The equity and corporate bond markets have refocused on worldwide government deficits and debt, and the implications for long-term economic growth, inflation, and interest rates. The general consensus regarding economic recoveries is still that they will be slower than average due to higher  taxes required to support government in the interim to dampen potential worldwide recessions. If these government policies result in ultimate economic stabilization and growth, it is generally accepted that there will ultimately be  higher inflation.  This latter is not an immediate concern.  There will continue to be a tug of war between actual realized economic growth and potential inflation on the level of interest rates.  The risk to economic growth is currently keeping interest rates low in general, except on higher risk debt instruments.

Individual stocks and broader country equity markets will have to have technological, inherent growth, and increasing market share advantages in this type of an environment to have significant appreciation potential.  Recent corporate profit growth and forecast corporate profit growth are providing a healthier potential return environment for domestic equity markets in general, in spite of overall economic growth concerns.  Corporate bonds continue providing attractive yields and some stability, and inflation protected treasury bonds currently provide the same with less volatility.  Municipal bonds are also attractive for higher tax bracket investors.  We will continue to incrementally put our still relatively high levels of cash to work in these areas over the coming months at opportune times.

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BKS