September 11, 2001

As we write this, news of multiple terrorist attacks has shaken everyone in the world around us. Some of you may have loved ones you have yet to hear from and, to those of you, our prayers are with you. Yet, we also feel an obligation to respond and touch on the financial implications of these tragic events. When the financial markets open, the emotional turmoil of the past 24 hours may result in a significant shock to financial asset prices. Fear and uncertainty do not sit well with financial markets.

While it is impossible to compare today's tragedy to any other historical event, we are, in a small way, reminded of the emotional environment in late 1990 just prior to the invasion of Iraq. In December, the economy was probably in recession, corporate earnings were likely to be weak, and war with Iraq appeared imminent. At the time there was great concern about the possible disruption of the flow of oil from Saudi Arabia. Many investors trying to assess the impact on financial markets were confused and apprehensive. However, when headlines are negative, when the world seems like it's going to end, stocks typically bottom. In the end, the long-term outlook overcame the short-term pessimism and after a disappointing 1990, stocks rebounded. (The S&P 500 was down significantly from August through the end of the year but stocks came roaring back with a positive return of 30.1% in 1991.) To be sure, this is a very different set of circumstances. At this point, it is difficult to assess the economic impact though our initial reaction is that it will be much more limited than the Iraqi conflict, which caused a sharp spike in oil prices that lasted several months. But, if the stock market plunges whenever the markets re-open, what will not be different is the fact that investors will be acting emotionally to an event. We know that if there is a short-term market reaction to these tragic events, a rebound will follow, once investors are able to recover from the shock and sort out the impact on economic fundamentals.

We want to remind you that we are shaken, as you are, by the tragic events unfolding. We do not in any way want to minimize the emotional impact of this tragedy. Nevertheless, we also want you to know that our responsibility to you is to ensure that we act rationally and analytically. The companies you own in your portfolio are fundamentally sound companies that will do well in the long run.

As always, we remain available to answer any questions that you might have regarding your portfolio or the current market situation.

Best regards,

ZRC Financial Services, LLC
A Registered Investment Advisor

By:
         Richard P. Clarke

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