As previously mentioned, the equity markets are a futures market, and as they have predicted, we are beginning to see tangible signs of economic improvement.  Initially it may be that “less bad” is good but we have to start somewhere!  At this point, the economy is growing modestly again and initial jobless claims are beginning to taper off.  Even the critically important consumer is coming out of hibernation. 

As transitions go, they are never pretty and the many crosscurrents cause major anxiety.  We are all tempted to connect the negatives such as high unemployment, a sluggish economy, political infighting, terrorism, and high energy costs with our expectations for returns.  This would be a mistake, especially during the early stages of a recovery.

Historically, the equity markets advance in anticipation of economic news and begin to mend half way through major recessions.  Since the markets began to recover in March, it would lead us to believe that by mid-2010 we should begin to see significant evidence of economic recovery--including job growth.  To us that would signal the real end to the recession.  As Ronald Reagan once said, “A recession is when your neighbor loses his job; a depression is when you lose your job”. 

In our opinion, we are entering the second phase of what will be a longer term recovery for the markets and eventually for the economy.  As the dust settles, this phase begins with a major dose of finger pointing.  Look no further than Washington.  Washington points to Wall Street and Wall Street points to Washington.  Democrats point to Republicans and Republicans point to Democrats.  While the markets look forward, they look backward.  Let the free markets make adjustments and in time our financial structure and our economy will mend.  Freedom and the human spirit will not let them hold us back.

Looking ahead, 2010 is likely to be a period of capital gain opportunities.  Despite the pessimism, the financial strains, the sluggish economy, and the societal “deterioration”, momentum is on the upside.  Yet, caution lingers.  And, why not?  We have been battered and bruised by a secular bear market during the first decade of this century.  And the problems are well displayed.  However, the stock market “animal” appears healthier than we are and is galloping ahead.  In our opinion, there should be little doubt that we are in the early stages of a new bull market. 
 

We wish you and your family, a happy and healthy New Year. 
 

Sincerely,

William Noonan
Chief Executive Officer