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HOPE SPRINGS ETERNAL

As 2006 emerges, we are witnessing a good one-week rally in the stock market that threatens a new 5-year high in all the major averages. This can partially be explained by the end of yearly tax-loss selling in December, but more importantly, it signals the end of the Greenspan Era at the Federal Reserve and perhaps the end of the interest rate hikes that have plagued the markets for nearly two years. The hope is that lower interest rates are in the cards in the foreseeable future, bringing with them stronger economic growth and higher corporate profits.

Early signs from the White House indicate a renewed interest in fighting for permanent tax cuts. This is clearly to the market’s liking as the current temporary tax cuts are set to expire and give way to tax increases across the board if nothing is done. The hope is that we end up with a more competitive tax code that spurs further growth of earnings.

Our guess is that the dollar has peaked and a round of weakness is about to begin. This should be a strong earnings generator for most U.S. multinationals, many of which make up the Dow Jones Average; hence, the underperformance of large high-quality companies will also end.

All in all, the picture for the near-term is quite encouraging. The well-publicized end of the President’s popularity seems ready to give way to newfound energy and popularity in the White House. As the President becomes assertive about the tax and economic agenda, we may see the first signs of troops leaving Iraq. Indeed, the stage seems set for some positive news.

As I finalize plans for my annual ski vacation, it seems timely that I take this vacation without the burden of financial and compliance audits, along with countless other corporate issues, chores and responsibilities that go with the Chairman and CEO position that has been my way of life for many decades. Accordingly, I will be resigning my position as Chairman and CEO and as a board member of Cadinha & Co., LLC, on January 19th, just prior to boarding a plane for Utah. No, this is not retirement, as I plan to immerse myself in the business of investing which is why I chose this profession in the first place. I also plan to continue working with clients, and in fact, to devote more time and focus to their particular needs without any interruption from the corporate administrative role. It’s time to simplify and do the fun things in life; working with clients who for the most part have become dear personal friends, and investing money.

I’m happy to turn over the helm to Brad Totherow, the President of the firm, and to Harlan, Reid, Preston, Kalei, Neil, Nancy, Joelle and the others on the Cadinha team. Brad has grown up here, with 17 years of experience, as have the rest of the members of the firm. They are a terrific group of people and I look forward to continuing my association with them as their Chief Investment Strategist.

The business of Wall Street has changed dramatically over the last 40 years. In fact, I remember the first “million-share day”. Today, we trade billions of shares. While technology and regulations have become the drivers for Wall Street firms, investing has not changed. The emotions of greed and fear still rule the minds of investors and I hope that I will be able to stay ahead of these mood changes for many years to come. As always we appreciate your continued loyalty. Best wishes for a healthy, happy and prosperous 2006.

About the Author


Harlan J. Cadinha
Founder, Chairman and Chief Strategist
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