Welcome to the March 25, 2009 issue

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Our deceleration thesis looked a bit better after today’s economic numbers were released. New home sales and, to our mind, the more important durable goods new orders numbers showed reasonably strong increases last month. The consensus – and that includes Wall Street – had looked for declines.

We believe that something is happening. However, yes there is a however, we need to be cautious. The reason is that the eastern half of the country was blanketed by snow a good part of December and January. And the economic numbers for those months were uniformly miserable. We think that some of the turnaround we have seen, in housing for example, represents a rebound because of the better weather last month.

Still, we repeat, something is happening. We believe that today’s market action shows that Wall Street is coming around to that view. The market sold off in mid-day after a poor Treasury auction, but then turned around again and scored a good gain. When was the last time we saw that? We believe that Monday’s huge 5% rally represented at the very least an inflection point for the market. We see the market as now in a trading range. Looking out over the next six months, we believe that higher prices are coming into focus.
There is no change in our recommended allocations

New Fund Ratings – For domestic stock funds, Tweedy, Browne Value is now rated Hold. For international stock funds, three funds are now rated Buy: US Global Investors China Region, Oberweis China Opportunities and Fidelity Southeast Asia. Metzler/Payden European Leader is now rated Hold. Four funds are now rated Sell: USAA International, USAA World Growth, Vanguard European Stock Index and Vanguard European ETF.

Vanguard European ETF (Ticker: VGK) is in the Vanguard family Venturesome and Moderate portfolios. We will switch the ETF into Vanguard International Growth in both portfolios.      
                                                                                                                      
The Stock Market – The next big test for the market will be indications of how the toxic asset-buying plan is working. The plan is an important key to sustaining the rally. Until we get some results expect the market to remain extremely nervous. We remain cautiously optimistic.  

          The Bond Market –

The Select Portfolio – Nasdaq Biotechnology (ETF, Ticker: IBB) is to be sold and replaced by Merger Fund (Ticker: MERFX).

The next Hotline is scheduled for Wednesday, April 1 at 7pm.