CI Outlook - Archives

Newsletter - 1st Quarter 2002

April 5, 2002

Mr. & Mrs. Investor
123 Elm Street
Dallas, Texas 98765

Dear Investor,

We wrote to you last October saying we thought the market had hit bottom. This January we said wethought a new bull market might be getting started. Today we must once again look at the confusion ofcurrent conditions and again hazard a prediction on the future of the markets. We continue to predict a stronger economy and a higher market. But just as the economy is showing strength in some areas and not in others, so are the securities markets. As you can see from the cover page of your quarterly report the broad market (as represented by the S&P 500) is about unchanged, while the technology laden NASDAQ is still down about 6% this quarter. Obviously the markets continue to predict the recovery in technology will be slower than with the expansion in the rest of the economy. This is the logical outcome of an economic recovery driven by consumer spending rather than business investment in plant and equipment. And this may well be the way the year goes.

That having been said, the question remains, what could change the outlook for the economy and thus the market? So far the market has survived Enron, Afghanistan and now the Middle East. What should we worry about? In our opinion a drop in consumer confidence is what the market is most vulnerable to, and we think this is why.

Currently the market assumes that as the economy recovers so will business profits. The argument (with which we agree) goes something like this. Employers have laid off employees, cut inventories and salaries and generally made themselves very lean. Any new business will flow profitably to the bottom line. As this happens employers will rehire, inventories will be rebuilt and the expansion will take on a life of its own. We think the odds favor just this type of economic expansion. However, businessmen are still not convinced. For employers to commit they will need further evidence that the expansion has legs. For this to happen the consumer needs to keep spending. So, right now consumer confidence is the key to the market and, that is what we will be watching most closely.

As has always been the case we will continue to make our portfolio decisions based on the outlook we share with you each quarter. And, as always, your particular investment needs will be taken into account in all of our decisions. We want to thank you for your continuing patronage and look forward to talking to you soon.

C. J. Brott, Jr.                                                                    Karen Burns

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