September 30, 2008

As the quarter ends it is easy to say that we have been through quite a ride.  I’ve been in the industry and studying the markets since 1977 and I have never seen anything close to what we have experienced in the last 30 days.  It would appear that I am in good company as Mr. Bogle the founder of Vanguard funds said something very similar “I’ve never seen anything like this however, I’ve only been in the industry for 56 years.”   The finger pointing on what has gone wrong will go on for a very long time.  Needless to say the misguided government policies of writing mortgages by Freddie and Fannie to people who were incapable of repaying loans, the greed of Wall Street, the creation of the alphabet soup of derivatives, and the false belief of an easy buck by investors all promoted the crisis which we are experiencing.

Just how big is the problem?  The math I have used is very rough and gives a very ugly result.

Population of the US                                   350,000,000.00
% that own homes (50%)                           175,000,000.00
Average price per house                                  $200,000.00

Value of all homes                   $30,500,000,000,000.00
Value of 5% defaulting        $  1,750,000,000,000.00

The Feds three part actions of preventing short selling, guaranteeing money market funds, and proposing to buy $700,000,000,000.00 in bad credit derivatives etc. is certainly unprecedented.

Two actions that I think are noteworthy, 1st we have moved virtually every clients money fund on Wednesday, September 17th from the Institutional Class into the US Government Money Market Fund because of a concern about a run on the money funds. This was done prior to these funds being put under extreme duress and I am pleased that we were able to get that done on your behalf before the issue became critical on Friday, September 19th.  The 2nd action is that some Advisors with TD Ameritrade had their client funds in the Reserve Funds (the money funds that did break the buck) and TD Ameritrade is stepping up to the plate and backing those funds with $50 million of funds to make those clients whole.  It is rare and unusual to see a financial firm backing up the Advisors and Investors who have their funds at TD Ameritrade and I am proud to have them as our primary custodian for our clients.  As my prior letter to you telling of the money funds move stated, I am watching what is going on and will do my best to make prudent investment moves and give good informed advice.  I am actively looking for good investments to go back into. As a firm I am pleased to say our firm’s largest holding is cash.

Yours truly,

Willis

Willis Ashby, CFP®

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