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Geo-politics seized control of both the stock market and the U.S. economy in the first quarter of 2003. For the stock market, the result was volatility. For the economy it was pause. As the first quarter began, the market briefly extended the strength that had been evident since the October lows. That market recovery ended early in the month as the probability of war increased rapidly. The subsequent decline in the market to near the July and October lows found its genesis in the war worries, but its justification in the economic stall that Norm Klopp describes on Page 1. As a proxy for the rapid change in sentiment, we note that consumer confidence, as measured by the Conference Board Index, fell from around 110 in mid-2002 to 62.5 in March 2003. The stock market hates uncertainty, which expanded rapidly across almost all fronts as the quarter progressed. Volatility expected The market responded to the start of the war against Iraq with its largest one-week rally since 1982. However, subsequent trading days saw significant declines and more volatility– something we expect until the U.S. achieves its objectives there. We remain cautious over the near term as the geo-political questions find some resolution and a clearer picture of the economic outlook can be projected. If the results from the war are positive, the market will, in our opinion, begin to reflect a resumption of the paced economic expansion that began in 2002. “In a time like this, business conditions can change quickly... Watchful eye We are more alert for problems that might develop at the companies whose stock we own, than we are for new stocks to buy. In a time like this, business conditions can change quickly, presenting previously unforeseen reasons to sell certain investments, OR reasons to consider new ideas. When the markets are volatile, my Partners and I believe it’s vitally important to have proven disciplines that focus on risk. This is a critical part of our investment philosophy and process, and one we will not forget in these troublesome times. In the end, however, concerns about the stock market and the economy pale when compared to the incredible, and in some cases ultimate, sacrifice of the men and women serving in the U.S. Armed Forces overseas. May their losses be limited and their success swift. We wish for them a safe and speedy return to their families. If you have questions or comments about the 1st quarter economic review, you may contact Joe Harrison at (216) 830-1131 or e-mail: jah@mimllc.com |
