When you woke up this morning, you were probably as shocked as we were to see the market futures down so much. Earnings of consumer companies in Japan – Samsung and Sony – created a fall in the overseas markets that has spread throughout the globe. More importantly, we are still seeing some forced selling by hedge funds – even well run funds – due to client redemptions and banks tightening their lending standards. The days of hedge funds being five to fifteen times leveraged are over. We believe this forced selling may only last a few more days, but should come to an end soon. This is certainly not a time to sell into the panic. In fact, if you have cash that you were looking to add to your portfolio, this is an unbelievable time to invest money if you have a long-term time horizon.

An analogy to the stock market right now is that it is like winning the lottery – don’t worry we haven’t lost our minds and will explain why it is – but you have broken many bones in your body and are laid up in a full body cast. It feels great that you won the lottery, but you can’t spend any of the money immediately. It is similar to the stock market in that stock prices are at unbelievably cheap prices today. However, it will take some period of time to be able to benefit from the prices being so low, but we know that we are getting a heck of a deal.

What will bring the market back?

1) Additional interest rate cuts in the United States and, more importantly, Europe.

2) The end of forced selling. We expect this to occur in the next few days.

3) Fundamentals come back into focus. Companies are worth much more than the price they are selling for today and many of them are in great
financial shape with very little debt.

4) Increased stock buybacks from companies – many companies are sitting on a lot of cash: Apple – $20 billion, Cisco – $26 billion,
Microsoft – $23 billion.

5) A realization that we are in a recession, not a depression. Stocks, however, are priced at depression level prices. When we realize that we are
in a recession and not a depression, stock prices will rise as investor’s price them up.

It is at times like this that many people are tempted to give up a lot for a sense of security. That is a justifiable human feeling that we all have. Keep in mind, however, the words of Ben Franklin, “Those who trade security for freedom will end up with neither.”

As you might expect, the current market environment has kept us busy on the investing side and we have been dedicating our efforts to this area in the past few weeks. We do plan to contact you in the next several weeks to talk with you personally about your account. If you need to talk or meet sooner, please don’t hesitate to call or e-mail us to arrange a time that is convenient for you. Thank you for your ongoing trust and confidence.

Sincerely,

Jim, Mark and Greg.