Client Update – January 15, 2002

While we generally look to financial and economic information to assess market conditions, we must never overlook the political forces. Nobel Prize winning economist Milton Friedman said that you cannot have individual liberty without economic freedom; politics and economics are in fact inseparable.

Our long-term positive outlook is attributable to the fact that our country is resilient. Our history has proven that we are able to overcome adversity once we have resolved to pursue a course of action. During most of our lifetimes, we have not seen periods of such patriotism. While the intellectual community likes to portray patriotism as naïve, that is not the case. America’s focus and commitment assures our success.

During the latter part of the summer, it appeared that the U.S. economy was on its way to a slight recovery. But that all changed on September 11. The economic and psychic blow was severe enough to keep the economy in a recession. Fear gripped the market and it dropped precipitously.

Since the attack, the Fed has helped tremendously by lowering short-term interest rates and increasing liquidity. This provided sufficient stimulus and support for the markets to rebound to their pre-attack levels. Anticipating these results, we added heavily to the market in late September and early October.

We believe that the economic recovery will come later this year, but will be quite moderate. At this point, money market and bond rates are unattractive and we do not expect that the stock market indexes will surge ahead since none of the major market indexes are cheap. There are, however, some investments where value is reasonable, such as smaller and mid-sized companies.

America will continue to exhibit the faith and unity required to overcome the obstacles we face. And from our perspective as investment managers, we know that capitalism is the natural partner of political freedom. We view the road ahead with optimism as our Country and its economy confronts its foes and moves ahead.

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