The recovery which began early last year is being severely tested by a number of factors. Some of the more significant of these include:

• high unemployment with sluggish improvement,
• continued weakness in the real estate market which has adversely impacted consumer balance sheets and spending,
• budget crises domestically at the national and state level as well as internationally, particularly in the smaller European countries,
• major environmental concerns caused by the BP oil spill,
• market integrity concerns evidenced by the May "flash crash".

Presented with these conditions, there has been an abundance of conjecture that we are on the verge of a "double dip" recession. Further exasperating this is the fact that both fiscal and monetary responses to potentially counter a return to recession have already been substantially deployed. Interest rates cannot go much lower and the government is already overextended with fiscal stimulus provided to date.

However, double dip recessions are statistically quite rare and as stymied as many of the economic indicators are, they are still well within normal ranges when compared to prior periods at this stage of recovery. Further, the falloff from where we are coming from was severe and a negative attitude still substantially persists throughout the economy. Therefore, we believe that although the traffic light may be flashing yellow, it has not necessarily turned red. Within a period of general overall improvement in economic growth, we are more likely experiencing a temporary deceleration.

This view is supported by corporate fundamentals and valuations which still appear to be favorable. This recovery will continue to be constrained by the fact that consumer spending will not be the primary driver to growth as is most commonly the case. Instead, we see companies cautiously increasing spending to maintain earnings growth. This increased spending should result in stepped up hiring and some improvement in the unemployment rate. This should result in some increased consumer spending and that should cycle back into the corporate business plan which again would reflect increased spending and hiring. This is a slower and more muted process than a consumer lead recovery, but is not a recessionary scenario either.

Of course, investment policy cannot be based upon opinion as to economic or market direction in the short term. Instead, it should be based on well established fundamentals supported by long term data and concede short term economic and market fluctuations. We are reminded of the advice of some investment sages at this point. First, Warren Buffet has said that it only takes two things to make money - having a sound plan and sticking to it - and of those two, it's the second part which presents the greatest challenge. Second, Peter Lynch once commented: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves." We espouse these sentiments and believe that our investment policy continues to be appropriate for meeting our clients near term living requirements and long term goals.

The quarter and 12-month period returns for the indexes that we benchmark our model growth component against are shown in the table below.