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A look at the January barometer, indicates there is not much evidence that a weak January market portends weak performance in the remainder of the year.

Early Q4 earnings comparisons are better than expected, but further improvements in 2005 will largely be a function of better sales, not margin improvement.

It is clear Main Street investors have become more apprehensive about the stock market compared to 12 months ago when confidence was higher.

Small caps continue to be favored over large caps by our Small Cap Leadership Model, despite slightly lagging the large caps in January’s performance.

If this is indeed just another technical sell-off, now could be a great time to add to both metals shares and physical metals exposure.

Bounce stocks were trounced in January, especially small caps which plunged 19.3%.

The current economic expansion reached three years at the end of 2004. Recession could possibly be getting underway by end of 2005.

A look at which equity groups have historically held up best during market declines. We revived our “Defensive Equity Group” theme, with individual stocks selected from each of these individual defensive groups.

No matter how you cut it, we don’t expect to see much in the way of margin expansion. Further earnings growth will have to come  from top line sales growth.

Small Cap Stocks were hands down winners relative to large caps, while just edging out mid caps. This is the fifth consecutive year of small cap superiority.

It would have been a successful strategy to buy the 20 worst sectors from 2003 at the start of 2004.

Small caps continue to be the market leaders over large caps. This trend is expected to continue into 2005, as our small cap leadership model has recently improved, and is now rated slightly positive.

December Bounce performance was especially good for small caps.

Equity funds with a domestic focus continue to face big competition from their foreign focus counterparts.

Given the mostly positive performance in physical metals, profit taking was the likely culprit in pushing metal shares lower in December.

Lower than expected 2004 budget deficit was a short term bond market positive, but longer term deficits are a negative.

This annual exercise is a critical examination of our research effort for the year...presenting both the things we did well and also those things we didn’t do so well.

We wish you all a prosperous and happy New Year…..And, let us pray my cautious stock market outlook for 2005 proves to be wrong.

Adding Distillers & Vintners to “Small Group” holdings.

Many of our historical cycle studies are indicating that the stock market and U.S. economy are now getting past their prime, and may be running on borrowed time.