Commentary

Although we continually review our investment decisions and portfolio positioning, the new year offers a fresh start to discuss with our clients the opportunities and challenges for the year ahead. We cannot predict short-term market movements or events, but we can share with you our world view and biases that will help formulate our approach to investing on an ongoing basis. This viewpoint, along with our disciplined investment management process, will determine the balance between risk and reward in your portfolio. Put simply, the outlook provides insight into our game plan: like any good coach, we believe that knowing when to stick to the game plan and when to adjust the game plan is critical to success.

We understand that investors have many questions about the current state of affairs, as our world can appear quite complicated, with often contradictory news items and opinions in print and on the airwaves. What follows is a series of questions that we have heard lately from our clients, and our answers.

• How has your game plan changed for 2005?
• If you are becoming more "defensive", does this mean that you are concerned about the economy and markets in 2005?
• But consumer spending means consumers save less. I've also read that US consumers don't save enough -- is this a problem?
• How will the Fed's interest rate hikes impact the economy and market next year?
• What about the USA's large trade deficit? Will this be a concern in upcoming years?
• But isn't the trade deficit a reflection of the inability of our economy to compete and export products the world demands?
• You mentioned the falling dollar: should I be concerned that this may trigger a crisis?
• Many experts have cautioned that the rally in the market over the past two years is a "bear market rally." Why do you feel they are wrong?
• What would change your mind and make you bearish about your market outlook?
• Does the re-election of President Bush figure into your outlook for the coming year?
• What's the outlook for oil prices and the market impact?
• How do you expect the major asset classes to perform in 2005 and how are you positioned as a result?
• Conclusion