Dear Value Seeker,

Sometimes words speak louder than actions.

Especially when it’s the Fed’s words.

Today, market watchers are on the lookout for clues about how the Fed is going to tackle deflation.

A rate cut of at least 0.5% is already in the can as far the pundits are concerned.

But with consumer prices plunging, investors expect the Fed to signal more emphasis on more unorthodox ways of ‘stimulating’ the economy.

According to MarketWatch, “The bottom line on Fed policy is supply of money. The Fed typically targets the price of money but, with the price so low, it will focus on increasing the quantity of money through its balance sheet.”

Not that the Fed hasn’t tried this already.

It has doubled the size of its balance sheet to over $2 trillion since September.

As Bud Conrad at Casey Research notes, “Mostly under the covers, [the Fed]

As the economy deteriorates, one of the first casualties will be corporate profits.  Earnings estimates have been falling very fast for 2009.  Recently estimate cuts for 2009 have been running at about 8x the number of estimate increases.  P/E-based valuations become tricky in such an environment -- you are shooting at a moving target.  One way around this is to focus on the low (or most pessimistic) estimate, rather than on the mean estimate.  Assume that everyone else will move to where the biggest pessimist is now. This is not to say that the most pessimistic analyst today can't be too optimistic, but at least he will be closer than most. On this basis, there are some very compelling values out there. 

Below we present a list of the cheapest S&P 500 companies based on 2009 low estimates.  Since I simply do not trust the numbers, I have excluded from