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On May 1st, standing on the deck of an aircraft carrier streaming through the Atlantic, President Bush declared an end to “major military operations” in Iraq. If you were a BCN Advantage client, your money was already 60% invested in the stock market, long before conventional wisdom recognized this current bull phase. The Nasdaq stood at 1472, the DJIA at 8454 and the S&P 500 at 916. Our decision to move back into the market in April 2003 will rank as one of our best calls ever… based not on luck, intuition or any other “gut feelings,” but on time-tested market indicators. The markets had seen their lows in October 2002 – we stated that flatly more than a year ago. BCN Advantage clients were fully invested coming off those lows, prudently in cash while we side-stepped the war, and once again fully invested by the end of May 2003. This marks the seventh year of the BCN Advantage service, in what has truly been a trial by fire. We have navigated through 1999, one of the best years in stock market history, through a 3-year bear market that saw, at its lows, the Nasdaq implode 78.4% from its March 2000 high, and now through this cyclical rebound of 2003. How have we fared? Since the beginning of 1999, BCN Advantage clients are up an average of 42.5%. By the same measure, passive “buy-and-hold” would have gained merely 10.2%. From our all-time index high of $260,127 achieved at the end of 1999 (before the “bubble burst”), we are off 13.2%. This with the Nasdaq still nearly 60% below its all-time high. That’s pretty darn good shooting. These are the results of more than market timing, but also excellent fund selection, allowing BCN Advantage clients to generally equal or exceed the S&P 500 – while remaining over 30% in cash for most of 2003. Don’t overlook the value of fund selection… a vital component of the BCN Advantage service. The critical question now: how much upside is remaining in this market? In last year’s annual report, we explained the high probability that the markets are now in long-term trading CHANNELS. Every post-mania market for the last 75 years has formed a similar channel: DJIA 1932 – 1950, DJIA 1966 – 1982, Nikkei 1989 – present, DJIA 1999 – present, Nasdaq 2001 – present. The DJIA is already 5 years into its trading channel, so we have a good handle on its likely tops and bottoms. The Nasdaq is just getting started, and consequently is much more difficult to navigate. But if historical patterns hold, the analysis we do today could serve our clients well for the next decade! Let me quote this warning, courtesy of Comstock Partners: “The market remains highly overvalued on every metric we use. Over a long period of time, the S&P 500 has sold at an average P/E multiple of about 15 with a range prior to the late 1990s between 22 at peaks and 7 at lows. The average P/E at cyclical bottoms in the post-war period has been about 11. Currently the index is selling at 23 times the consensus estimate for 2003 reported earnings. This means that if the S&P 500 declined only to its historical average, we would be looking at a drop of 35%. It is far more likely, however, that the next major decline would carry the index closer to its more typical major low of 11 times earnings, which would result in an overall drop of 52%. The S&P 500 is similarly overvalued on the basis of dividend yield, price-to-book value and price-to-sales. “It is virtually inconceivable that one of the greatest financial and economic bubbles in history was cured by the relatively mild recession that followed. In fact, a far deeper decline was averted only by an unprecedented policy of massive stimulus including 13 FOMC interest rate cuts, three major federal tax reductions, hundreds of billions of dollars of cash-outs on mortgage refinancing and a 33 percent drop in the dollar. This stimulus won’t be repeated in coming quarters, and we have grave doubts that the economy can sustain itself on its own. These moves have temporarily bailed out the economy, but have failed to correct serious structural imbalances that will come back to haunt us. These include the massive U.S. trade imbalance, record debt relative to GDP, a low consumer savings rate, and a major Federal budget deficit.”