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Archived October 20th, 2008

Investment Policy Committee Newsletter
October 20th, 2008

Equity Markets

We believe that stock markets, especially in the U.S., have reached a bottom, which is to say that this may not be the bottom. We expect that a short-term rally will continue as credit shows early signs of thawing and as investors cautiously test the waters. Therefore we are allocating an additional 1.0% to equities, 2.0% more to cash (to keep some of our powder dry), and lowering our bond allocation by 3.0%.

Currencies

The U.S. dollar has seen a big rally since our last regular IPC meeting on September 18th, moving from $1.44/euro to $1.29/euro and hitting a 2-year high. We expect the dollar to continue to strengthen, at least in the short term, and are therefore increasing our target allocation to 61.0% from 57.0%. We are lowering our Euro target allocation from 20.0% to 17.0% and our dollar bloc allocation from 6.0% to 5.0% to offset this trade.

Fixed Income

We believe that the government bond market could have a material price correction soon as money is moved into riskier assets such as equities. We therefore decreased our bond allocation by 3.0% using the proceeds to invest 1.0% more in equities and 2.0% more in cash.

Performance Review

In an interim IPC meeting on October 9th, we decided to allocate an additional 2% to equity if the Dow dropped 500 points and an additional 2% if it dropped another 500 points. A falling market on October 9 triggered us to invest the first 2% into the Dow DIAMONDS ETF (+2.4% as of Oct. 20th) and then 2% into the SPDR S&P 500 ETF (+9.2% as of Oct. 20th). Target allocations were left unchanged as of our last regular IPC meeting on September 18th.