1st Qtr
2003 News Letter
March 31, 2003
Over
the past three months the prospect and then the reality of the war with Iraq
has been the dominant factor in both the financial markets and the
economy. After wide fluctuations during
the quarter, stock prices ended the period down modestly. Most recently business activity appears to
be slowing and that is attributed by many commentators to what is being
referred to as the “CNN effect” or the preoccupation with the war. It has caused many business and consumer
decisions to simply be deferred.
As commented
in the past, the outcome – in my opinion – is not in doubt. The Iraqis are
simply no match for the US military and that is becoming increasingly clear
each day. When it is over weeks from
now (possibly months but I doubt it will take that long) global business
activity should quickly recover, importantly aided by a major decline in energy
prices, which has already begun.
Once
the war is behind us investors will refocus on the fundamentals of earnings and
interest rates. In addition, businesses
will once again concentrate on hiring and capital spending decisions that have
been delayed by the uncertainties of war.
We
also expect the US economy will get a significant boost from a reduced tax
burden. It appears Congress is now
moving toward passing a compromise bill.
With
war raging and the bear market passing through its third anniversary,
maintaining a balanced perspective becomes increasingly difficult. But it is essential and to that end here are
a few important observations:
What
are not on this list are investor, consumer, and business confidence. A successful conclusion to the war and
significant tax relief could well be the catalysts that lead to a broad based
improvement in confidence. That will
facilitate a growing economy and expanding corporate profits, which are the
ultimate source of higher stock prices.
As is
our custom, we conclude by inviting you to call with questions and
comments. We always enjoy talking with
you.
Mitchell Capital Management Co.