We find ourselves pondering whether our anticipated rally has come and gone. As seems always to be the case, most of the economic data has been mixed. What's surprising is just how polarized the signals are. On the one hand it appears the sky is falling. On the other, corporate profits are holding up and we're poised to move forward. Look at the recent unemployment numbers. Jobless claims were better than anticipated. At the same time, unemployment jumping to 5.5% drew headlines of new economic crisis. This last week Lehman disappointing results brought the firm closer to joining Bear Stearns but then the retail data, buoyed by economic rebate checks, was better than anticipated and saved the week from disaster.

Looking back to our thoughts only a month ago we anticipated a rally. We advocated increasing concentration in technology, financials, industrials, and commodities. Equities subsequently rallied nicely only to stall out as oil produced a continuous stream of new record prices and fresh round of write-downs from several of the financials reminded us that the credit crisis is not yet behind us. Technology has recovered from this year's lows, industrials have outperformed nicely, commodities continue to march upward, but our call to increase financials was certainly premature.  Generally, financials lead equities higher post recession. This time is different. The consequences of excess credit have not yet been purged from the system by the current availability of excess credit. We've given up on the financials for now. Hopefully this means they can finally move higher.

While the media and congress look for someone to pin the oil crisis on, the American consumer's insatiable appetites have likely kept us from recession in the second quarter. The economic stimulus checks have had a material effect with a surprising 1.0% increase in retail sales for the month of May. In addition, March and April were revised upward. Not all the rebates are going to gasoline and credit card finance charges.

There is still plenty to be concerned about and we do not anticipate a rapid reacceleration in economic growth. In fact, we expect the second half of the year to be similar to the first. Look for sluggish growth with continued high commodity prices. At this point Wall Street is already anticipating a rate increase by the Fed to combat the specter of inflation. We think the August meeting is premature, but an upward revision this year is in the cards. Although an increase won't be cheered by homeowners or equity investors it will likely bolster support for the dollar and slow the seeming endless rise in commodity prices and particularly oil.

In the mean time we've hedged ourselves with a little extra cash and a continued focus on commodities, mining stocks, oil exploration, industrials, agriculture, chemicals and fertilizer. We're holding much of our technology investments, but we have reduced them.