If the market were a glass of water, it is definitely not half-empty, but it sure ain't half-full, either, at least not in the third quarter.

The market is flat out dry to the last drop. "This 2-1/2-year decline has been the longest decline in time," said Don Cassidy, senior research analyst with Lipper of New York. "Virtually no customers of the fund industry have ever gone through a long bear market like this."

In the worst quarter since the crash of 1987, both the Dow and the S&P 500 lost 18%, and the Nasdaq 100 was down 21% Those who couldn't take the losses sold. "Pretty much everybody who could be scared out, got out. That usually defines where a market begins to make a base," Cassidy said.

"Right now, investors are turned off," Cassidy continued. In fact, most new investments have gone into bonds or bank CDs rather than mutual funds, even money market funds, Cassidy said [see MFMN 9/9/02]. "That's money that the fund industry needs to win back eventually," Cassidy said.

The only fund category, of the 41 categories that Lipper tracks, to finish the third quarter in positive territory was bear funds. This includes hedged funds and market-neutral funds.

Preliminary Lipper data through Sept. 26, shows equity funds off nearly 15%, on track to their third-worst quarter since the crash of 1987, and only following last year's third quarter and the third quarter of 1990.

Nearly nine out of every 10 Lipper equity classifications posted double-digit losses during the quarter.

Even value funds, off 15.4%, are on their way to their worst calendar quarter since the third quarter of 1998.

July Meltdown

"It was a very sweeping decline, particularly in July in those couple weeks ending the 23rd, Cassidy said of the overall market. "In that little meltdown, investors threw everything out. People were just saying, Sell!' REITs took in about 20% in, like, 10 days. Everything else was thrown out indiscriminately.

"We had record outflows in equity funds in July. That was probably a classic selling climax."

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