BUSH RALLY

An overwhelming majority of the year's return occurred in 2004's 4th quarter; the S&P 500 index's returns for November and December alone were a collective return of +7.6%.  Clearly a Bush rally was at hand.  The bond market joined the party -- while the Fed did engineer increases in short term rates, the 10 year Treasury actually ended up rallying for the year, yielding 4.22%, down .03% from 2003's close of 4.25%.  Yet the key question remains, "What happened to inflation?"  Has the Fed moved aggressively enough to tame upward pressures or is there simply a general complacency about the markets?  All returns are after dividends.

The S&P 500 index's returns were +9.2% for the Q and +10.9% for the year.  Given the Iraqi war and tightening supplies, the energy sector was the big winner -- up an impressive +31.1%.  Utilities, temporarily shaking off that inflation scare, posted a +23.6% return.  Healthcare stocks began to rally with a Republican victory, but shot themselves in the foot with the Vioxx/Celebrex scare and only returned +1.7%.  Tech, pressured downward by Cisco and Intel, was up a miserly +2.8%.  Still, every sector of the S&P 500 showed an increase.  All returns are after dividends.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in cash positive companies with sustainable competitive advantages.  Gold Leaf's goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market's upside.

Pharma Product Development Inc. (PPDI) was one of our big winners for the year with a +53% return.  The company contracts to perform first and second phase drug trials.  Major pharmaceutical companies are discovering new uses for old compounds and have greatly expanded the number of clinical trials.  PPDI facilitates these trials.  In addition, the company has secured rights to several interesting compounds.  Patterson Companies and Service Corp. also performed well for us.  On the other hand, Pfizer finds itself defending Celebrex, and the stock lost -22%.  All returns are after dividends.

Our only consequential purchase during the 4Q was in a company providing a brain monitoring device used during surgery.  The company is gathering data (and has some already) demonstrating reduced patient stays and complications -- data that will encourage the product's use.

Gold Leaf does not provide legal, accounting, or tax advice.