CI Outlook - Archives

Second Quarter 2006

July 6, 2006

Mr. and Mrs. Client
123 Elm Street
Dallas, Texas 75225

Dear,

We have been expecting increased market volatility and this year we are getting it.  During the first half of the year the S&P 500 managed to climb 6% from 1248 to a May 5th high of 1325.  Then in equally volatile action it dropped 7% to a June 14th low of 1230 and ended June 30th at 1270 up 1.8% for the year.  As expected the Dow did test its old high of 11,800 but pulled back quickly to last years levels of 10,800.  During all of this interest rates continued to rise and energy costs remain high.

The market is nervous and we think the volatility will continue.  However, we still think the Dow Jones trading range, in place since 1999, is moving to a higher level.  We believe that move is the direct result of corporate earnings almost doubling during the last seven years.  The earnings growth has been helped by growth in the economy.  We expect earnings and economic growth to continue but at a far slower rate than in the recent past.

Given this outlook we are adjusting your portfolios to take advantage of the situation.  We have continued to reduce the portfolio allocation to small cap ETF’s.  We have started to reduce mid cap ETF’s and begun a large cap ETF allocation.  Because we believe we are early on the large capitalization decision we have chosen a covered call vehicle which yields 12% per annum.  Our thought is that the current yield will make up for the expected lack of short term capital appreciation.  Our latest stock purchase, Southside Bancshares of Tyler, appears cheap in the current market for Texas bank stocks.  We continue to hold your other investments while we await a better market later this year.

As always we look forward to your questions and comments and thank you for your continuing patronage.

Sincerely,

CJ Brott                                                                                  Karen Burns

 


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