March 05, 2002

Essentially our forecast is one of a return to normalcy. At 4% real GDP growth and less than 2% inflation, a 3.65% T-Bill yield is not an outrageous or overly tight condition. We believe that as we return to normalcy, so will earnings per share. Obviously as the earnings are restated as a result of Enronitis, it may take a bit longer to reach the 1999 levels. That is why we believe that while the economic recovery will be strong, it will take a while for the market gains to accelerate to the rate of gains that people had grown accustomed to in the latter part of the 1990's. During the early part of the recovery, earnings growth will accelerate and the market will favor the growth companies. Since nothing in the Bush economic package is truly permanent, the regulatory effect of the transitory and yearly changing regulations will benefit the smaller capitalization stocks. Finally as the recovery becomes evident, the bond vigilantes will punish the longer term bonds. However, since we do not foresee an inflationary spike we believe that the bond market hit will represent a buying opportunity. (full article attached)

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