news.ft.com By Lauren Foster and Julie Earle Published: February 26 2003 20:21 | Last Updated: February 26 2003 20:21

These are unsettling times. US investor optimism fell to the lowest level in at least seven years this month and consumer confidence dropped to a nine-year low, both on fears of war with Iraq.

Last month, nervous equity fund investors withdrew $1bn more than they invested - the first January outflow for equity funds in more than a decade.

Adding fear to already jittery war nerves, Iraq released new information on its weapons of mass destruction, including a biological bomb. The disclosure further divided the United Nations Security Council over whether to back a US-led war against Iraq, which Washington is expected to be preparing for mid- to late-March.

Many investors are wondering if they should head for the exits. Vanguard, the second largest mutual fund firm, says it has had a significantly higher number of calls in recent weeks from investors worried about war and the economy.

So what could happen in the markets if war breaks out?

If the conventional wisdom holds true, war is good for stocks and the economy. Historically, stocks tend to fall in the run-up to war as investors reduce their holdings and allocate funds to "safer" or less-risky investments, such as Treasury bonds or gold. When the bombs start to fall, the saying goes, stocks rally. The adage is: "Buy on the sound of gunfire."

While many people believe this scenario will play out if the second Bush/Saddam showdown takes place, sceptics caution that Iraq is not the only reason behind the recent market malaise and once the war factor is out of the way, investors will once again have to confront the bleak underlying US and global economy.

In the three days following Iraq's invasion of Kuwait the Dow Jones Industrial Average dropped 6.31 per cent.

As the US began gearing up for Operation Desert Storm, stocks started climbing. Within four weeks of the campaign, the Dow gained 17 per cent.

"Once the war starts, it is not unreasonable to expect that investors could start betting on a favourable outcome. After all, the US is hardly the underdog. A quick decisive victory would create at least a temporary big rally," says Alexander Paris, chief economist at Barrington Research Associates, a brokerage and research firm.

But there are caveats: the success of the initial operations, the length of the war and whether the US is in Iraq as part of broad-based coalition that has the support of the international community or not.

"It is clearly different this time around," says Joseph Keating, chief investment officer of AmSouth Funds, referring to the Gulf war, which started in January 1991. "The last time, the US was pushing Iraqi forces out of Kuwait whereas now the effort is to bring about a regime change - this is a different ball game."

Providing there is a quick, successful turn of events, there should be a broad rally in the equity markets. "There is a lot of money sitting on the sidelines. There is a buyer strike out there right now," says Mr Keating. "Investors are waiting to get in."

Phil Dow, market strategist at RBC Dain Rauscher, cautions that investors should not expect "bluebirds and rainbows" once the war fears are taken out of the market. There is still North Korea, he says.

While stocks have been hammered, the debt market has remained strong. Frazzled investors have poured money into bond funds, which have had record inflows. But there is concern now that the bond market may fall apart because bond prices have gone up sharply, and their yields are falling.

US Treasuries, a traditional haven, would likely face a sell-off after the start of the war.

Gold funds have also seen strong inflows as the metal is often viewed as a hedge against war and other potential crises. But once the war is under way, the gold price is expected to fall.

The price of gold soared amid the panic buying just after the start of the Gulf war but fell when it was clear the war was going in the US's favour.

As for the oil price, that, too, should drop. In the last Iraq conflict, oil soared after Iraq's invasion of Kuwait but fell sharply once the war began.

In today's prices, the cost of a barrel of oil jumped from $23 in July 1990 to an average of $47 in October 1990. By February 1991, with the war under way, it was down to $25.

Mr Paris believes that if the war is concluded successfully - and Venezuela's production is back on track - the price of oil could be around $20 by the end of the year. "There is a war premium in oil prices," he says. "Take out the war and you take out the premium."

If Saddam Hussein uses a "scorched earth policy" and sets fire to the oil fields, the price of crude would soar. Some analysts are discounting a worse scenario: that the Iraqi leader could use dirty bombs to destroy the oil fields.

And what if the US goes into Iraq with only Britain and Spain on its side? Or Mr Hussein uses weapons of mass destruction? Or the conflict drags on?

"If the war goes badly, the West fractures and the Middle East explodes, obviously it will create more uncertainty and further disrupt economic activity and world trade," says Barton Biggs, global strategist at Morgan Stanley, in a research note.

"The price of oil will soar, delivering a lethal blow to the world economy. The result will be a worldwide recession and new lows in the stock markets. Cash, government bonds and gold will be the safe havens in a dark and dangerous world."

www.businesswire.com BW5819 FEB 24,2003 15:26 PACIFIC 18:26 EASTERN Business Editors     --(BUSINESS WIRE)--

    TOPIC: According to the Lundberg Survey, the average price of a gallon of gasoline has increased 7 cents in the past two weeks, as reported by CNN.com. The survey found that Americans are currently paying an average of $1.66 per gallon of self-serve regular, while two weeks ago they were paying $1.59. Experts believe that concerns over a war with Iraq and the oil industry strike in Venezuela have contributed to higher gas prices. Experts also cite domestic factors such as the extreme cold weather, especially in the Northeast, has increased the demand of heating oil, which is made from crude oil.

EXPERTS: ExpertSource can offer several highly qualified experts to comment on this story: Jim Gagne is the chief communications officer for Wayne, PA-based Planalytics, which helps companies make more effective and profitable decisions by forecasting weather-driven changes in supply, demand and prices for products and services. Companies in all industries use Planalytics' technologies to avoid squandered opportunities and poor financial results caused by the unanticipated impact of weather volatility. Planalytics provides additional vital future intelligence into supply chain planning, quantifying how, where, and when weather will affect supply and demand for specific products and services. Planalytics experts can comment on consumer motivation and behavior, forecasting consumer demand, retail sales trends, holiday sales, and the effect of weather on sales and the economy, natural gas demand and prices, and electric power demand. 610-407-2956, jg_gagne@yahoo.com

    Dr. Dennis Jay O'Brien, of the Institute for Energy Economics and Policy, can discuss oil and gas market analysis and energy economics. 405-325-3821, 405-325-0311 (University PR Phone)

    Professor Arlon R Tussing, of the University of Alaska Anchorage Institute of Social and Economic Research, is an expert on subjects such as economics, gas and electrical industries of North America. 206-275-0665 or 907-786-7710

    ExpertSource cannot guarantee the immediate availability of these experts or their familiarity with this specific issue.

    ExpertSource provides academic and industry experts to the media at no charge. Journalists are encouraged to submit queries to ExpertSource when seeking experts on specific subjects. An online registration form is available at www.businesswire.com.

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reuters.com Mon February 24, 2003 12:31 PM ET (Clint Willis is a freelance writer who covers mutual funds for Reuters. Any opinions in the column are solely those of Mr. Willis.) By Clint Willis

BOSTON, Feb 24 (Reuters) - Mutual funds are not as well-liked as they were during the bull market, and some funds are downright detested. But the latter may offer the best opportunities for gains in the years ahead.

Chicago fund research company Morningstar, Inc. recently published results of its annual look at the market's most popular and unpopular fund groups. Over the years, the study has shown that investors who buy the least popular fund sectors often end up with market-beating returns.

Here's how the study works: Each January, Morningstar identifies the stock-fund categories that have attracted the largest cash inflows as well as the categories that have experienced the largest outflows during the previous calendar year. That done, they track the performance of both categories over the following three years. Then they compare results of the least- and most-popular categories.

Wouldn't you know it? Since 1987, the most hated fund groups have outperformed the most loved groups 90 percent of the time. Better yet, the unloved funds have outpaced the average equity fund 75 percent of the time.

For example, Morningstar analyst Josie Raney notes that 1999's least-popular funds came in these three groups: precious metals, Latin American stock, and convertibles. Investors abandoned those funds to buy red-hot technology funds. What happened? The unloved funds from that year have gained 0.54 percent annually on average in the last three years. That compares to an average annual loss of 26 percent on average for 1999's three most popular fund groups: technology, Pacific Asia ex-Japan stock and Japan stock.

Why do unpopular groups tend to outperform? One reason is that investors overreact to both good and bad news. As a result, the most popular sectors attract floods of money that drive share prices up to unsustainable heights. Meanwhile, share prices in unpopular groups often fall to levels that more than reflect any temporary problems in a sector. The result: bargains for contrary minded investors.

Bear in mind that a battered sector may be in for more trouble before it rebounds. Right now, investors are looking askance at utility funds due to heavy debt and excess competition, especially in the beleaguered telecommunications sector. Stock funds that invest in Latin American markets have been hit hard by political and economic problems in countries such as Venezuela and Brazil. Funds that invest in the financial services industry have suffered due to financial weakness and scandals in the brokerage and banking businesses.

It's not hard to make a case that such funds will continue to perform poorly in the immediate future. What's more, unpopular groups don't always bounce back strongly, even over longer periods. The superior returns earned by 1999's wallflowers have been driven largely by precious metals funds, up 17.0 percent annually during the three years through 2002. The other two unpopular groups have not done nearly as well. Funds that invest in Latin America lost 13.7 percent during that period, while convertible funds lost 5.3 percent. Those returns compare with an 10.4 percent loss for the average domestic equity fund.

Conclusion: A blindly contrarian approach doesn't always work -- especially not in the short run. One approach is to buy a mix of funds. Morningstar recommends dividing a modest sum -- less than 5 percent of your portfolio -- among shares from three funds: one each from the three unpopular groups.

Also be sure that you are willing to hold those shares for at least a few years, to allow time for a turnaround in the sectors. And if possible, make your trades in the shelter of an IRA or other tax-advantaged account. That way, you won't have to worry about capital gains taxes and the like when you trade.

Interested in trying the strategy? Morningstar recommends several funds in the current unloved groups: financial services, utilities and Latin American funds. Their favorites include T. Rowe Price Financial Services (down 10.1 percent in 2002), MFS Utilities (down 24.3 percent) and T. Rowe Price Latin America (down 18.1 percent).

www.guelphmercury.com Monday February 23, 2003 - 12:25:08 EST CP Archive

Canadians are facing sticker shock on a slew of products, from gasoline to heating costs, bread, milk and other basic grocery items, and it could put a deep dent in their budgets. (CP Archive)TORONTO (CP) - Canadians are facing sticker shock on a slew of products, from gasoline to heating costs, bread, milk and other basic grocery items, and it could put a deep dent in their budgets.

Gas pump prices are already at 90 cents a litre in some parts of the country and the rising crude oil price to more than $35 US a barrel - related to war fears and Venezuela's general strike - has caused a spike in home heating fuel during what's been a bitterly cold winter across most of Canada.

Natural gas prices are also on the rise.

Now skyrocketing transport costs are trickling into the prices consumers pay for products such as fruits and vegetables that get shipped into and across the country. And last year's drought has put upward pressure on grain prices.

That affects livestock feed costs and flour prices, which in turn boosts the cost of bread and meat.

Car-loving Canadians traditionally gripe about the cost of gasoline, but with pump prices edging ever closer to the dreaded $1-a-litre level, there's good reason.

For some, that means the car will have to be left in park.

"I'm on a very strict budget and, because of that, I can only spend $40 a month on gas," said Dave Steeves, who works at a communications company in Toronto.

Because of rising fuel prices - adding $10 to $15 to the cost of filling up his car, "now what's going to happen is I'm not going to use the car," he said.

Last month the car sat idle for the final two weeks of the month because it had guzzled up its budgeted quota, Steeves said. That will likely happen this month too, he added, which is a frustrating situation.

As a result, Steeves is walking to get groceries and to take his two children places. And he's relying on friends to help him get to work and his hockey games.

"If I vary from (my budget), then something else won't get paid," he said, adding that although the government could shift taxes away from gasoline, it would just show up somewhere else.

As for the cost of groceries, "what else can you do but suck it up and move on?" he commented.

So far, prices on fruits and vegetables haven't gone up much, but that's expected to change if gasoline prices stay at elevated levels.

Ralph Boyd of the Atlantic Provinces Trucking Association said prices of fresh fruit and vegetables from California, Florida and the southern states will rise most quickly and most steeply, "simply because transportation is a large part of the cost of those goods."

Boyd said there's a looming crisis in Atlantic Canada because few trains come to the region and air freight is uneconomical, so trucks account for about 95 per cent of consumable goods brought into the area.

Earlier this month, gasoline prices took a hike of 12 to 13 cents a litre across New Brunswick, the largest increase in the country. It's only a matter of time before those higher bills get passed down the line.

"We can't absorb those costs. We have no choice but to pass them on to the users of our service," Boyd said.

Although grocers try to keep those price spikes from hitting the shelves immediately, it's impossible to remain in business without charging more when costs escalate, said Mike Apostolou, the manager at Sun Valley Fine Foods in Toronto.

"The companies have to raise their prices sooner or later," he said. "Some try to hold off as much as possible but it comes to a point where they say, 'We're going to go belly-up if we don't raise it.' "

In recent months the cost of milk, cream, flour, cookies, bread and related products, has risen, Apostolou said.

"The consumer is going to be spending more money to buy staple items like milk, eggs, juice, bread."

Bread prices are up about a nickel or so per loaf, although that depends on the product, said Geoff Wilson, a spokesman for grocery giant Loblaw Co. and breadmaker Weston, an affiliate company. But producers have been trying to keep costs from hitting product prices, he said.

On Friday, Maple Leaf Foods reported lower fourth-quarter profits partly because of higher feed costs for its meat operations. Meanwhile, its Canada Bread bakery division - which makes the Dempster's, Olivieri and Tenderflake brands - passed on wheat price increases to its customers.

Pete Luckett, the Cockney grocer who transformed a small fruit and vegetable operation into a popular Atlantic Canada chain, said he's trying to hold off raising prices to deal with higher transport costs.

But "if it continues to go crazy, it has to happen sometime," he said.

Although customers say higher costs haven't shown up in a major way at the market, they expect the price shock to come soon. And when fruits and vegetables get too pricey, "I just won't buy them," said Halifax shopper Lynn Brooks,

A price crunch will force her and her neighbours to make tough choices in their shopping and eating patterns, she said, by using frozen vegetables or simply not buying items when the price skyrockets.

"When lettuce went up to over $2 a head last year, I didn't buy it unless it was a treat."

The rising food bill for others has meant cutting back on other areas.

Chris Lee, a construction worker in Vancouver, said he has to eat properly, so his social life suffers when food costs soar.

"More money on food means less cash on the weekends. I stay home more," he said. "I do drive to work and, yeah, after groceries and gas there's not much left for the weekend."

Facts about recent price increases:

Energy prices: Up 7.1 per cent in December 2002, compared with December 2001, according to Statistics Canada's consumer price index. In November, the increase was 14 per cent. In December, gasoline prices rose 20.8 per cent and fuel oil prices increased 17.2 per cent.

Gasoline prices: Canada's average regular gasoline price topped 82 cents a litre last week. In 2001, the low was 55.9 cents, the high 80.4 cents. In 2002, the Canadian average ranged from a low of 56.4 cents to a high of 75.5 cents, says research by MJ Ervin & Associates.

Food prices: In December, fresh vegetable prices soared five per cent, mainly due to a big jump in the cost of tomatoes and increased demand during the holidays.

Food prices rose on average 2.6 per cent in 2002 after a 4.5 per cent increase in 2001. The increases in 2002 were due to higher costs for fresh vegetables, especially potatoes, milk products, bakery products, beef and fresh fruit, says Statistics Canada.

Grain prices: Have been rising since the middle of last year after the drought in Canada, the United States and Australia caused grain stocks to drop substantially. In 2002, wheat prices rose by 12 per cent. When prices peaked in September 2002, they were up 49 per cent year-over-year, says Kenrick Jordan, a senior economist with BMO Financial Group, who tracks agriculture product prices.

BMO forecasts that these prices will continue to rise, up about 15 per cent this year.

Dairy prices: Higher feed and fuel prices have led to an increase in the price of dairy products. The Canadian Dairy Commission increased its support prices for milk producers, a price used to determine the price of fluid milk, so their return is expected to rise by 3.9 per cent to deal with higher costs. In 2001, the support price increased and was expected to increase the dairy farmers' return by 1.7 per cent.

Here are some comments from consumers about how higher gas, heating, and food prices are affecting them:

"I don't buy many packaged foods any more, like pre-made salad or fancy biscuits. It would be nice to, but on a fixed income you have to be very careful. And I live on my own, so everything is so expensive. It's a worry, so you just buy basics, milk and bread." - Beth Doe, a widow living on a pension in the west end of Vancouver.

"Well living downtown, rent is so much higher, so I do have to cut back on my groceries quite a bit. I share costs with my roommates, but it still seems horrendous. If I didn't work in a restaurant on the weekends how would I be able to afford this bag of groceries . . . this bag cost over $30. Yikes. How did it get to be that high? One bag?" - Lisa McIntyre, a student in Vancouver.

"Heating costs, I've noticed, especially with this winter. It's been brutal. But you just have to bite the bullet and hope it ends soon." - Sonia Haynes, an account manager with an insurance firm in Toronto, who says gas prices are "ghastly" but she's fortunate that most of those costs are covered by her company as part of her job.

new.stockwatch.com 2003-02-24 10:47 ET - News Release

HOUSTON, Feb. 24 /PRNewswire-FirstCall/ -- Harvest Natural Resources, Inc. will release its 2002 fourth quarter operational and financial results before the market opens on Thursday, February 27, 2003.

The Company will hold a conference call at 10:00 a.m. Central Time on Thursday, February 27, 2003, during which management will discuss the Company's 2002 fourth quarter results. The conference leader will be Dr. Peter J. Hill, President and Chief Executive Officer. To access the conference call, dial 785-832-1077 five to ten minutes prior to the start time. A recording of the conference call will also be available for replay at 402-220-1115 until March 6, 2003.

The conference call will also be transmitted over the Internet through the Company's web site at www.harvestnr.com or www.firstcallevents.com . To listen to the live webcast, enter the web site fifteen minutes before the call to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay of the webcast will be available beginning shortly after the call, and will remain on the web site for approximately 90 days.

Harvest Natural Resources, Inc. headquartered in Houston, Texas, is an independent oil and gas exploration and development company with principal operations in Venezuela and Russia. For more information visit the Company's website at www.harvestnr.com .

CONTACT: Steven W. Tholen Senior Vice President, Chief Financial Officer (281) 578-8020

This press release may contain "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this release may constitute forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from the Company's expectations due to changes in operating performance, project schedules, oil and gas demands and prices, and other technical and economic factors. Audio: www.firstcallevents.com Natural Resources, Inc.

CONTACT: Steven W. Tholen, Senior Vice President, Chief Financial Officer of Harvest Natural Resources, Inc., +1-281-578-8020

Web site: www.harvestnr.com