Dear Sir/Madam:

While the U.S. is growing and unemployment is creeping down, economists remain nervous about U.S. growth. Having said that, housing is still cheap and it is unlikely that oil prices can retain their middle-eastern-revolution levels of risk premium. Food and other commodities have soared, but Americans seem more concerned with the price of gasoline.

What Do We Think About the Markets?

Are we bears? That’s probably too strong of a statement. Howev­er, the share price run-ups of the last six months are now harder and harder to justify.

Thus far the U.S. has avoided broad based inflation. It is cer­tainly true that food, fuel, and many industrial input prices have risen dramatically in a short time. However, housing is cheap and wages are not under upward pressure. Given the magnitude of our national debt (and the damage we are doing to our cur­rency), it will take both skill and luck to dodge the inflationary bullet.

The dollar has nowhere to go but down over the long run, just as interest rates have nowhere to go but up; but inevitability does not require swiftness. The dollar often serves as the “tallest midget” despite our wholesale attempts to destroy its value on every front.

There are loud squabbles in Washington regarding budget cutting measures. But, simply put, unless we are able to muster the political will to cut back the health care promises we have made to the elderly of the future, we will never save the Tril­lions (notice the “T”) required to make a meaningful dent in the long-term problem. Likelihood of real change coming out of Washington? You make the call...

Stocks

Now that we have seen the first cracks in the recent bull mar­ket in equities, it seems likely that large cap names will outper­form small cap stocks, especially for the riskiest and most frothy names. Let’s hope the ride is gentle.

Bonds

Bond investors looking for investment grade yield opportuni­ties still have little to find in these markets. Federal policy is still explicitly aimed at expensive bonds and low yields. This is a gift to banks at the expense of the populace.

As you know, we have developed an Alternative Fixed In­come Portfoliospecifically designed to replace bonds. Interest rates may not soar tomorrow or the next day, but anything that can’t last forever must eventually stop. And that means that bond prices are at risk. Given the yields we currently see, how much ordinary bond risk is really worth taking? Ask us about it. It’s really cool!

Commodities

When the barber, doorman, and taxi driver know that certain assets can only go up in price, its time to be very, very nervous. That’s how we feel about many energy and non-energy related commodities. $110 is not the natural market equilibriumprice for oil at this time. It will be a bumpy ride, especially if mid-eastern bad guys do things to disrupt supply, but it is hard to imagine that prices won’t be coming down at least in the near-term. Likewise, corn and farmland prices cannot continue to make millionaires out of American farmers forever.

We continue to grow and thrive. Our multi-family office group continues to bring high-touch services to a rapidly in­creasing group of prominent families much too used to getting pawned off to the call center of their bulge-bracket wealth man­agement firms.

For more information, Email us at: info@wangerinvestments.com or visit us on the web at www.wangerinvestments.com or www.wangeromniwealth.com.

Best,
Eric Wanger, JD, CFA