Recent events have created a wild ride in the financial markets and have sent many potential investors scrambling for cover. While both the bulls and bears struggle with direction, it appears to us that most of the events so far this year point towards a positive outcome. Just to recap, let's look at the news since early January. First, the good news: (1) the stock market is beginning to behave as if earnings and solvency really do matter, (2) the 4th quarter GDP was revised upward 22%, (3) the employment picture is looking better and better, and (4) inflation remains tame. And, the bad News: (1) Energy prices are up almost 20% for the year, (2) yields on bonds are rising, (3) Korea may cut back on it's dollar reserves, and (4) the dollar continues weak. Before attempting to voice our thoughts, let's look closer at these events.

On the positive side, the Dow is currently trading just south of 11,000, which is a 4 year high. Also, the Transports are sitting close to its old high of 3,836, and with both the Transports and the Dow at current levels, it is quite likely that a lot of positive attention will surface. The P/E multiple of the Dow is now at 18 times with a yield of 3.00% and the quick take here is that stocks look cheap when compared to U.S. and foreign bonds. As far as the economy goes, the first revision for the 4th quarter GDP was revised upward from 3.1% to 3.8% which brings the growth rate for all of 2004 to +4.4% versus +3.0% for 2003. This means that the economy was on much more solid footing than previously believed. Plus, the employment numbers for February were better than expected. America's employers added 262,000 jobs in February, the most in four months. Although the unemployment rate for the same period rose from 5.2% to 5.4%, there was little concern as the increase resulted from more jobseekers streaming back into the job market.

Inflation remains subdued as consumer spending, while robust, is not excessive. The core CPI stays in the 2.0% to 2.5% range which gives little reason for the Fed to stray too far from its current policy structure.

Looking at the negative side, it stands to reason that surging energy prices are worrisome. U.S. light crude is back in the $50 plus per barrel range and has traded as high as $55 in recent days. There is concern that OPEC will cut production and the price for crude could increase sharply from these levels. But, it is our belief that the OPEC oil producers at their March 16th meeting in Iran will not do anything for short term profit potential. Rather than cut supply, they are more likely to increase supply as not to push prices significantly higher. Bond yields going up and a weaker dollar seem miniscule when energy concerns are on the front burner. However, it is almost certain that the Fed will boost the funds rate another 25 basis points at its next FOMC meeting on March 22nd. The yield curve continues to flatten with the spread between the 2 year and 30 year only 116 basis points.

So, where do we go from here? It seems to us that the pundits think like this: robust employment data signals a tighter labor market, higher inflation, higher bond yields, and a slower economy. We would argue that higher employment leads to more people working, more taxes being paid, lower deficits, lower bond yields, better corporate earnings, and higher stock prices. While good times are on top of us at the moment, it is imperative that the Technology Sector kicks in with both feet if we are to sustain long term prosperity. This is the only way to maintain our competitive edge. Remember, Technology took us into the wilderness five years ago and it will be the one to take us back out. The Tech-Companies that are still around are flushed with cash and are positioned to lead the charge.