Dear Clients:

As the U.S. economy continues to limp along at the end of the third quarter, there is a conflict between the obvious recessions in the housing and financial services industries versus other sectors of the U.S economy that appear to be performing moderately better. The world economy, which had heretofore outperformed the U.S. economy, is now declining at an accelerated rate and the international markets are following suit.

Martin J. Whitman, Co-Chief Investment Officer & Portfolio Manager of Third Avenue Value Fund, gave his shareholders this commentary on the third quarter: “Distress securities seem to be trading at ultra-attractive prices. Discounts have widened appreciably for the common stocks of very well-capitalized companies where the common stocks trade at meaningful discounts from readily ascertainable net asset values (NAVs); and where the prospects appear good that over the next five years, such NAVs will increase by not less than 10% per annum compounded. Admittedly, near-term outlooks are generally poor.”

As we enter the fourth quarter, it is questionable if the markets will significantly rebound between now and year-end. The past 10-year performance numbers of the S&P and the Dow may end up being the worst rolling ten-year average since the Great Depression. With that having been said, there is growing confidence that, as we approach the end of the cyclical decline, we will enter into a period of cyclical expansion. From past observation, we have noticed that from the bottom of one economic cycle to the top of the next – typically a 5 to 7 year timeframe – the rewards for participating in that cycle have been about 100%.

As we look to the future, there is some room for optimism, just as blue skies tend to follow poor weather.

Sincerely,

David W. Demming, CFP®