Welcome
to the December 3,
2008 issue
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Another Wednesday, and for a second week this
Hotline is not coming on the heels of a large market drop. The market behavior
this week has been very encouraging. We say this despite Monday’s depressing
680-point drop of the Dow.
Monday’s market plunge was caused by the first economic numbers telling
us about November activity. They were worse than anyone expected. They showed
an economy in a deep recession. We did not think a deep recession was in the
cards. Over the last two days, the latest economic numbers have simply confirmed
the message of the early numbers.
Despite that, and in the face of continued selling pressure, the market has
managed to score impressive gains, recovering about two-thirds of Monday’s
loss. This behavior is typical of bottom action in a bear market. We would
say, barring any surprises, that we are in the bottoming phase of this terrible
bear market. We do not know if we have seen the bottom, but we are close
to it, in our opinion.
Aside from the market’s own behavior there are rays of light among
the gloom. This last weekend saw positive retail spending. Moreover the bond
market is thawing as firms raised large amounts yesterday in that market. Finally,
here was a huge jump last week in mortgage applications as yields fell. It
is apparent that Washington’s latest programs are beginning to work.
Growth is not around the corner, but 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, Fidelity Focused
Stock is now rated Hold. Three funds are now rated Sell: Aston/TAMRO Small
Cap N, S&P SmallCap 600 Index (ETF) and Wells Fargo Advantage Small Cap
Disciplined. For international stock funds, Matthews Asia Growth & Income
is now rated Buy.
The Stock Market – Small cap funds, which held up best over
the bear market, have been the target of selling recently. Income-seeking large
cap funds are replacing them at the top of our list.
The Bond Market –
The Select Portfolio – Aston/TAMRO Small Cap N (ATASX) is to
be sold and switched into Rydex Inverse S&P 500 (RYURX).
The next Hotline is scheduled for Wednesday, December 10th at 7pm.
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