Money Matters

by Robert Hernandez




4th Quarter 2002 and 2003 Outlook



It is January 1st 2003, and I wish you all a happy, healthy and prosperous new year!!!

Nobody can deny that 2002 was an extremely challenging year for all investors, save those who stayed on the sidelines, holding either short term T-Bills, money market instruments, or bank CD¹s/savings accounts (although these instruments paid out less than 2% interest in 2002). Gold investors, longer term bond holders in general, and those who shorted equities managed to make even more money in 2002.

As I indicated in my 3rd quarter 02 update, the market continued to trade at a somewhat tight range. In August, 2002 the DOW was staggering at around the 8200 to 8400 range. The DOW finished 2002 at 8340, although it made another failed attempt to settle above 9000, during its October to November bear market rally.

Interest rates remain low as the federal reserve continues to pump money into our anemic economy, in hopes that this easy money policy (money supply remains at record highs) will help jump start the economy. Although high end real estate property prices have begun to buckle amid the enormous stresses that 9-11 has caused to our local economy, the real estate market in general, held up well in 2002.

The challenges for 2003 remain great, and those who have been able to protect their assets over the past three years, should continue to exercise caution, by focusing primarily on high quality equity and debt instruments, and by maintaining a higher bias towards liquid assets. Volatility will remain high in 2003, and capital preservation remains a prudent strategy for 2003.

The weaker than expected retail sales figure during the all important year end Holiday season of 2002, coupled with weak employment numbers and an industrial complex that resists investments in inventory and equipment, are not indicative of a sustained "near term" economic recovery.

Gold and crude oil prices, rose in 2002 amid growing concerns over continued geopolitical turmoil. The U.S. Dollar continues to trend lower versus the Euro currency, in anticipation of a continuation of these geopolitical problems in 2003, and our governments easy money policy. The fact that the U.S. currency is weaker than other currencies is not an indication that our economy is weaker than other nations, but rather, that our currency has been extremely robust throughout the 90¹s, and this correction will eventually bring the U.S. dollar to more sustainable levels, relative to other world currencies.

On a positive note, a weaker dollar will help make our products cheaper relative to other currencies, and as a result increase our export initiatives. In time, this may help revitalize our economy.

The jury is still out as to whether we will encounter recession, deflation, stagflation, or inflation in 2003/2004, or whether 2 years of strong medicine (lower rates and easy money) has pumped enough oxygen into our frail economy, to help jump start it in 2003. In my humble opinion, 2003 will be a challenging year with possibly even more volatility than 2002. Too many variables remain, and too many uncertainties continue to torment the heart and soul of the average American.

Only time will tell. Until then, this fellow servant advises caution and prudent money management tactics for the 1st quarter of 03. In the interim, let us continue to enjoy the many challenges, opportunities, and blessings that life provides us, both in good and bad times . . . . . .

Robert Hernandez



DISCLOSURE:

The comments made by the author are meant to inform the Galaxy community on general economic and financial matters and issues, and to entertain.  In no way should these comments be construed as a specific recommendation or investment advice.  Any actions that you decide to take relative to the comments pertained in this authors article, will be at your peril.  This article is not intended to definitively answer any specific investment questions nor does it attempt to give every possible outcome to the issues discussed. Because investments depend on your specific needs, risk tolerance, and circumstances, and because your needs are subject to change on a regular basis, the author advises you to seek counsel from a licensed financial advisor on any financial/investment issues or questions that you may have.  Investments are not bank guaranteed, not FDIC insured, and may lose value.

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