Welcome
to the December 31,
2008 issue
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Stocks are ending this terrible year with a
flourish but we would not put too much weight on this year-end performance.
There is reason for stocks to rise, as we argued in our last issue, but we
do not think the fundamentals are driving the market these last days. What
the market will be keying off now is the Obama stimulus package. How big and
how credible is now Wall Street’s concern. We believe that the package
will receive positive response from the market. In addition we are seeing the
Fed’s moves on interest rates having an effect. Mortgage rates have come
down substantially and the mortgage market is reviving. At the same time, the
loans to GM have eased some of the conditions in auto credit. The economic
numbers we will be seeing in the next few weeks will reflect December activity
and we expect they will reflect a bottoming out process. That is, December
will be bad but it will not reflect an intensification of this steep recession.
It is useful to keep the distinction in mind in face of the headlines. We return
to our major theme, namely that with respect to the market, a bottoming out
process is taking place. Our view remains that higher stock prices will be
firmly in place by the end of the first quarter of 2009.
There is no change in our recommended allocations.
New Fund Ratings – There are no changes to be reported this
week for either domestic or international stock funds. This is unusual but
it does happen. It signals to us that the market has temporarily settled down.
We expect new leadership will begin to develop over the coming quarter.
The Stock Market – Stocks worldwide are ending the year with
steep losses, in the U.S. on the order of 40%. Aside from the economy, part
of the steepness of the losses can be attributed to hedge fund redemptions.
Redemption activity will be much less a factor in the New Year. We remain positive
on equities here in the U.S. and Asia.
The Bond Market –
The Select Portfolio – There is no change for this portfolio.
We wish you all a most Happy, Healthy and Prosperous New Year The next Hotline
is scheduled for Wednesday, January 7.
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