If you are becoming more "defensive," does this mean that you are concerned about the economy and markets in 2005?

Indeed, we are always concerned about many issues. Longer-term clients have heard us often say that we are "long-term bullish, short-term scared—all the time." With that said, we expect the economy to continue to perform well in 2005 as both consumer and business spending appear strong, corporate balance sheets are in great shape, and employment figures continue to improve, all against the backdrop of relatively low interest rates.

One of the larger factors driving our economy is consumer activity, which represents roughly 70% of our GDP. While we continually monitor consumers' fiscal fitness as part of our long-term outlook, we don't do so by reading the newspapers. We've seen plenty of news regarding consumers near-peak debt levels, but we view that fact in context: interest rates are near 40-year lows and consumers' heaviest debt burden is in well capitalized, mostly fixed-rate home mortgages. Loan delinquency rates are low, employment is improving, household net worth is increasing, and debt service levels are in the normal range.

Furthermore, we expect improving wage rates as corporate profits are very high in relation to sales, while productivity is slowing, indicating that companies have the need for both additional labor and the cash flow to pay for it. Both consumers and businesses are in good shape and should continue to spend and provide stimulus to the economy.

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