June 23, 2003

Lower tax rates allow for a greater after-tax compounding effect while lower inflation allows for a lower discount factor and a lengthening of investors' horizon. A third element of our relative performance theory is the reduction of uncertainty. We argue that lower tax rates, lower uncertainty and a lower discount rate all increase the net present value of future profits and that tends to favor the growth companies relative to value companies. Viewed this way the Bush economic program should be quite bullish for growth stocks over the long run. However, the way the Bush agenda is being implemented favors value stocks over growth stocks. The President has not been able to get what he wants. Yet, he has made it clear that he will get what he can and then come back and ask for the rest. The end result being that his agenda is being "phased-in" and because of political and budgetary considerations, none of the major tax rate changes are "permanent." The increased uncertainty due to the lack of permanency and the phase-in of the program all favor the value stocks over growth stocks. Once the phase-in is complete and the uncertainty reduced we expect the growth stocks to surge relative to value stocks. Our model does not foresee that until sometime next year.

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