October 6, 2003

To Our Clients and Friends

The Recovery Continues

The economy is well into its recovery and corporate earnings keep improving. More importantly, the most economic stimulus ever is finally beginning to have a positive economic effect. An unprecedented trifecta of low interest rates (mortgage rates today are comparable to what our parents paid 40 years ago), multiple tax cuts, and a weakened dollar is filling the sails of the financial markets. Add into this gathering wind, low inflation and deficit spending, and you have the makings of a strong market recovery.

Another positive factor for the financial markets is that uninvested cash is at a ten year high. Investors have significant amounts of cash on the sidelines that they can put into the market as any doubts they have about the economic recovery diminish. Investors in money market funds are earning virtually nothing and will soon feel the confidence to seek out riskier investments with higher potential returns.

If all of that is not good enough, the Federal Reserve stock valuation model shows that stocks are 22% undervalued relative to interest rates. A year ago we wrote that the "darkest moment is just before dawn." At that point, the markets were down over 10% in the month of September. Since then the markets have recovered over 23%. Investing is always about patience and discipline.

A Quote to Consider:

"This is one thing I can never understand. To refer to a personal taste of mine, I'm going to buy hamburgers for the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' at the Buffet household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying-except stocks. When stocks go down and you can get more for your money, people don't like them anymore. Today, stock market 'hamburgers,' so to speak, are cheaper. The country's economy has grown and stocks are lower, which means that investors are getting more for their money."
~ Warren Buffet/Fortune Magazine, 2002 Investor's Guide

Do You Remember?

Sixteen years ago this October, one of the most traumatic financial events in the last 50 years occurred. The Crash, known now as Black Monday, saw the Dow Jones Industrial Average drop 508 points in one day. This drop of 22.6% would be the equivalent of a 2000 point drop today. As devastating as that single day's decline was, the Crash of 1987 is now a non event from a long term perspective. The biggest losers that day are among the biggest gainers over the last 16 years. We can learn a valuable lesson about investing by analyzing the impact of short term events on long term performance. Investing is about patience and having the discipline to stay with your financial plan.

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