QUARTERLY LETTER

Published Fourth Quarter 2003
Muhlenkamp Memorandum 68

The economy continues to expand. A few months ago, some commentators complained that the expansion was unsustainable unless capital spending participated. Now we’re seeing capital spending beginning to pick up.

The commentators now complain that the expansion is unsustainable unless employment picks up. Folks, I believe employment will pick up in due course.

We’re seeing the normal pattern which the economy tracks as it recovers from recession. You can track this on your own. It’s hard to review radio and TV commentary, but it’s easy to review newspapers and magazines. Whatever source you use for print commentary, go to your local library and review a few issues from various times in 1991 – the recovery year from the prior recession. You’ll see that the current facts and the current commentary parallel those of 1991.

This is the tenth time we’ve seen this same general pattern since 1945. Are there complicating factors? Of course there are; there always are.

This time around, we think the rebound in the economy and in the markets has been delayed by the litany of bad news the American public endured from 9/11/01 through the Iraqi war. This litany includes the terrorist attacks, corporate malfeasance, snipers in D.C. and the Afghan and Iraqi wars. The economy is people — and people would have had to be comatose for these events not to have had an effect on their spending and on their investing.

We believe that bad news (and good news) will now come at a more normal frequency, and the economy will continue to expand along the pattern that it has exhibited following the prior nine recessions. We do expect the stock and bond markets to remain quite volatile.

—Ron Muhlenkamp

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