As I write this letter, the market is falling rather dramatically.  It was triggered by the PPI release this morning which was down considerably below expectations, primarily on falling energy prices.  Since then, the newswires show that 50 U.S. and British aircraft have attacked three Iraqi military targets.  Given the recent terrorist and military hostilities in Israel, the market undoubtedly fears worse trouble in the Middle East. 

Evidence is mounting that we may be very close to the low point in the economy.  The cyclical recovery is likely to be more muted than earlier expected, but it looks doubtful that we will see a full-scale retreat.   Six reductions in the overnight bank-lending rate by the Federal Reserve and government mailings of advance tax refund checks should provide consumers with reason to keep spending. 

Increasingly, economists are saying the worst may be behind us, but recovery is not clearly in sight.  Mr. Greenspan’s comments to Congress yesterday pointed to the possibility of a turn in the economy in the second half of this year, but he warned that the current malaise could likely continue for some time to come.  Recent company earnings reports have not been as bad as feared while revenues did disappoint more often.  Managers in general have done an excellent job cutting expenses in the face of this dramatic slowdown, but their reluctance or inability to provide any meaningful guidance about the near-term future weighed on stock prices. 

Economic News: Mostly good news this week pointing to continued recovery in the economy Wholesale inventories in the U.S. increased 0.2% in May to $302.62 billion on the largest monthly increase since November, the Commerce Department said Tuesday.  A consensus of analysts had projected a 0.1% increase.  Manufacturers are pushing the inventories from their shelves to those of wholesalers through “good deals”.   Meanwhile, wholesale sales slipped 0.1% from April to $229.82 billion. Analysts had expected a 0.3% increase for the month.

All data last week provided upside surprises, a rare event over these past few months when the overwhelming dynamic was the economy's adjustment to the overhang of excess inventory. The data not only suggest an turning point but also support the notion that the weakest quarter in the cycle was Q2.


We are pleased to introduce our weekly email, the Friday Brief.  It pulls together many of the numerous strands we're following to try to make some sense of this unique time in history.  The old economy, the new economy, the markets, the Federal Reserve, the politics, all interact to shape this economy of ours.  Understanding their implications forms the art and science of investing.  In the Friday Brief we will share some of the news and events that shape our investment decisions as well as the rationale for recent buy and sell decisions.  This letter is unusually long because we catch you up on the entire quarter.  We will try to organize the Brief in such a fashion to facilitate a quick and efficient read.  For those who prefer more detail, we provide articles and links to articles we find particularly useful.  PLEASE read the American Spectator article at the end of this brief as it makes an excellent case for just what we need from our congress right now.  Write your senators and reps if you agree.