2005, A Year of Grudging Progress

The stock market traded in a very narrow range all year with the indexes showing small gains or losses. The DOW was off ½% while the S&P gained 3% and the NASDAQ was plus 1.4%.

Our average gain was…Respectable, but not very exciting for all of us. Perhaps we should all be grateful, however, since our progress was achieved in the face of surging oil and gas prices, rising interest rates and numerous natural disasters.

Looking to 2006, the investment scene appears somewhat attractive as interest rate increases should soon end, energy is expensive but stabilizing, and real estate shows signs of slowing. Rising dividend payouts and falling price earnings ratios continue to make stocks more appealing than fixed-income vehicles in our opinion. Surprisingly, premiums paid into our call-writing strategy have continued to be lucrative and allow us to obtain superior returns with lower risk.

China will continue to emerge as a formidable economic force as both a low-cost supplier and aggressive market-moving consumer. Energy prices will remain an unpredictable wild card. The real and psychological impact of flat or falling home values on the American consumer could be a substantial negative for economic growth.

We have concluded that the Medicare prescription drug program is beyond our poor power to intelligently comment upon.

Tax filing season is around the corner. We have reviewed all accounts and taken capital gains and losses where appropriate to minimize your tax bill. Please send tax work no later than March 31.

Sincerely,

Michael F. Cantlon