ECONOMIC/MARKET NOTES

KEY FACTS:

1.	Stock prices began diverging from historical norms around 1995 and have been increasingly erratic since then.

2.	The bear market that began in early 2000 has been far more severe and has lasted far longer than the economic slump that triggered it.

3.	The stock market's biggest problems are far better publicized today than they were three years go. This means that even though conditions actually have been slowly improving, they look worse.

POSITIVES:

1.	Stocks are clearly less overvalued than they were a couple of years ago.

2.	Corporate scandals and fraudulent accounting are being cleaned up.

3.	Increased effort to stop terrorism.

4.	Inflation near 30-year lows.

5.	Unemployment not much above 6%.

6.	High debt levels but very low interest rates.

7.	High productivity at near-record levels, reducing labor costs and increasing profits.

8.	Wage increases are increasing slowly but still above inflation.

9.	Mortgage refinancings have generated additional cash flow to the consumer.

10.	GDP growth projected to recover, although not at a fast pace.

11.	Consumers continue to spend money.

12.	Positive fiscal and monetary policies.

NEGATIVES:

1.	Overcapacity in the tech and telcoms.

2.	Commercial bank's lending practices are more cautious due to bad loans.

3.	Capital spending still weak. Companies must increase spending for employment, equipment and inventories.

4.	P/E's still relatively high. Earnings gains needed to mitigate the higher valuation.