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3rd Quarter 2009 Market Summary

 The markets continued their inexorable rise amidst continuing skepticism over the economic realities evident in the 3rd Quarter of 2009. The 3rd Quarter followed upon a strong 2nd Quarter with the DJIA and S&P 500 both increasing 15% and the NASDAQ up almost 16%. The markets remain short of the highs reached in Fall 2007, but the strongest market quarter since 1998 continued amidst increasing investor interest.

  The quarter began with a slight retreat ahead of the earnings season announcements and the continued falling US dollar. By mid-July the markets ran quickly on positive earning surprises both here and overseas and gained into positive territory for 2009. The markets followed two more short retreats with yet higher advances amidst the anniversary of the fall of Lehman Brothers and gold’s rise to $1,000+/oz.

  The US dollar followed almost an identical reverse trend down as the US economy continued to decline, albeit at a slower pace. Unemployment hovered near 10% and the impact of continued low Fed rates coupled with government spending and stimulus efforts exacerbated the deficit further. The rising concern among US debt holders about the safety of their dollar reserves sent investor cash into other asset classes and currencies.

                            Equity Index Box Score

                                                           2nd Qtr
          Since 9/30/08

                                                        Dow Industrials                                 +15.0 %                 -10.5 %            

  S & P 500                                        +15.0  %                  -9.4 %
  NASDAQ                                          +15.7  %                  -1.5 %
  EAFE (Int'l Dev Mkts)                        + 19.5 %                  -3.2 %
  EEM (Emerg Mkts)                            + 20.9 %              + 19.0 %

  The fixed income market  saw continued high underwriting volumes as corporations worldwide     sought debt offerings to replace bank borrowings at  lower rates and increased access.  Returns  in lower grade bonds  remained  attractive versus lower risk securities, but the gap in yields has closed dramatically over the year as prices have bid up.

   In the US, all sectors of the market provided positive returns, with cyclical stocks such as Financials (+25.5%), Materials (+21.5%) and Industrials (+22.0%) leading the way. Defensive stocks such as Telecoms (+5.8%), Utilities (+6.1%) and Health Care (+9.5%) lagged. Again, the lowest-priced, riskiest stocks recovered the most ground, with stocks such as AIG more than doubling when thought worthless just months ago. Overseas the emerging markets continued their leadership (+20.9%) and developed market sectors advanced versus their US brethren with the aid of appreciating currency vs. the dollar.

  The last two quarters reflect the increased confidence that the recession is, if not over, at least on the way out, and that good companies know how to navigate difficult economic situations. Going forward investors will require revenue growth along with increasing earnings to stay interested. If US companies cannot deliver due to our domestic economic problems, alternative options beckon in the form of commodities, gold, and foreign denominated investments.

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