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The market has been so bad for so long, the numbers read like a history lesson: The Nasdaq fell 39.3% in 2000, 21.1% in 2001, and 31.5% in 2002. At the October 2002 bottom, the Nasdaq had imploded 78.4% from its March 2000 high, a depth and duration second only to the Dow’s collapse of 89.5% from 1929-1932. To add even more perspective, only 4 times in the past 170 years have the market averages declined for three consecutive years, the last occurring from 1939-1941. Half of the top 10 bankruptcies of all time have happened since late 2001. Behemoth energy trader Enron filed for Chapter 11 in December 2001, and was soon followed by fiber-optic firm Global Crossing and discount retailer Kmart. In January, Arthur Andersen admitted to document shredding, but by March the market began to rally, believing that incidents of corporate malfeasance and accounting fraud might be limited to Enron. Then came the SEC investigation of WorldCom, culminating in the telecom company’s restatement of $3.8 billion in falsified earnings and filing for bankruptcy protection. Seeing companies collapse is one thing. But when the public saw CEOs willfully betraying investor trust, they began to lose faith in the market. From the high of 2055 on January 8th, the Nasdaq fell all the way to 1114 on October 9th. In the face of this brutal bear market, the importance of the BCN Advantage service could not be more evident. Once again we outperformed a passive “buy & hold” strategy by a substantial margin: 9.48% in 2002. For the entire 3 year period, we have outperformed “buy & hold” by a cumulative 29.16%. For every $100,000 under BCN management from 2000-2002, that’s $29,160 of losses avoided. One misstep was the March 4th decision to move 60% into the market, but we could not know the WorldCom debacle was lurking just 9 days around the corner! And to our credit, we avoided the panic selling in October because we understood the significance of the market’s double-bottom. “The heightening of geopolitical tensions has only added to the marked uncertainties that have piled up over the past three years, creating formidable barriers to new investment and thus to a resumption of vigorous expansion of overall economic activity,” Greenspan said in February 2003. The problem is more than psychological. Companies have cut earnings guidance as their customers delay orders, and much of the recent U.S. economic data is bleak: First-time jobless claims continue to hold above the key 400,000 mark. Consumer confidence fell to the lowest level in a decade. Manufacturing turned negative, housing starts fell, and retail sales slid as high gasoline prices cut into consumption. Analysts caution that anything less than an optimal outcome to the war could disrupt the U.S. and possibly global economy, especially if Iraqi forces sabotage oil fields as they did in the 1991 conflict. The Federal Reserve continues to hold interest rates at 1961 lows, contending that uncertainties caused by war with Iraq are so extreme the FMOC cannot gauge the economy’s prospects. Said Greenspan: “the committee does not believe it can usefully characterize the current balance of risks.” His comments are curious, given the nearly universal consensus that the 1991 Gulf War provides a blueprint: From January 15, 1991 (on the eve of the Gulf War) until February 28, 1991 (the cease-fire), the Nasdaq gained 27%. Once again, if the war is quick, this time ousting Hussein, destroying his weapons of mass destruction, and liberating jubilant Iraqis (with few casualties), the expectations run high. But how long will the market’s euphoria last, especially with quarterly earnings just around the corner? Like Greenspan, we don’t know – and we are not in the business of guessing. “Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival,” wrote Gerald Loeb, a legendary stock trader who sold most of his holdings just prior to the Crash of 1929. Loeb argued that investors should not buy until the profit possibilities greatly outweighed the risks. A major part of his analysis focused on assessing (not predicting) the prevailing market trend. And right now the overall trend continues to be bearish.