Dear Friend,

Despite all the bad news surrounding the real estate markets, Legacy Properties Sotheby's International Realty continues to expand its presence along the Maine coast. We are comforted by the confidence that our investment in Maine real estate continues to be a good one for the long haul. With the uncertainty of the election behind us, we are hopeful more stable financial and credit markets will prevail. In the interim, we continue to see a buying opportunity in many parts of the state for customers with liquidity.
 
We are pleased to present a financial market commentary from HM Payson & Co. Their account of the market activities for the past month is sobering. I am, however, compelled by their concluding remarks, "the innovative spirit of a global, profit-seeking economy will continue to adapt and flourish." We thank them for participating in our market update. We'd also like to thank the Sotheby's Auction House for contributing their U.S. Market Review. We hope you find it of interest.

In closing, I wish to remind potential real estate buyers that many properties in Maine are withdrawn from the market for the holiday season. In some cases listings are withdrawn for the entire winter but owners are still interested in selling should a motivated buyer emerge. It is particularly important for customers to keep in touch with their buyer agent to search for the special opportunities during the winter season. 
 Happy Thanksgiving,
 
Chris Lynch Owner & President

One for the (History) Books
  
H.M.Payson & Co. Commentary                                                                         

Fall 2008
 
It should come as no surprise that October was among the worst months in stock market history, including the 1930's. After a 17% decline in October alone, the S&P 500 index is on track for the worst calendar year performance since its inception (1957). Adding last month's free-fall to the painful declines already seen through September, the S&P has produced a total return of -31.87%, including dividends. As measured by the major indices, equity investors have seen average portfolios declines in the range of 35% from the highs of a year ago.
 
These losses, added to the swoon in home values, amount to a significant decline in household wealth, implying that the economic engine of consumer spending will be unavailable to produce a "soft landing" for the economy this time around. Combined with the frightening magnitude of the financial crisis now spreading across the globe, all the ingredients for a severe and prolonged recession seem to be in place.
 
As distressing as the past two months have been, however, it is important to understand that the cause of this violent market action was more "technical" in nature than a true reflection of the underlying fundamentals. A significant portion of October's market activity was attributed to hedge funds, which were experiencing large redemptions. The highly-leveraged positions of many funds triggered margin calls as the market declined, and fund managers were forced to sell any liquid asset they could. With traditional investors reluctant to step in, this selling was met with an alarming lack of support on the bid side, causing huge percentage moves in even the largest and most liquid equities on relatively light trading volume. As the panic spread, mutual fund investors redeeming their shares exacerbated the decline. 
 
When markets lack ample liquidity, they can become inefficient and give rise to opportunity.Today we believe most financial asset classes are now depressed and inefficiently priced - which affords the long-term investor exceptional expected future returns, the likes of which we have not seen in perhaps fifteen years. Indeed, in recent days numerous renowned investors, including Warren Buffett, Jeremy Grantham and Barton Biggs, have publicly acknowledged how compelling valuations have become.
 
Typically, the stock market tends to find a bottom somewhere between halfway and three-quarters of the way through a recession. Moreover, if history is any guide, the impact of the extraordinary measures being taken by the monetary authorities around the world could become evident well past the point of when they are most needed. Because of this policy lag effect, we believe it's possible this recession will be shorter and shallower than the current consensus expects. Our view is that we have probably experienced the lows for 2008, and that the markets will begin to recover well before the scary, negative rhetoric subsides - correctly discounting improving credit and business conditions. As hedge fund and mutual fund redemptions slow and more liquidity finds its way into the markets, volatility should abate and prices could move significantly higher.
 
This financial crisis has required massive public intervention, which will certainly usher in a period of higher regulation and scrutiny. While greater transparency in our financial institutions will be beneficial for the stability of the system going forward, it is critical that the efficient flow of capital - in the form of trade and foreign investment - is not impeded by bad public policy. Of all the risks we see to our otherwise sanguine long-term outlook, we worry most about the possible political fallout of this financial crisis. That said, free market capitalism is an amazingly resilient economic system which has repeatedly demonstrated its ability to work through the self-induced excesses that inevitably occur over market and business cycles, and we suspect this time will be no different. Regardless of who is in power after the election, the innovative spirit of a global, profit-seeking economy will continue to adapt and flourish.
 
For previous communications or information about H.M. Payson & Co., please visit our website: www.hmpayson.com.