Hindsight is 20/20

The worse it gets, the better it looks. Stocks as represented by the NASDAQ, S&P 500, Russell (Large Stocks) and EAFE (International Stocks) are down -71.50%, -33.90%, -14.20 and -30.60%, respectively through June 30, 2002 from their highs in March 2000. Year to date through June 30 the NASDAQ, S&P 500, Russell and EAFE are down �23%, -12%, -5%, and �2.80%, respectively. For the S&P 500 this was the worst first 6-month return since 1970! From the buy-side perspective of the financial markets, as stock prices continue to retreat, the worse it gets, the better it looks.

The vast majority of the investing public and investment mangers couldn�t buy enough of stocks in the late 90�s and early 2000. Mutual fund assets swelled, pension funds contributed higher allocations to stocks, foreign investors increased investment flows into the US equity markets. Euphoria reigned!

With the significant sell-off that has occurred in the last two years, investor sentiment is as gloomy as we have witnessed in the last twenty years. Investors who are new to investing in the last twenty years have never experienced more pain than they are feeling today. Measured by duration, previous bear markets in the last twenty years were miniature versions of bear markets. The 1987 bear market as measured by the S&P 500 lost over 36% of its value from peak to trough. However from top to bottom the loss occurred in a brief 3 � month period!

The 1998 bear market lost over 20% of its value from its peak in July 1998. By October 1998 the market had bottomed and resumed its upward climb. Again, in just a 4-month period of time the bear market had bottomed and then began providing positive returns.

The current bear market is approximately 27 months old. The death of this bear market more resembles the death of a frog boiling in water than the microwave versions previously experienced. It has been put forth (by who we are not sure, but it seems plausible enough) that if you place a frog in a pot of water at room temperature and then begin a slow boil, the frog will not realize the gradual heat and associated pain. The frog is dead before it ever really knows what happened. A lot of growth stock investors will find this analogy particularly familiar.

Euphoria no longer pervades the financial markets. Fear has now replaced euphoria. Some mutual funds are experiencing net outflows of capital. Pension funds are reducing equity exposures. Foreign capital, which peaked at 40% of our treasury market, almost 25% of the corporate debt market and 13% of our equity markets is beginning to experience expatriation of these funds to foreign homelands. Corporate governance is under the microscope as Enron, Worldcom, Global Crossing, Xerox, and other purveyors of shareholder wealth have either through fraud or incompetence decimated corporate valuations. Terrorism continues to be an ever-present threat.

Bear markets begin with euphoria and bull markets begin in pervasive fear. One should be a seller of overpriced stocks in a bull market experiencing euphoria. On the same note, one should be a buyer of undervalued securities in a bear market experiencing a heightened sense of fear. Buy low, sell high! Simple, but not easy!

The economy continues to experience the effects of a soft landing. Many factors continue to contribute to this favorable environment. Interest rates remain low. Inflation, measured by the CPI, continues to be low. Unemployment growth rate statistics are slowing. Manufacturing activity is improving. Inventory corrections in the majority of sectors are well underway.

Consumer confidence and spending have held up remarkably well during the last two years. This has been the backbone of this modest recession. Much has been said of the consumer �wealth effect� and its contribution to the significant economic growth of the last 10+ years. The stock market part of the wealth effect has been in a negative transition. Fewer stock gains and fewer options exercised means less wealth to spend on second homes, home additions, vacations, luxury cars, etc.

Another part of the �wealth effect�, the wealth created by increasing housing equity, has probably been an offset to the negative stock market wealth effect. Lower interest rates have created growth in new home purchases and equity withdrawals from existing homes via refinancing. In our opinion this aspect of the �wealth effect� will be reversed as interest rates rise and home price increases slow or actually decrease. In addition, as baby-boomer consumers have peaked in their standard of living they will refuse to buy higher-priced new homes.

Much is said of the stock market and housing contributors to the wealth effect. However, little is said of what we consider to be the third contributor. The rich are not only getting richer, but there are more of the rich. During the decade of the 90�s, the number of U.S. households earning $100,000 or more annually tripled. From a consumption standpoint this is a significant factor. This increased spending potential is a moderating factor to recession pressures.

Howe Barnes Investments, Inc.	Peteris R. Abuls First Vice President

	Richard A. Bone, CFP First Vice President


	James A. Eller First Vice President

	Anne E. Carmichael First Vice President

Private Client Services

J u l y 2 0 0 2

Hindsight is 20/20 The worse it gets, the better it looks. Stocks as represented by the NASDAQ, S&P 500, Russell (Large Stocks) and EAFE (International Stocks) are down -71.50%, -33.90%, -14.20 and -30.60%, respectively through June 30, 2002 from their highs in March 2000. Year to date through June 30 the NASDAQ, S&P 500, Russell and EAFE are down �23%, -12%, -5%, and �2.80%, respectively. For the S&P 500 this was the worst first 6-month return since 1970! From the buy-side perspective of the financial markets, as stock prices continue to retreat, the worse it gets, the better it looks. The vast majority of the investing public and investment mangers couldn�t buy enough of stocks in the late 90�s and early 2000. Mutual fund assets swelled, pension funds contributed higher allocations to stocks, foreign investors increased investment flows into the US equity markets. Euphoria reigned! With the significant sell-off that has occurred in the last two years, investor sentiment is as gloomy as we have witnessed in the last twenty years. Investors who are new to investing in the last twenty years have never experienced more pain than they are feeling today. Measured by duration, previous bear markets in the last twenty years were miniature versions of bear markets. The 1987 bear market as measured by the S&P 500 lost over 36% of its value from peak to trough. However from top to bottom the loss occurred in a brief 3 � month period! The 1998 bear market lost over 20% of its value from its peak in July 1998. By October 1998 the market had bottomed and resumed its upward climb. Again, in just a 4-month period of time the bear market had bottomed and then began providing positive returns. The current bear market is approximately 27 months old. The death of this bear market more resembles the death of a frog boiling in water than the microwave versions previously experienced. It has been put forth (by who we are not sure, but it seems plausible enough) that if you place a frog in a pot of water at room temperature and then begin a slow boil, the frog will not realize the gradual heat and associated pain. The frog is dead before it ever really knows what happened. A lot of growth stock investors will find this analogy particularly familiar. Euphoria no longer pervades the financial markets. Fear has now replaced euphoria. Some mutual funds are experiencing net outflows of capital. Pension funds are reducing equity exposures. Foreign capital, which peaked at 40% of our treasury market, almost 25% of the corporate debt market and 13% of our equity markets is beginning to experience expatriation of these funds to foreign homelands. Corporate governance is under the microscope as Enron, Worldcom, Global Crossing, Xerox, and other purveyors of shareholder wealth have either through fraud or incompetence decimated corporate valuations. Terrorism continues to be an ever-present threat. Bear markets begin with euphoria and bull markets begin in pervasive fear. One should be a seller of overpriced stocks in a bull market experiencing euphoria. On the same note, one should be a buyer of undervalued securities in a bear market experiencing a heightened sense of fear. Buy low, sell high! Simple, but not easy! The economy continues to experience the effects of a soft landing. Many factors continue to contribute to this favorable environment. Interest rates remain low. Inflation, measured by the CPI, continues to be low. Unemployment growth rate statistics are slowing. Manufacturing activity is improving. Inventory corrections in the majority of sectors are well underway. Consumer confidence and spending have held up remarkably well during the last two years. This has been the backbone of this modest recession. Much has been said of the consumer �wealth effect� and its contribution to the significant economic growth of the last 10+ years. The stock market part of the wealth effect has been in a negative transition. Fewer stock gains and fewer options exercised means less wealth to spend on second homes, home additions, vacations, luxury cars, etc. Another part of the �wealth effect�, the wealth created by increasing housing equity, has probably been an offset to the negative stock market wealth effect. Lower interest rates have created growth in new home purchases and equity withdrawals from existing homes via refinancing. In our opinion this aspect of the �wealth effect� will be reversed as interest rates rise and home price increases slow or actually decrease. In addition, as baby-boomer consumers have peaked in their standard of living they will refuse to buy higher-priced new homes. Much is said of the stock market and housing contributors to the wealth effect. However, little is said of what we consider to be the third contributor. The rich are not only getting richer, but there are more of the rich. During the decade of the 90�s, the number of U.S. households earning $100,000 or more annually tripled. From a consumption standpoint this is a significant factor. This increased spending potential is a moderating factor to recession pressures.

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The opinions expressed in this report are those of the author and are not necessarily the same as Howe Barnes Investments or its research department. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Howe Barnes and/or its affiliates may have an interest in, or from time to time trade or make markets in, the securities of issues discussed herein. Member of New York Stock Exchange Member Securities Investor Protection Corporation