Advisors uneasy about geopolitics, inflation, energy prices and real estate. After a slight increase in July, registered investment advisors' (RIAs) confidence in the U.S. economy and stock market declined in August, as wealth managers worried about events in the Middle East, high fuel prices, wobbly real-estate markets the effects of domestic inflation.

"Inflation will be a major topic," says Joe Ludwig of Newton, Mass.-based Tandem Financial. "Someone has to pay for the budget deficit and the war in Iraq."

The Advisor Confidence Index (ACI), based on Advisorbenchmarking's monthly survey of 150 independent RIAs, fell 7.14% to 106.17 in August from 110.27 in July.

|image1| The advisor-sentiment scale goes from a "very negative" 33.33 to a "very positive" 166.67; the mid point, 100, represents a neutral outlook on the stock market and the economy. The ACI, which hit an all-time low of 106.07 in June 2006, has been on the positive side of the scale since its inception in April 2004.

|image2| The ACI survey is conducted in the first week of every month.

All four of the ACI's components fell in August. Advisors' assessment of current economic conditions fell 7.14% in August. Their view of the economy six and 12 months out fell 2.93% and 1.77% respectively. The ACI's sole market-related component - the consensus view on equity markets six months from now - slipped 2.69% in August.

Stormy weather

Worry about effects of the recent conflict between Israel and Shiite guerillas in southern Lebanon were uppermost in many advisors' minds early in August. "Fear of another greater war, higher gas prices and higher inflation is curbing the thinking of our clients," says Pat Raskob of Raskob Kambourian Financial in Tucson, Ariz. "Many are looking at the worst possible scenario."

Paul Bennet of Great Falls, Va.-based Private Wealth Advisers draws the points to fear of a worsening conflict in the Middle East as well as uncertainty about the Federal Reserve's stance on interest rates. "We are dealing with a confluence of events right now; oil and gold prices, the Middle East conflict, the Fed's continued tightening and now potential easing and inflation rearing its ugly head," he says.

Meanwhile Bill Ramsay of Raleigh, N.C.-based Financial Symmetry sees the Federal Reserve's reaction to depressed local real-estate markets as vital to the U.S. economy. "The primary key to whether we have a soft landing or recession will be the extent of the damage from the popping real estate bubbles," he says. "We are likely to see a significant corporate financial failure as a result of the bursting."

Advisorbenchmarking is an affiliate of Rydex Investments . -FWR

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