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For the major market indexes, 2005 was a roller-coaster ride in the truest sense – peaks and dips and rolls that ultimately ended (almost exactly) where the ride began. The DJIA finished -0.61%, the S&P 500 +3.0%, and the Nasdaq +1.4%. The ride was anything but smooth. The Nasdaq staggered through 4 major swings: -13% from January to May; +16% from May to August; -8% from August to mid-October; and +8% from mid-October to December. The Nasdaq began the first 3 weeks of January by selling off 7%. After a brief bounce in February, when we made our only move of 2005 – to 60% cash on February 22nd – the Nasdaq continued its rapid decent, all the way down to 1904 on April 28th. Though this proved the low for year, it wasn’t close to the end of the ride. After climbing back to 2209 by August 3rd, the Nasdaq began another steep slide, this time to 2037 on October 12th. Then, powered by a record 14th consecutive quarter of double-digit earnings, the market reversed again, finishing the year at 2205. Our gains over the past year give us sufficient cushion to move fully into this market, which is beginning to resemble 1995-1999, the last time the Fed ended a cycle of sustained interest rate hikes. The major indexes have broken through key resistance levels and the economy appears to be firing on all cylinders – with earnings, employment, GDP and productivity all robust. But we are proceeding with trepidation, because we know full well the underlying risks. The Fed appears to be nearing the end of its tightening cycle, with the markets expecting only 2 more rate hikes ending with the March 28th FOMC meeting. Any Fed action beyond that will be viewed with great pessimism. Unless the $8.2 trillion Federal debt ceiling is raised by mid-March, the U.S. “will be unable to continue to finance government operations,” wrote Treasury Secretary John Snow, in a recent letter to Congress. The debt ceiling, of course, will be raised (it’s been raised more than 70 times in the last 50 years). Unfortunately, the collateral damage in the face of our immense national debt (which equals roughly $27,000 per man, woman and child in the country) could be severe: the most notable casualty may well be the refusal of Congress to renew (much less make permanent) the 15% tax on capital gains and dividends. This too would be viewed with great pessimism. Finally, this cyclical bull market that began in March 2003 is now in its 34th month, already beyond the historical average of 30 months (for the 15 bull markets over the past 75 years). Whether conditions more closely resemble the summer of 1999 or the spring of 2000 makes a very real difference, and the economic data clearly favor a more optimistic outlook – at least for now. If we are nearing the end of this current bull run, the gains over these final months could be substantial – hence our decision to become fully invested. But when the markets turn, be prepared: We will move to the sidelines at the first sign of trouble.