Dear Clients and Friends,
It's becoming clear now that the US is moving
towards a protracted and dangerous war in the Middle East. We have decided
to increase our cash positions across all client accounts by at least 10% and we
are doing that by selling stocks as follows:
Companies which will be hardest hit by the crisis
over the next year including:
Boeing (reduced civilian aircraft sales not offset
by increased military spending)
American Express (NY headquarters currently not
accessible, worldwide travel spending down sharply)
Lehman Brothers (not a good year for
investment banks/brokers although Lehman was doing better than most, Lehman
cannot currently access its headquarters)
Ford and Daimler/Chrysler (tough year for car sales
turning worse)
Siebel, Parametric, Avant!,
Dendrite (enterprise oriented software companies which will have tough
times closing sales in the next two quarters)
Schlumberger, Halliburton (oil drilling equipment
companies - price of oil currently lower than before the crisis as prospect of
flat growth in world economy pushes down demand for oil, retaining diversified
multi-nationals like Exxon-Mobil and PB-Amoco.)
We may buy back into these companies at a
later date if conditions improve.
Taking tax losses on companies which seem to have
lost their way even before the crisis including:
Worldcom and MCI-Worldcom (telecomms
service)
Palm (handheld computer market competitive and
saturated)
360 Networks (capturing tax loss on telecomm
company that went bankrupt in August)
Arqule (stents for heart operations)
Hewlett Packard (computer systems)
Normally, we would be looking to realize tax losses
in September anyway. Through December, we will be looking to realize
sufficient capital losses in all clients accounts so that previously realized
tax gains are zeroed out and no taxes are owed.
Yesterday, US markets were down 5-6% by
mid-afternoon, but rallied late to close down just 1-2%. Unfortunately,
the late buying didn't represent new cash coming in so much as short positions
being closed out (a short covering rally.) This morning US markets are
down another 2%, bringing total losses since September 10th to 8.8% in the
S&P 500, 11% in the Dow, 11.7% in the NASDAQ, 8.4% in the NYSE, so we are at
the high end of the 6-10% loss we had projected earlier this week. We
think losses would have been substantially greater had this crisis struck while
the bull market ending March 2000 was still surging. After a year and a
half of bear markets, stocks of companies with real earnings, solid cash
flow and solid products are down, but not catastrophically so.
As always, we are available by phone and e-mail to
discuss clients individual situations.