Update - January 15th - 1:00 P.M.

     Last year was, as you know, an extraordinary year and the worst year in the markets since 1931 in this country and, in some countries, the worst year ever. We finished the year down 5.1% (subject to minor alteration when all of the year end data is received). We are just finishing the Investment Policy Statements, which will provide detailed, and personalized, data for 2008. As has been true for everything in the last year, it is slightly delayed as the daily demands of the portfolio remain significant. They should be completed and mailed to you over the coming weekend.

      I had hoped that we would have some relief from the ongoing chaos, but the financial sector is, once again, suffering significant stress and both Bank of America and Citigroup are looking decidedly fragile. It is extraordinary that that these two dominant franchises are hovering on the edge of nationalization, but then again, after a review of 2008 just about anything is possible. Unfortunately the only wise thing to do in these circumstances is to do exactly what we are doing - buying superb, financially secure and dominant corporations, defensive positions in precious metals and a huge position in short-term Treasury bills. My current thoughts are:

We can expect more banking troubles and they will probably be serious.
It seems inevitable that we will, at least initially, experience deflation (i.e. prices will decline).
The Commercial real estate debacle will be a big story in 2009 with damage to many of the previously unscathed banks.
The news from the economy will range between bad and downright awful.
The last remaining bubble (longer term Treasury securities) will exist until it doesn't. When this bubble bursts, I suspect we will experience some serious inflation and scary inflation expectations.
This will be a worldwide phenomenon.
I have considerably more faith in the survivability of large and well financed multinational corporations than I do in many national and state governments.
The debacle in the pension sector will also be significant in 2009.
Much of what will happen in 2009 is unknowable at this juncture so the appropriate response is to maintain a flexible (with great emphasis on the flexible) and conservative portfolio. It is certainly not a time to be aggressive and to make bold bets and nor is it a time for the "mattress" approach to investment.

Since the market chaos of mid-September the portfolio has performed in the following fashion (data taken from our supplementary reports). The figure used as a proxy for the market is a combination of the S&P 500 index and the NASDAQ composite. Other asset classes have also suffered significant losses and the only safe haven this year has been in the U.S. Treasury market.

	Our Portfolio	Market
September 17	-7%	-22%
November 24	-11%	-43%
December 31 (year-end 2008)	-5%	-39%
January 15, 2009 YTD	-2%	-8%

We are always risk averse and nothing has changed in our approach in the last 12 months. We are value investors and we seek value wherever it occurs and in whatever form. We expect to be very active in the coming year as we work to protect your assets. We will continue to work diligently on your behalf. Please write or call with any questions.