Adding Some Flexibility 11-15-05

Good Afternoon.

The economic news this morning was stellar with solid growth in retail sales and a much lower than expected Core PPI. It reminds us of some kind of Economists dream. Home Depot (HD) has positive comments yet Target (TGT) said the opposite. Amazon.com (AMZN) was added to the S&P 500 replacing AT&T (T).

Big Ben Bernanke is going through his confirmation process and delivering a sweet love song. His focus on targeted inflation goals is extremely positive news for the fixed income market as well as all global financial markets. Along with his zeal for more Fed transparency, market participants can look forward to more certainty. This level of increased certainty has huge implications for corporate planning boards, financial institutions, foreign central banks, etc. Virtually all economic participants will benefit from a more objective FOMC approach as opposed to the subjective approach of the Greenspan Era. Furthermore his probable inflation targets are most likely slightly lower than current inflation levels. The implication is that although he sees current FOMC policy as accommodative, it will not take many more Fed Rate increases to achieve neutrality.

The Bulls have plenty of ammunition to work with today if they choose to get busy. Our thought process has been that they may take the market up another 1% before a more noticeable pullback ensues. However, they are acting somewhat lethargic thus far. We are under-whelmed with the lackluster performance of the Small Cap sector. In order to provide ourselves a little more flexibility we have decided to decrease our exposure into this Spike (NASDAQ currently 2203). Should the NASDAQ reach our initial target of around 2220 - 2230 we would eject even more exposure.

Still long and strong!

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