Welcome
to the December 10,
2008 issue
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The stock market has staged a very encouraging
performance in recent days. The pivotal day was last Friday when stocks rallied
in the face of as dismal an employment report as we have seen in years. Since
then, both the economic news and commentary have been equally discouraging
-- particularly the news on the earnings front -- but stocks have managed to
hold their own.
Last week we said that the market was going through a bottoming process,
and the market’s action since then simply reinforces that view. However,
bottoming is one thing and a strong market recovery is another. Right now the
obstacles to a strong recovery are formidable. For one, the pressure on the
American consumer is intense. A huge amount of wealth has vanished. Home values
continue to decline. The market has wiped out a great deal of personal wealth
including pensions.
For this and many other reasons the economy will remain a drag for some months
until the promised stimulus package begins to have an effect. Equally important,
the credit markets will need to thaw substantially. Thawing has begun, but
so far it is moving slowly. Things are moving in the right direction (except
home prices) but they are not moving rapidly. More patience will be needed,
but at least there will be signs that patience is being rewarded.
Our view remains that higher stock prices will be firmly in place by the
end of next quarter. There is no change in our recommended allocations.
New Fund Ratings – For domestic stock funds, two funds are now
rated Buy: Rydex Russell Top 50 (ETF) and DIAMONDS Trust, Series 1 (ETF). There
are no changes for international stack funds.
The Stock Market – As the Wall Street Journal wrote
today, because of the recession, earnings estimates for next year are all over
the lot. The estimates are not much use in deciding whether the market is cheap
or not. However, other measures such as the S&P’s dividend yield
do strongly suggest a cheap market.
The Bond Market –
The Select Portfolio – There is no change for this portfolio.
The next Hotline is scheduled for Wednesday, December 17th at 7pm.
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