There's plenty of speculation as to what 2004 will bring from the perspective of the market. Everyone and his dog seems to have an opinion. But, much of what is turning the heads of the so-called "experts" is a look back at what happened in the third quarter of last year where the gross domestic product roared upward from 7.2 percent to 8.2 percent. This was the best quarterly showing in almost two decades, all driven primarily by gains in consumer spending, particularly on cars, houses, and electronic goods, as well as a healthy dose of government spending and business spending relating to capital goods and equipment. And, don't forget to throw in low interest rates.

So, this apparently bodes well for the future. At least, we hope so.

The stock market contributed, too. As you know by now, the Dow Jones Industrial Average pushed past the 10,000 mark in the fourth quarter and there was an enormous 30 percent increase in year-over-year profits. Every sector appeared to have contributed.

Where then are the financial strategies now in this first quarter of a new year? According to Jack Ablin, senior vice president and chief investment officer for Harris Bank, a surge in government spending and the lowest short-term interest rates in a generation have helped spur economic growth. "Bu if these stimuli prove to have been excessive, significantly higher inflation is likely to follow, with all its associated concerns."

Do we continue to favor equities for the period ahead? Ablin says yes. "Profit growth is strong, corporate balance sheets are lean, and the fourth year in the presidential cycle has historically been positive for the stock market."

What about bonds? Well, most experts feel that bonds offer limited rewards for investors in this environment. An aggressive Fed has held yields artificially low and there are still fears that substantial arbitrage positions could be unwound, and this hangs over the bond market.

As to that arbitrage, the Fed thus far is standing firm on in its intention to retain short-term interest rates at a low level, which has been quite effective for years. The strategy is designed to capture the three-percentage point field differential between overnight and intermediate term Treasury securities. However, with so many investors now adopting this strategy, known as the "carry trade," there is a concern that the Treasury market could suffer a sharp reversal if interest rates show signs of moving higher.

Again, it all bears watching, and that's an understatement.

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