Unfortunately, the US government’s bill intended to bail out bank and brokerage firms and to avert the current financial crisis failed to pass this morning by a dozen or so votes. Though there is a possibility that an altered version of the bill may be passed later this week, financial markets have declined on today’s news - sending the message that government officials had better reconsider and in a hurry.

We were disappointed that government officials did not have a signed bill prior to the opening of today’s financial markets and particularly dismayed that they were unable to get it passed at all. The passage of a rescue plan is of upmost importance for the continued operation of the US and foreign banking system, and senators and congressman should not discount the gravity of the current environment. Until there is a rescue plan in place, expect a Darwinian climate where weaker financial institutions fail and the strong survive. It is our opinion that the negative market reaction to this disappointing news may force congress and the senate to regroup quickly and rescale the plan, vote again, and get it passed. None of their constituents, including yours truly, want to experience the alternative – more bank failures, more unemployment, and a deeper recession than is already in the cards.

From an investment view our Active Risk Management has saved, and continues to save us, from the bulk of the past year’s real trouble. Though your portfolio has not been immune to this environment, you have not experienced the difficulty that most investors have faced. Given today’s news, we will continue to attend to our risk management philosophy by keeping your portfolio in higher bond and money market balances and in those stock sectors that are profitable even in a recessionary economy. We will also continue to keep stop loss orders on your economically sensitive stocks.

Though today’s setback is disappointing, one way or the other, this environment will eventually give way to a new era of renewed global growth and productive financial markets. The time it takes to get to this new, more heart- and wallet- warming era is what is in question today. Without the assistance of all of us (feel free to write to your senator) and the US government, these “better days ahead” may be further out in the future.

Today’s reaction in the financial markets should lead to an early passage of an altered form of the rescue bill. In addition, we believe that the Federal Reserve may initiate a surprise rate cut. These two efforts would cause a huge relief and send financial markets higher. Let’s hope, pray – and anything else you can think of – that our government officials can collectively do what is necessary to fix the current problems, so that we may eventually reap the benefit of recovering global financial markets and economies.

We hope you find these thoughts helpful during this difficult period.

Sincerely,

James E. Demmert
Managing Partner