TREES INVESTMENT COUNSEL VIEWPOINT (Q2 2006)

 Hiccup!  The market experienced at least a bit of the hitch we anticipated in our last viewpoint.  After a strong start to the quarter, the Standard and Poor's 500 fell a whopping 8% from mid-May to mid-June; the topsy-turvy market (finally, some signs of volatility!), declined 2% overall for the quarter.

As always, concerns range the gamut from the rate decisions that our new Fed Chairman Bernanke will make in the months ahead, to inflation, to an economic slowdown, to an endless litany of geopolitical events.  Presumably we all would agree that many of these worries are real; the question is, will the reality be better or worse than the market is expecting? If it is worse, we could see another leg down, an occurrence that would not surprise us as we confront decelerating earnings growth.

While the S&P faced a set-back, other markets, admittedly ones that have had more noteworthy upward performance over the past few years, suffered much steeper corrections.  Several emerging markets indexes, such as India and Turkey, were down well over 25% (peak to trough) in the quarter.  Even with this (deserved) decline, we still find that high quality larger companies with solid long-term track records offer a better value and superior valuation characteristics to their riskier counterparts.  The convergence of multiples is still in effect.  As always, we are looking for the best risk/reward for your portfolios and we continue to find that in blue chip names with strong franchises and solid fundamentals.  The changes we are making to your portfolios support this view.

We are delighted to announce Scott Newhall has joined us.  Both Jackie and Jay have known Scott for several years and believe he brings to Trees Investment Counsel the personal integrity, financial acumen, and service mindset you hopefully have come to expect from our firm.  Tina Fitzwater will continue to handle administrative functions while Jackie, Scott, and Jay parse the equity and fixed income markets.  We all enjoy hearing from you and aiding in your financial success.

July 18, 2006