Marketing Commentary- Q1 2003

Posted by on Apr 1, 2003 in MFA Quarterly Commentaries

What’s Been Happening?

In times of modern warfare and like events that demand compelling and protracted media coverage, the economy slows down due to something known as the CNN effect. Viewers stayed glued to their T.V. sets instead of shopping; advertising revenues drop due to more uninterrupted coverage; and the combined effect is less overall spending and economic activity. The controversial war in Iraq, our first major US conflict since the internet was widely available, takes consumer sentiment and fears up and down in manic swings, and the financial markets are running on the same tracks. What’s been happening, in a word, is volatility.

Trends to be Aware of

It seems hard to move our thinking beyond the current geopolitical issues, but it is important to do so. Cash levels of mutual funds are now back down to where they were in March of 2000 (the market peak), which suggests that managers wanting to benefit from an end of war market rebound have already made their bets and there is little to propel a short term war recovery.

Meanwhile, the rest of the real economy remains sluggish. Capacity utilization of factories remains at just over anemic levels (75%); new vehicle sales, despite the best factory efforts of 0% financing and other gimmicks, are well below their best levels of the past few years. The personal savings rate of American households which had dipped into negative territory in 1999-2000, is now back up to 4% and climbing, which serves as another headwind for an economy that relies (67%) on consumer spending.

What To Expect From Here

A swift end to the war with the oilfields mostly intact will improve sentiment but the economy will have to improve organically, over time. The historic bear market appears to be winding down and we expect the highest returns going forward from the asset classes that have declined the most.

Some Numbers for Comparison:

The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 3/31/03.


What it Measures

Last 3 Mos.

Last 12 Months

3 Years, Annlzd

5 Years, Annlzd

Standard & Poors 500

U S Stocks w/div






Russell 2000

Small Stocks





Morgan Stanley EAFE

Foreign Stocks





Thompson Financial Tech/Comm. Funds

Technology Funds





Real Estate Inv Trusts

Real Estate





Lehman Bros. Ag Bond












Source:  Thompson Financial

Copyright 2003 Marin Financial Advisors