PERFORMANCE ANNOUNCEMENT

As Of: November 25, 2002

Bet Your Future

Old World Values versus The New Economy

      Whatever happened to time-honored, sound advice (work hard, save diligently, avoid debt, spend wisely, invest in lasting value - including yourself and your education)? Sometime far in the future, you will be able to say to your grandchildren or great-grandchildren that "I was there." You will be able to tell them that you witnessed that magic time in history when, in the face of rising deficit spending by the federal government, budget shortfalls among the cities and states, high consumer debt, a slumping economy, and a falling stock market, the government pushed interest rates down and encouraged the populace to refinance their homes and go out and spend, spend, spend!

    This may be a hugely significant inflection point where a new division shall cut across the middle class jumble of economic status and place a chasm between the newly formed groups of haves and have-nots. Most people can recover from a lost job, a loss in the stock market, even a default or bankruptcy due to credit card debt; but when a family loses their home to foreclosure, usually everything else goes with it. The single most destabilizing influence on today's economy is the high rate of mortgage debt. While it is very possible that this debt can be successfully managed over time, it is also very possible that it can lead to a downward spiral of unprecedented magnitude. That so many people have been encouraged to jeopardize their economic future by repeated cash-out refinancing is astounding.

    While it is always more comfortable to be an optimist with regard to the stock market, it is not profitable to ignore risk. The market is still faced with significant geopolitical event risk. It is faced with structural dislocations and misleading value benchmarks from the prior tech bubble. And it is faced with the potential for further economic disappointments, earnings shortfalls, and the possibility for major shifts in several directions due to high leverage. This is a time when managing risk will prove to be more important than feeding the desires of greed.

    Regardless of how it turns out, we will be able to say "I was there".