PERFORMANCE ANNOUNCEMENT

As Of: May 3, 2002

Embrace The Downtrodden.
Avoid Today's Glamour.

    There is always a point in the ebb and flow of life's cycles when you can say, "Enough is enough". I think we have reached that point with the vilification of the tech and telecom sectors of the stock market. The price collapse over the past two years seemed bad enough, but the market has spent the past few weeks kicking them while they are down, and most significantly, disparaging the good with the bad.

    By now, the troubles with overcapacity in the telecom sector is old news. As the media regurgitates the pedantic explanation of doom put forth by Wall Street analysts, everybody seems to have lost sight of the fact that the world has not come to an end and people will continue to use telephones. In fact, the use of wireless phones will probably continue to grow. I know my phone bills aren't going down. This means that there are some phone companies and equipment suppliers and handset builders that will survive and prosper in the future. When doom is all around, there comes a point when one has to say, "Enough is enough! The market has discounted the bad news. It is time to start buying into the future."

    Over the course of the summer, and perhaps into the fall, I expect to see a major shift occur. Consumer cyclicals, retail stocks, hotel stocks, housing and related categories (which have been hitting new highs) will start to fade. On the other hand, technology and telecom stocks will stop falling and rise off their lows. While there isn't justification for these battered stocks to go back up dramatically, there is every reason to believe that the long term survivors will rally from oversold levels and move into the hands of people who are content to hold them for reasonable long term growth.

    The kick in the head is going to be the weakness of the consumer. Proctor and Gamble (at 52 week highs) is no longer going to be a safe haven. Homebuilding stocks are no longer going to keep rising. Department store earnings are going to start fading. And just as everybody is brought around to thinking the economy is sorting itself out and starting into a lasting recovery, there will be another dip. In short, we are having a sector rotation recession.

    You should be selling out of the consumer stocks that are trading at lofty prices with price-earning multiples of 30 to over 100, and consider dollar cost averaging a part of your proceeds into the unloved and unwanted value stocks. The survivors of the tech wreck have long term promise. In the meantime, conserve some of your resources and be prepared for an ugly bump in the economic road that is going to impact anything related to the consumer.