. Second is the massive selling in Citibank shares that raised memories of Bear Stearns, Wachovia, and AIG. Is another financial giant in deep trouble? Third, the credit markets have been backsliding over the past week. They are not acting well.

Filled with pessimism, investors gave a negative interpretation to the Fed Minutes of their last meeting on October 29. We should expect nothing else. Actually, the Fed staff’s forecast is the same as the consensus, a mild recession in the first half of next year with recovery beginning in the second half. The forecast did not incorporate much of a huge fiscal stimulus that we are certainly going to get early next year. Further, we conclude from the Minutes that another interest rate cut is coming.

As we have argued there is a battle going on between the powerful developments driving the economy down and the global authorities working to restore growth. We have no doubt that growth will be restored. The next big step will be the stimulus program coming from the U.S. The Chinese have stepped up and are doing their part. Unfortunately we have to wait until late January for that next big step. It is excruciating. We remain convinced that we will see substantially higher stock prices later in the first quarter of next year.

There is no change in our recommended allocations

New Fund Ratings – For domestic stock funds, three funds are now rated Hold: Aston/Tamro Small Cap N, T. Rowe Price Small-Cap Value and Powershares HighYield Dividend Achievers. Two funds are now rated Sell: Westport Select Cap R and Fidelity OTC Portfolio. For international stock funds, Oakmark Global is now rated Hold.

Fidelity OTC Portfolio (FOCPX) is in the Fidelity family Venturesome and Moderate portfolios. In both cases we will replace the fund with Fidelity Spartan 500 (FSMKX).

The Stock Market – T he technicians are saying that the broad averages are now in a critical position for the short-run outlook. Once more we are testing the lows.

The Bond Market –

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

The next Hotline is scheduled for Wednesday, November 26th at 7pm.

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