QUARTERLY LETTER

Published Third Quarter 1999
Muhlenkamp Memorandum 51

Its working, folks. The things we wrote about in April are happening. Inflation remains modest and economic growth remains strong. The U.S. worker/consumer remains in good shape. Anyone who wants a job can get a job. Anyone willing to learn can upgrade to a better job. Even some economists are starting to understand this.

The Asian economies are also improving. Fundamental changes in Japan are slow but positive. Other parts of Southeast Asia are improving. Those countries that have moved toward free markets, primarily South Korea and Thailand, are doing better than their neighbors. This is helping large international companies in businesses like oil, paper, chemicals, etc.

Business and investor confidence in this economy has also improved, which allowed the stocks of large international cyclical companies to bounce in April and May. So far, most of the strength is still in the well-known names like Royal Dutch, International Paper, Alcoa, and Dow Chemical.

Meanwhile the bloom has come off the Internet stocks and the "security blanket" stocks that were bid to high premiums after the scare in the 3rd quarter of 1998. Many of these stocks are off their recent highs by as much as 30-40%.

The change in market focus dates to mid-April, (when we wrote Issue 50) and is still in its early stages. Our portfolio holdings have participated nicely in this change. As continued good economic and inflation numbers are reported, we expect the market's strength to continue to spread to those companies with attractive values and good earnings. We believe the stocks we hold represent such companies, and we continue to seek additions to our list.

Year 2000 Update
As we have been saying for over a year, our belief is that Y2K will have a minimal effect on the lives of most Americans. Yes, there will be some disruptions, but none beyond the normal disruptions caused by a winter storm. The Muhlenkamp Fund's service partners tell us their systems are Y2K compliant and ready to handle the upcoming non-event without interruption.

Read our quarterly newsletter, Muhlenkamp Memorandum, for more by Ron Muhlenkamp.