July 5, 2003

Dear Clients and Friends:

Dow Closes Above 9000

The last time we saw that headline was August 22, nearly a year a go. It is finally safe to peel open your Schwab statement and take a look. While there always will be some skeptics, there is a growing feeling that this rally may be sustainable. This rally which began in October, gathered momentum in March and accelerated in April and May. There are reasons to be optimistic that the worst is behind us.

• War with Iraq ended swiftly.
• The corporate scandals are abating.
• The tax cut is official.
• Interest rates are low.
• The price of oil is down.
• The dollar is falling.
• Earnings are rising.

The negatives continue to be the deficit, jobs and SARS. Overall though, the future is looking up. We don't expect the stock market to skyrocket as it did the late 90s. There are always clouds on the horizon, but we remain cautiously optimistic. For long term investors, having less than 60% of your portfolio in equities is overly conservative now. Nothing makes stocks go up faster than growing profits, and profits should get a boost from falling oil prices, a falling dollar, rising demand, and continued cost controls. The anticipation of stronger profit growth is pushing the indexes higher. Stocks have rallied for three months on the basis of an economic recovery. On the other hand, bonds and money market accounts are far less appealing today than stocks.

Do Gentlemen prefer bonds?

Sometimes, but not now. Bonds have been among the best performing asset classes for the last three years, but as interest rates rise, bonds will fall in value. Did you know that if rates rise 1%, a 10 year bond will fall nearly 10% in value? So bonds are not "safe" in the traditional sense. Yet, they belong in portfolios to provide current income and help reduce stock volatility. In response to the risk of rising interest rates, we having been repositioning portfolios with short term bonds. As the economy improves, we expect interest rates to rise. So in response to the eternal question, "do bonds have more fun?", we must say that for the last three years, they have been the Belle of the ball. However, we expect equities to return to the party as the economy gradually improves.

As usual please feel free to call us. We are here to answer your questions, respond to your concerns, and help you make smart decisions about your money. Be sure to call if your financial situation changes.

If you have friends or family members who might benefit from our services, please give them our name.

Very truly yours,

ZRC Financial Services, LLC
A Registered Investment Advisor

By:
         Richard P. Clarke

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