Market Alert – January 21, 2008

There are unusual events unfolding in the stock markets today, and rather than wait for my normal newsletter I wanted to get this message out to you as quickly as possible. I apologize about the "last century" look of this, but fancy formatting takes time.

The stock markets overseas took a real beating on Monday while the US markets were closed, and a few minutes ago the S&P 500 Index opened down over 4% below Friday's close. And that is just for openers.

I know after a horrible few weeks that everyone is thinking "how much worse can this get". No one really knows, but we may find out as the day unfolds. I expect the Federal Reserve to get involved, but again, who knows what will happen.

What I wanted to tell you is that you do not have to worry much about what you hear in the news today. For several weeks I have been slowly reducing your exposure to the stock markets in your managed accounts with me. All of our accounts are now heavily weighted toward bonds, which are doing well, and money market funds. What little we have in the stock market is protected by "inverse" funds – those that go up when the stock market goes down.

To give you a general idea of how you are doing, Friday, January 18, while the S&P 500 lost .6%, every one of our strategic models – the patterns that our accounts follow – made money, generally between .3 and .5%. Our income strategies, Flexible Income (formerly called Tactical High Yield) and Muni Bond Protection have not been affected by the stock market troubles, and are perking right along so don't waste much time worrying about them, either.

It takes me a while to adjust to a market decline like this – remember, I don't have a crystal ball, I just react to what has already happened. As a result of this lag time in reactions, our growth accounts generally have had small losses in the 2-3% range year-to-date. Considering that as of this morning, the S&P 500 index is down 13% since January 1st and 18% since its highest point in back in October, you are doing pretty well.

The purpose of this email is to let you know that I am on the job, and I have already reacted to protect you from the market's decline. Your money is safe in the current market environment, and poised to make money even if it continues.

Having already "sold high", we now have a lot of cash available to "buy low" when the current decline is behind us, pursuing the great American investment creed of buy low, sell high.

This is what I do best for my clients. If you have friends who are stressing out about the current market conditions, please have them give me a call at 778-4000. Perhaps I can help them, too.

Thank you for your business.

Best regards,

Will Hepburn
President