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The relentless stock market decline has escalated fear levels dramatically over the last few weeks. A war with Iraq was probably well discounted in the market weeks ago…but Korea?…and Germany, France, Russia?…and the split in NATO? It’s all quite ugly, and combined with an increased terror threat level and the Columbia disaster, the mood is as somber and pessimistic as I’ve ever experienced in my 35 years on Wall Street. There are simply no buyers willing to “step in” and make some well-timed investments.

As you know, we have become increasingly bullish over the last month or two on the basis of a probable tax cut. The economic program prepared by the Bush Administration will be wonderful for stocks and the economy. Alan Greenspan has finally provided adequate liquidity to our Banking system, which lowers the probability of a deflationary spiral. There are approximately seven trillion dollars available for investment in this country, and this stash is building daily. When the light changes to green there will likely be a buying stampede–so be ready!

In the meantime, however, the geopolitical background is getting dicier by the day. Frankly, the disharmony involved in almost all global politics threatens to break up global trade activity, which could easily plunge the world into the deflationary spiral that we were hoping to avoid. It all hinges on global leaders and their ability to see beyond the immediate politics.

While we remain bullish on our country’s internal politics and economy, we are concerned about the global economy as a whole. Our strategy is to “lean into the wind” at these levels and hold stock investments down to the October market lows. If these lows break, we will likely reduce stock market exposure in order to preserve the bulk of our clients’ capital. It is always most difficult at market bottoms and euphoric at market tops. We certainly are not at a top. Rather, we believe we are reaching a bottom after a long nearly four-year decline. It certainly feels that way. Don’t jump yet!

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Harlan J. Cadinha
Founder, Chairman and Chief Strategist
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