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Comstock Partners, Inc.
Continue the Prayers
September 13, 2001
Exogenous Factors
We would like to make it clear that these terrorist attacks have nothing to do with what we have been espousing over the past couple of years. The bearish conclusions we have attempted to elucidate from the inception of these daily comments (Feb, 2000) and even before that for the readers of the research products we produced monthly, were never prompted by exogenous factors such as Presidential election disputes, the Y2K, or terrorism. We sincerely hope the markets will not open until next week to give investors a chance to evaluate the very short-term impact of this disastrous situation, and to have time to mourn and pray for loved ones and the innocent victims of the attacks on America. If the market opens in a panic driven environment and sells off sharply, we will probably reduce our exposure to the downside. We happen to own the financial instruments that could benefit from this kind of environment (long-term Treasuries, Euro currency, and short exposure to equities), so if there is too much “irrational pessimism” for these financial instruments we will be willing to part with them. We have concentrated on three things to be concerned about on this website. The first and foremost is that the U. S. stock market reached outrageous valuations at the beginning of the year 2000, and remain historically very high. This is documented by using the charts from the best collector of financial data we know, Ned Davis Research, and is displayed in the article on the right side of our website we call Limbo, Limbo—How Low Can It Go? We are also very concerned about the business overcapacity reached over the past couple of years with the real extremes residing in the technology arena. The excess supply of goods combined with the lack of demand, caused by the reverse wealth effect of the market decline, we believe will continue to lead to poor earnings comparisons. The third concern, which may not be the last in importance, is the enormous public participation in equities and equity mutual funds throughout the 1990’s and culminating in about $130 billion of accumulation of equity mutual funds in the first quarter of 2000. We believe these factors will eventually lead to much lower levels for the major indices, but right now it is much more important to empathize with the victims of the tragedy and their families while keeping them in your prayers.

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