Commentary - - 2nd Q. GDP - - INFLATION vs. DEFLATION

Trust: We are all losing faith in the numbers. Yes, the negative GDP in the 4th Q caught my attention immediately. Even 1.9 GDP 2nd Q number is highly suspect.

Stimulus Package: My thoughts regarding the stimulus package being able to jump start the U S economy bring to mind an image of a young boy throwing a snowball at the sun and thinking he will put out the fire.

Current Economic Problems Include:

* Elevated energy prices.

* Rising unemployment.

* Slow to falling real wages in the lower and middle working class sector.

* Falling profit margins across almost all industries and service sectors.

* Rising Bankruptcies.

* Stiffening Multi National production and service competition.

* Federal, State, & Local Deficit Spending - Will result in rising taxes and or cutting back of services, employment, and special programs.

* Housing Crisis - has destabilized the underlining asset pricing of various securitized fix income investment classes that has been distributed worldwide.

* Major De Leveraging - of Multi-National Banking and Financing Institutions has created credit conditions difficult for organic business and consumer growth.

Deflation: We are currently experiencing the symptoms of a World Wide deflationary cycle. One simple test is to monitor CRB Commodity Index - - It should peak this summer and start dropping in Fall and Winter 2008.

Monthly CRB Chart - Link: http://www.mrci.com/client/m-crb.pdf

Daily CRB Cash Chart - Link: http://www.crbtrader.com/data.asp?page=chart&sym=CIY0

Beware: Life long inflationary remedies used in the past will not protect your financial portfolio this time around.

Jim