Welcome
to the November 26,
2008 issue
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It is Wednesday and the market is acting well
despite the continued rat-a-tat of depressing economic news. In fact, we believe
that this week marks an important shift for the market. We have too many scars
to say that we have put the lows behind us. We would put the odds at about
35% that we will come back down to the lows again.
But, and take a deep breath, that doesn’t matter. What does matter
is all the imaginative programs that have been put in place by the Treasury
and the Fed. What matters is the shoring up of Citibank. What also matters
is China’s big cut in interest rates today, and the Europeans announcing
a big stimulus package of their own.
As we said one year ago when the crisis emerged, no one wants a recession.
We were referring then to the U.S., but it turns out that we could have been
referring to the entire globe. Since then, of course, a very serious global
downturn has developed, and we are seeing a global response.
Aside from the market behavior, which can change overnight, what encourages
us are the early signs that the massive Washington efforts are beginning to
have an effect. Interest rates for mortgage-backed securities dropped sharply
yesterday. The ice may finally be cracking in the frozen bond market, a must
for restoring the economy. Growth is not around the corner, but we believe
that the slide is losing force. 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, T. Rowe Price Capital
Appreciation is now rated Buy. Three funds are now rated Sell: Neuberger Berman
Genesis, Royce 100 and Morningstar Small Value (ETF). For international stock
funds, Matthews Asia Pacific Equity Income is now rated Buy. DJ Global Titans
is now rated Hold.
The Stock Market – Up to now stocks have moved in unison, with
little differentiation among sectors. If some semblance of normalcy is returning,
as we believe, we will see group rotation returning. This will make fund selection
a key to performance once again.
The Bond Market –
The Select Portfolio – There is no change for this portfolio.
We wish you all a Thanksgiving Day of pure family warmth. The next Hotline
is scheduled for Wednesday, December 3rd at 7pm.
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