Investor's Corner for September 26, 2003

Investor's Corner Newsletter

By Will W. Woodard, III, CFP®
President, Dare Capital Management & Advisory
September 26, 2003

"Shallow people believe in luck and in circumstances; Strong people believe in cause and effect."

Ralph Waldo Emerson

Late September finds the Outer Banks and Eastern North Carolina digging out from a storm of historic proportions, Hurricane Isabel. The amount of damage done is miniscule in some places, catastrophic in others, and--no disrespect meant to Mr. Emerson--luck seemed to play a role in who got hit and who was spared. See item 2, below, for more comment on the storm. World equity markets have remained in a general uptrend over the past month, with the major stock indices posting nice gains in what has recently been the worst month for stocks, September. Bond and currency markets have been marked by volatility and a general weakening in the value of the dollar, an item that will be discussed more in item 1, below.

I thought I would share an exciting moment from last week-being interviewed by one of my heroes, Bloomberg Financial News stocks columnist John Dorfman. See item 3, below. Finally, charts and links of note round out this month's newsletter.

In this issue of Investor's Corner:

Commentary: Reading the currency tea leaves

Reader Mail-Isabel

Fifteen minutes in the sun

Charts

Worthwhile links

1. Commentary: Reading the currency tea leaves--As I have mentioned several times in recent newsletters, the US economy is in an arguably unprecedented time historically. My associates at the bond desk at Fixed Income Securities and Stone and McCarthy addressed some of the issues in their September 19 economic commentary. Excerpts are below:

Thanks to the media's fixation with Hurricane Isabel this week, the economy got somewhat of a free pass from the blue-shade crowd ready to pounce on any data indicating that things are either getting better or heading for the dumpster. But while the economy failed to get any headlines, the data stream continued to support both views. On the positive side, demand continues to show strength, buoyed by tax cuts, the lagged effects of mortgage refinancings, aggressive dealer incentives for autos, and escalating business spending for high-tech gear. On the negative side, the demand strength is not being mirrored by increased production, as businesses continue to draw down inventories instead of revving up output. That cautious attitude exemplifies the biggest problem facing today's economy, namely the reluctance of corporate America to generate new jobs.

….Perhaps Greenspan and his colleagues began to feel like they were participating in the movie "Groundhog Day", and just decided that it's time to capitulate to the inevitable. Like most private economists, the Fed has to be somewhat disheartened by the failure of jobs to materialize month after month despite the acceleration in economic growth. Indeed, even the soothsayers in the private sector thought that the job market would turn the corner in August - which didn't happen - as the economy is on track to expand by a 5 percent pace this quarter. Under ordinary circumstances, that would be strong enough to generate job creation, particularly with the recovery heading towards its third year.

But these are not ordinary times, nor is the recovery cut from the same cloth as previous ones. Aside from the much weaker growth of this recovery compared to past ones, virtually all of the growth has been driven by higher productivity. Simply put, companies discovered that they can produce more with less - much less, in fact - and they have been able to generate all of the output needed to accommodate growing demand through productivity gains. The flip side of this development, of course, is that labor has so far played an invisible role in the recovery process. Indeed, it is generally recognized at this point that the growth hurdle needed to underpin new job creation is considerably higher than it has been in the past.

As if to answer the issue of jobs, the finance minister members of the G-7 Nations, the world's most developed economies, met over the weekend in Dubai and released a prepared statement that spoke to "allowing world currencies to float more freely." The statement was targeted at Japan, which has been purposely debasing the yen in order to make its exports to the US more price-competitive, and China, which has pegged the yuan to the US dollar, causing it to be increasingly undervalued in the eyes of the world's currency gurus. Theory is that if those two currencies were valued as they should be, the world economy would be one step closer to monetary equilibrium, a much desired if maybe only theoretical balance point.

Clear as mud, right? Well, all heck has broken loose on the heels of the statement, with the dollar dropping to 3 year lows against the yen. The long-term ramifications of a somewhat weaker dollar could be good for America-more competitive US exports in the world economy, a lessening of the US trade deficit, and perhaps even some job creation for the ailing US manufacturing sector. Stock traders, however, used the upheaval to book profits on gains in their portfolios, and bond traders saw the news as potentially removing big purchasers of US Treasury debt (the Japanese and Chinese governments) from the market, so bonds sold off, too.

This brings me to the bigger issue of why worry about these economic gyrations? The answer on the surface is economic balance of power, but the deeper answer is deflationary fears. If the US economy can't produce job growth, at some point the US consumer, who has been seemingly carrying the world economy on his shoulders the past several years, is going to be tapped out. At that point we may fall into a deeper disinflationary recession, which could turn into outright deflation-the black hole of economic scenarios. Under that scenario the stock market's "budding and trying to bloom" recovery will be flushed--and then some--plain and simple.

I'm not about to say that this is going to happen-just that everyone from Alan Greenspan down has the scenario on his radar and is working like heck to keep it from happening.

2. Reader mail: Dear Will, How did you fare during Hurricane Isabel? Signed, Lisa.

Dear Lisa-thanks for your note. I stayed through the storm and was really fortunate, as my house incurred no structural damage and lost power for less than 24 hours. I live right across the street from the beach on the Nags Head-KDH line and there is a real good primary dune on this stretch of beach. The wind blew pretty hard, but the dune held and we had no major problems.

Some areas of Dare County incurred catastrophic damage (Kitty Hawk, South Nags Head, Hatteras Village). The last buoy observation from Diamond Shoals before it stopped transmitting (3 AM Thursday morning) was a wave height of 44.6 ft(!) at 17 seconds. Jennette's Pier is gone and several other piers are in pieces. I went out Thursday night before dark and there were areas with ocean overwash all the way to US 158 (the Bypass). There was as much water on the beach road in certain areas as I have ever seen in my 20 years of living on the Outer Banks.

My sister Lee Ann and her husband Scott were in Wilson with mom and reported some big limbs down-they had a big tree leaning against their house in Manteo but luckily it did not damage the roof. Their reports of conditions heading east towards Dare County on highway 64 were sobering, to say the least.

On the coast, at least, Isabel seemed to be more of a storm surge event than a wind event. Especially poignant were the quotes from oceanfront residents in Kitty Hawk and Hatteras village reporting a "wall of water" twenty to forty feet high coming at them. Some residents of Hatteras village reportedly held on to trees to keep from being swept away by the storm waters. Old salts are saying that Dare County has not been this damaged since the Ash Wednesday Storm of 1962.

One thing's for sure, the North East quadrant of a strong storm is NOT where you want to be. Residents of communities such as Elizabeth City and Edenton will be working on rebuilding for quite some time, and some folks' houses and property on the coast is just plain gone. Sincere wishes for a speedy recovery to all those affected by Isabel.

Here is a link to a site that has the best photographic documentation of the storm's damage that I have found-click on the "images from Isabel" button. http://www.wral.com/index.html

3. Fifteen minutes in the sun: While prepping for Isabel last Wednesday I received a call from John Dorfman, U.S. stocks columnist for Bloomberg Financial News. He informed me that I had won third place in his fifth annual "Short Sellers Don't Have Horns" contest that began last September 30. My pick of Liquidmetal Technologies (LQMT) had declined 51 percent during the contest. Go ahead! John was really nice and I tried not to mumble too much. John's column is syndicated nationwide and the article is dated September 18- the link to the entire article is here-please save me a copy if you see it in the Virginian-Pilot or your paper. Thanks! http://quote.bloomberg.com/apps/news?pid=10000039&sid=azWRJtwpeeOQ&refer=columnist_dorfman

4. Charts:Here is a one year chart of the S&P 500, which shows a pending retest of the recent breakout in the area of 1015

Here's a three-year chart of the Dow Jones industrials. The 9800 level provides the next upside level of resistance for this index.

Here is a one-year chart of the Japanese Nikkei:

5. Worthwhile links:

CERTIFIED FINANCIAL PLANNER™ Board of Standards- http://www.cfp.net/default.asp

NAPFA, the National Association of Personal Financial Advisors-http://www.napfa.org/

The FPA's Hampton Roads chapter-http://www.fpahamptonroads.com/about.htm

Dare Capital Management & Advisory home page-http://www.darecapital.com/

Well, that's enough for this time. Feel free to call or write with questions or comments, or to inquire about my firm's services as they relate to your individual situation. And please say thank you a couple of times!

Good investing,

Will W. Woodard, III, CFP®
Dare Capital Management and Advisory
PO Box 1138
Kill Devil Hills, NC 27948-1138
252.480.0156
will@darecapital.com
www.darecapital.com

Will Woodard is president of Dare Capital Management & Advisory, a Registered Investment Advisor and fee-only financial planning firm based in Kill Devil Hills. Dare Capital is committed to providing independent, objective, and professional financial advice. Mr. Woodard, his firm, or his clients may own the investments mentioned herein. Contact Will at (252) 480-0156 or e-mail Will@darecapital.com

The fine print: This newsletter can be reprinted or forwarded--however, it is requested that reprints of any material in this newsletter include credit to Dare Capital Management and Advisory (252)480-0156 and an email link to will@darecapital.com. Thanks for spreading the word!

All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Will W. Woodard, III and Dare Capital Management and Advisory, and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Mr. Woodard, his firm, or his clients may own the investments discussed in this newsletter. Past performance is no guarantee of future returns.

The information presented herein and the company's web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future results may vary for many reasons.