CI Outlook - Archives

Newsletter - 3rd Quarter 2001

October 5, 2001

Mr. and Mrs. Investor
123 Elm Street
Dallas, Texas 72345

Dear Investor,

As you know we prefer to write short and concise market outlook and review letters.  However, the recent extraordinary events of September 11th call for a more comprehensive review and detail explanation of our current market outlook.

As usual, enclosed with this letter you will find your quarterly portfolio report.  Also included are reprints from the Wall Street Journal and Investors Business Daily.  The reprints point out something you already know.  This has been one of the worst quarters for the market in the last fifty years.  That is the bad news.  The good news is that higher markets usually follow these sharp drops.  We believe this pattern will repeat and better days are coming.  We think these days are coming sooner than is generally believed.

We base our opinion on the recent actions of the Federal Reserve and the stock markets reaction to them.  The Federal Reserve began raising interest rates in July of 1999.  The market reacted and nine months later the NASDAQ topped out.  The other averages soon followed.  This was March of 2000.  You probably remember that March we sold quite a few stocks and have been somewhat defensive since that time.

In January of this year the Fed began lowering rates, nine months have passed. It would be easy to act in an unthinking fashion and automatically become more bullish on the market.  However, there are several reasons why we will remain cautious a little longer.

First of all, the effects of the terrorist attack in New York will most likely delay a quick return of consumer confidence.  This may delay consumer spending a little longer than normal at this stage of the economic cycle.  However, in the intermediate term, lack of consumer spending will most likely be offset by government fiscal stimulation.  Specifically continued tax cuts and increased defense spending should boost the economy.  Unfortunately, government spending is not as quick as personal consumption to boost the economy.  Consequently, an economic recovery may not be apparent until the spring of 2002.  Normally the stock market would begin to turn six months before and economic recovery.  Therefore, this would seem an opportune time to move into aggressive positions in the market.  However, the unpredictability of events surrounding the war on terrorism will continue to diminish investor sentiment.  In our opinion, this could extend the period of market volatility and delay a return to the highly confident markets of the recent past.

To summarize, we think the next few months hold the promise of a solid bottom in the stock market.  But this is a time of war.  Soon we will begin the campaign in Afghanistan.  While the market lows of September the 21st may hold, this will be a time of extraordinary volatility in stock prices.  We will continue a cautious approach to investing.  At this time, rather than buying only stocks, we are inclined to pursue less risky opportunities in convertible bonds and convertible preferred stocks.  As always, we will continue to manage your account with your investment goals in mind.  Between now and the end of the year we will continue reducing tax liabilities where appropriate.  At the same time we are positioning your account for the better market that we think is coming.  We will be selling those stocks where we believe the fundamentals are no longer valid and will be using the proceeds to position your account for the next bull market.

As always, we thank you for your continued patronage and look forward to talking with you soon either by phone or in person.

C. J. Brott, Jr.                                                                         Karen Burns

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It Ain't Over 'Till It's Over
Newsletter - 2nd Quarter 2003
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Newsletter - 3rd Quarter 2002
Newsletter - 2nd Quarter 2002
Newsletter - 1st Quarter 2002
Newsletter - 4th Quarter 2001
Newsletter - 3rd Quarter 2001
Newsletter - 2nd Quarter 2001
Newsletter - 1st Quarter 2001
Newsletter - Year End 2000
Newsletter - 3rd Quarter 2000
Newsletter - 2nd Quarter 2000
Newsletter - 1st Quarter 2000