UNSTEADY TIMES

Last week's bailout package will eventually serve to calm the financial markets. By reducing panic surrounding the safety of bank deposits and money market mutual funds, banks will be given some breathing room. Buying distressed debt and replacing it with cash will give the banks stronger balance sheets which will allow for more lending.

However, even with the bailout, the world is now awakening to the reality of a global recession. US earnings are falling. Europe, China, and India are not decoupled from our economic system. Their earnings are falling also.

Perversely, while stock prices are dropping, companies that we have invested in are becoming stronger. They have little debt and therefore can buy out or outspend rivals that are fatally wounded. They have better brands, more patents, and greater global reach than their competitors. They are capturing market share. And while we realize that much of this is cold comfort when account balances are down, the stage is being set for our companies to report even greater growth.

We continued to actively manage the portfolios during the 3Q. We're completely out of India (for now) having sold an Indian index product at a small profit. We sold all of our City Holdings Corp., a conservative West Virginia bank that did not make unwise lending decisions. Consequently, the stock was trading at a rich valuation. Watsco is a HVAC company whose competitive position and management we like very much. We sold 1/2 of our position at a gain and good premium.

We bought General Cable., a global grid infrastructure play. The stock had fallen over legitimate concerns for the company's immediate, overseas' earnings. But with the need for a US grid upgrade, solar/wind plants that will need grid linkage, and longer term, international demand, the stock is a long term buy. In the last few days of the Q, we purchased an index product to take advantage of the market's dramatically lower prices. We've begun to strategically harvest tax losses and will do so until year end.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages. As an independent firm, Gold Leaf provides objective investment management. Our goal is to protect client assets on the downside while participating in most of the market's upside. Gold Leaf does not provide legal, accounting, or tax advice. Please consult your personal lawyer or accountant.